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, 2006

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) (Zip Code)

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

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” in 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 24,645,853 shares of the registrant’s Common Stock outstanding on March 19, 2006.

EXPLANATORY NOTE

In this Form 10-Q, Rural/Metro Corporation (the “Company”) is restating its consolidated financial statements for the three- and six- month periods ended December 31, 2005. This Form 10-Q also reflects the amendment of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in the Company’s Form 10-Q for the quarter ended December 31, 2005, as it related to the period ended December 31, 2005.

On February 14, 2007, the Company filed its Current Report on Form 8-K with the Securities and Exchange Commission (“SEC”) in which it announced that it was restating previously reported financial statements to correct certain accounting practice errors relating to its inventory. As more fully described in Note 3 of the financial statements, the Company has determined that certain durable medical supply items should not be classified as inventory.

During the quarter ended December 31, 2006, and as more fully described in Note 2 of the financial statements, the Company changed its accounting policy relating to the classification of estimated uncollectible amounts related to self-pay patients. This change in accounting policy was applied retrospectively in accordance with Statement of Financial Accounting Standards Board (“SFAS”) Statement 154, “Accounting Changes and Error Corrections” (“SFAS 154”). The Company now reflects revenue net of estimated uncompensated care, and this Form 10-Q reflects such change. Previously, the Company recorded revenue at full established rates and recorded a provision for estimated amounts not expected to be realized as an operating expense. The restated financial statements resulting from this change in accounting policy do not change the previously reported operating income, net income, earnings per share, and operating cash flows. See Notes 2 and 3 of the financial statements for the amended results relating to the change in accounting policy relating to the classification of estimated uncollectible amounts related to self-pay patients and the restated results relating to the correction of certain accounting practice errors relating to inventory.

Due to the restatement of the financial statements, the Company did not timely file this Form 10-Q, as disclosed on Form 12b-25 filed on February 12, 2007. As a result, the Company received a notice of default on February 22, 2007 from the trustee of its 9.875% Senior Subordinated Notes due 2015, and its 12.75% Senior Discount Notes due 2016. Any default under the Indentures that govern the notes also constitutes an “event of default” under the Company’s 2005 Credit Facility and could lead to an acceleration of the unpaid principal and accrued interest under the 2005 Credit Facility, unless a waiver is obtained. On March 13, 2007, the Company obtained a waiver of any defaults, including the event of default described above, under its 2005 Credit Facility. In addition, any default under the notes relating to the untimely filing of this Form 10-Q, will be cured within the 60-day cure period (expires April 23, 2007) upon the filing of this Form 10-Q with the SEC. Any or all forward-looking statements relating to the default made in this Form 10-Q (and in any other public filings or statements we might make) may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Accordingly, except to the extent required by applicable law, we undertake no duty to update the forward-looking statements made in this Report on Form 10-Q.

Item 4 of this Form 10-Q describes management’s evaluation of its disclosure controls and procedures and internal control over financial reporting as of December 31, 2006.

On or about the same date that this Form 10-Q is filed, the Company is filing amended Quarterly Reports on Form 10-Q/A for the quarters ended March 31, 2006 and September 30, 2006, and an amended Annual Report on Form 10-K/A for the fiscal year ended June 30, 2006, each of which will contain restated financial information.

2

RURAL/METRO CORPORATION

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

DECEMBER 31, 2006

			Page
Part I.	Financial Information
	Item 1.	Financial Statements (unaudited):
		Consolidated Balance Sheet	4
		Consolidated Statement of Operations	5
		Consolidated Statement of Changes in Stockholders’ Deficit	6
		Consolidated Statement of Cash Flows	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	64
	Item 4.	Controls and Procedures	64
Part II.	Other Information		66
	Item 1.	Legal Proceedings	66
	Item 1A.	Risk Factors	66
	Item 4	Submission of Matters to a Vote of Security Holders	74
	Item 5	Other Information	75
	Item 6.	Exhibits	76
	Signatures		77

3

Part I. Financial Information

Item 1. Financial Statements

RURAL/METRO CORPORATION

CONSOLIDATED BALANCE SHEET

(unaudited)

(in thousands, except share data)

	December 31, 2006			June 30, 2006 (As restated)
ASSETS
Current assets:
Cash and cash equivalents	$	7,799		$	3,041
Short-term investments		—			6,201
Accounts receivable, net		86,556			83,367
Inventories		9,332			8,828
Deferred tax assets		7,514			9,574
Prepaid expenses and other		6,099			3,698
Total current assets		117,300			114,709
Property and equipment, net		47,565			45,970
Goodwill		38,362			38,362
Deferred tax assets		69,308			71,051
Insurance deposits		1,928			2,842
Other assets		18,299			23,454
Total assets	$	292,762		$	296,388
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	14,821		$	13,957
Accrued liabilities		37,087			38,590
Deferred revenue		21,233			21,342
Current portion of long-term debt		38			37
Total current liabilities		73,179			73,926
Long-term debt, net of current portion		288,089			291,337
Other liabilities		21,866			25,332
Total liabilities		383,134			390,595
Minority interest		2,540			2,065
Stockholders’ deficit:
Preferred stock, $0.01 par value, 2,000,000 shares authorized, zero shares issued and outstanding at both December 31, 2006 and June 30, 2006		—			—
Common stock, $0.01 par value, 40,000,000 shares authorized, 24,600,810 and 24,495,518 shares issued and outstanding at December 31, 2006 and June 30, 2006, respectively		246			245
Additional paid-in capital		154,266			153,955
Treasury stock, 96,246 shares at both December 31, 2006 and June 30, 2006		(1,239	)		(1,239	)
Accumulated deficit		(246,185	)		(249,233	)
Total stockholders’ deficit		(92,912	)		(96,272	)
Total liabilities, minority interest and stockholders’ deficit	$	292,762		$	296,388

See accompanying notes

4

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005 (As restated)			2006			2005 (As restated)
Net revenue	$	116,941		$	113,396		$	233,782		$	224,729
Operating expenses:
Payroll and employee benefits		72,429			66,832			145,370			132,751
Depreciation and amortization		3,007			2,807			6,027			5,528
Other operating expenses		30,409			30,266			59,033			60,090
(Gain) loss on sale of assets		11			35			8			(1,307	)
Total operating expenses		105,856			99,940			210,438			197,062
Operating income		11,085			13,456			23,344			27,667
Interest expense		(7,986	)		(7,748	)		(15,771	)		(15,256	)
Interest income		140			172			260			325
Income from continuing operations before income
taxes and minority interest		3,239			5,880			7,833			12,736
Income tax provision		(2,126	)		(2,412	)		(4,180	)		(5,916	)
Minority interest		(201	)		(153	)		(974	)		(315	)
Income from continuing operations		912			3,315			2,679			6,505
Income (loss) from discontinued operations, net of income taxes		383			(459	)		369			(70	)
Net income	$	1,295		$	2,856		$	3,048		$	6,435
Income per share
Basic-
Income from continuing operations	$	0.04		$	0.14		$	0.11		$	0.27
Income (loss) from discontinued operations		0.01			(0.02	)		0.01			(0.00	)
Net income	$	0.05		$	0.12		$	0.12		$	0.27
Diluted-
Income from continuing operations	$	0.04		$	0.13		$	0.11		$	0.26
Income (loss) from discontinued operations		0.01			(0.02	)		0.01			(0.01	)
Net income	$	0.05		$	0.11		$	0.12		$	0.25
Average number of common shares outstanding—Basic		24,581			24,330			24,546			24,281
Average number of common shares outstanding—Diluted		25,011			25,298			24,953			25,280

See accompanying notes

5

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

(unaudited)

(in thousands, except share amounts)

	Number of Shares	Common Stock		Additional Paid-in Capital			Treasury Stock			Accumulated Deficit (As restated)			Total (As restated)
Balance at June 30, 2006, as previously reported	24,495,518	$	245	$	153,955		$	(1,239	)	$	(246,433	)	$	(93,472	)
Adjustment due to inventory correction (See Note 3)	—		—		—			—			(2,800	)		(2,800	)
Balance at June 30, 2006, as restated	24,495,518		245		153,955			(1,239	)		(249,233	)		(96,272	)
Issuance of common stock due to options exercised under Stock Option Plans	105,292		1		225			—			—			226
Tax benefit from options exercised under Stock Option Plans	—		—		93			—			—			93
Stock-based compensation benefit	—		—		(7	)		—			—			(7	)
Comprehensive income, net of tax:
Net income	—		—		—			—			3,048			3,048
Comprehensive income														3,048
Balance at December 31, 2006	24,600,810	$	246	$	154,266		$	(1,239	)	$	(246,185	)	$	(92,912	)

See accompanying notes

6

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

(in thousands)

	Six Months Ended December 31,
	2006			2005 (As restated)
Cash flows from operating activities:
Net income	$	3,048		$	6,435
Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization		6,028			5,720
Accretion of 12.75% Senior Discount Notes		3,772			3,349
Deferred income taxes		3,803			5,302
Insurance adjustments		(3,128	)		(2,387	)
Amortization of deferred financing costs		1,007			1,100
Undistributed earnings of minority shareholder		975			315
Gain on sale of property and equipment		(667	)		(1,307	)
Stock-based compensation (benefit) expense		(7	)		16
Change in assets and liabilities—
Accounts receivable		(3,189	)		(12,892	)
Inventories		(504	)		(142	)
Prepaid expenses and other		(2,401	)		2,368
Insurance deposits		914			1,779
Other assets		3,831			1,738
Accounts payable		762			(98	)
Accrued liabilities		(282	)		(6,196	)
Deferred revenue		(109	)		316
Other liabilities		(1,189	)		380
Net cash provided by operating activities		12,664			5,796
Cash flows from investing activities:
Sales of short-term investments		18,451			30,100
Purchases of short-term investments		(12,250	)		(37,700	)
Capital expenditures		(7,432	)		(9,096	)
Proceeds from the sale of property and equipment		687			1,559
Net cash used in investing activities		(544	)		(15,137	)
Cash flows from financing activities:
Repayment of debt		(7,019	)		(7,738	)
Distributions to minority shareholders		(500	)		(155	)
Issuance of common stock		226			595
Cash paid for debt issuance costs		(162	)		—
Tax benefit from the exercise of stock options		93			436
Net cash used in financing activities		(7,362	)		(6,862	)
Increase (decrease) in cash and cash equivalents		4,758			(16,203	)
Cash and cash equivalents, beginning of period		3,041			17,688
Cash and cash equivalents, end of period	$	7,799		$	1,485
Non-cash investing activities:
Property and equipment funded by liabilities	$	102		$	—

See accompanying notes

7

RURAL/METRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Rural/Metro Corporation, a Delaware corporation, along with 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. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all information and footnotes required by accounting principles generally accepted in the United States of America. In the opinion of management, the unaudited consolidated financial statements for the three and six months ended December 31, 2006 and 2005 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, 2006 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 Annual Report on Form 10-K/A filed with the Securities and Exchange Commission (“SEC”) on March 22, 2007.

(1) Significant Accounting Policies

Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. For a discussion of the change in accounting policy relating to the classification of estimated uncollectible amounts related to self-pay patients and the correction of certain accounting errors relating to inventory, see Notes 2 and 3, respectively. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, general liability and workers’ compensation claim reserves and deferred tax asset recoverability. We base our estimates on historical experience and various assumptions we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the following accounting policies as critical to understanding our results of operations. The discussion below is not intended to represent a comprehensive list of our accounting policies.

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. 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 in excess of cash on-hand are classified as accounts payable within the consolidated balance sheet and the change in the related balances is reflected in operating activities on the consolidated statement of cash flows.

8

Overdraft balances were $2.3 million and $1.3 million at December 31, 2006 and June 30, 2006, respectively, and were included in accounts payable in the Company’s consolidated balance sheet.

Short-term Investments

The Company’s short-term investments consist of taxable auction rate securities. Short-term investments totaled $0 and $6.2 million at December 31, 2006 and June 30, 2006, respectively. In accordance with Statement of Financial Accounting Standards (“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 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.

Reclassifications of Financial Information

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

Medical Transportation and Related Services Revenue Recognition

Medical transportation and related services fees are recognized when services are provided and are recorded net of discounts applicable to Medicare, Medicaid and other third-party payers and net of estimates for uncompensated care. Because of the length of the collection cycle with respect to medical transportation and related services fees, it is necessary to estimate the amount of these adjustments at the time revenue is recognized. The collectibility of these fees is analyzed using historical collection experience within each service area. Using collection data resident in our billing system, we estimate the percentage of gross medical transportation and related services fees that will not be collected and record provisions for both discounts and uncompensated care. The portion of the provision allocated to discounts is based on historical write-offs relating to such discounts as a percentage of the related gross revenue recognized for each service area. The ratio is then applied to current period gross medical transportation and related services fees to determine the portion of the provision that will be recorded as a reduction in revenue. The remaining amount of the provision is classified as uncompensated care If the historical data used to calculate these estimates does not properly reflect the ultimate collectibility of the current revenue stream, revenue could be overstated or understated. Discounts applicable to Medicare, Medicaid and other third-party payers related to continuing operations, which are reflected as a reduction of medical transportation and related services revenue, totaled $67.3 million and $132.9 million for the three and six months ended December 31, 2006, respectively and $61.3 million and $119.0 million for three and six months ended December 31, 2005, respectively.

Uncompensated care can be affected by a variety of factors, including the number of patients we transport that do not pay us for the medical services we provide, a sustained disruption in collections, and the quality of our billing documentation and procedures. The estimate for uncompensated care that is applied to gross medical transportation and related services fee revenue is calculated as the difference between the total expected collection percentage less contractual discounts described above. If historical data used to calculate these estimates do not properly reflect the ultimate collectibility of the current revenue stream, the estimate for uncompensated care may be overstated or understated. The estimate for uncompensated care on medical transportation revenue from continuing operations totaled $27.4 million and $54.7 million for the three and six months ended December 31, 2006, respectively and $23.4 million and $45.9 million for three and six months ended December 31, 2005, respectively.

9

Insurance Claim Reserves

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

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

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

Reserves related to workers’ compensation claims totaled $11.7 million and $13.7 million at December 31, 2006 and 2005, respectively. Reserves related to general liability claims totaled $16.5 million and $21.7 million at December 31, 2006 and 2005, respectively.

Deferred Tax Assets and Liabilities

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

Asset Impairment

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

10

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

(2) Revenue – Accounting Change

During the quarter ended December 31, 2006, the Company changed its accounting policy relating to the classification of estimated uncollectible amounts related to self-pay patients, defined as “uncompensated care.” This change in accounting policy was applied retrospectively in accordance with Statement of Financial Accounting Standards Board (“SFAS”) Statement No. 154, “Accounting Changes and Error Corrections.” The Company now presents revenue net of an estimate for uncompensated care within the Consolidated Statement of Operations. Previously the Company recorded revenue at full established rates and recorded a provision for estimated amounts not expected to be realized as an operating expense, as is generally accepted practice under the AICPA Guide, Accounting for Health Care Organizations (Guide). The Company believes that the new method of accounting is preferable given recent industry practice and the direction of deliberations relating to proposed revisions to the Guide related to revenue recognition for self-pay patients, and its consistency with the criteria for revenue recognition pursuant to Staff Accounting Bulletin No. 104. The retrospective application of this accounting change decreased net revenue and other operating expenses by $23.9 million and $46.7 million for the three and six months ended December 31, 2005, respectively. The change in accounting policy, retrospectively applied to the financial statements for the three months and six months ended December 31, 2005 did not change the previously reported income from continuing operations or net income. There was no material effect on cash flows from operating, investing or financing activities as a result of the change in accounting policy.

(3) Inventory Restatement—Correction

In connection with the preparation of the financial statements for the second quarter of fiscal 2007, management determined that inventory had been historically overstated by the improper inclusion of certain durable medical supply items that should have been expensed as incurred. Previously issued financial statements for the three- and six-months ended December 31, 2005 have been restated for the impact of expensing these items and resulted in an increase in net earnings of $89,000. The cumulative effect of this error on net income for all periods preceding fiscal 2007 was an increase in the accumulated deficit as of July 1, 2006 of $2.8 million. There was no material effect on cash flows from operating, investing or financing activities as a result of the adjustment to inventory.

11

The effects of the adjustment for inventory on the Company’s Consolidated Balance Sheet and Consolidated Statement of Operations for the three and six months ended December 31, 2005 and at December 31, 2005, respectively are as follows:

	Consolidated Balance Sheet
	June 30, 2006 As previously reported			Adjustments due to inventory correction			June 30, 2006 As restated
Inventories	$	13,135		$	(4,307	)	$	8,828
Current portion deferred tax assets		9,461			113			9,574
Prepaid expenses and other		3,702			(4	)		3,698
Total current assets		118,907			(4,198	)		114,709
Long-term portion deferred tax assets		69,657			1,394			71,051
Total assets	$	299,192		$	(2,804	)		296,388
Accumulated deficit		(246,433	)		(2,800	)		(249,233	)
Total stockholders’ equity (deficit)		(93,472	)		(2,800	)		(96,272	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	299,192		$	(2,804	)		296,388
	Consolidated Statement of Operations
	Three Months Ended December 31, 2005 As previously reported, adjusted for effect of revenue accounting change (Note 2)			Adjustments due to inventory correction			Three Months Ended December 31, 2005 As restated
Net revenue	$	113,396		$	—		$	113,396
Other operating expenses		30,403			(137	)		30,266
Total operating expenses		100,077			(137	)		99,940
Operating income		13,319			137			13,456
Income (loss) from continuing operations before income taxes and minority interest		5,743			137			5,880
Income tax (provision) benefit		(2,364	)		(48	)		(2,412	)
Income (loss) from continuing operations		3,226			89			3,315
Net income	$	2,767		$	89		$	2,856
Net income applicable to common stock	$	2,767		$	89		$	2,856
Basic earnings per share	$	0.11		$	0.01		$	0.12
Diluted earnings per share	$	0.11			—		$	0.11

12

	Consolidated Statement of Operations
	Six Months Ended December 31, 2005 As previously reported, adjusted for effect of revenue accounting change (Note 2)			Adjustments due to inventory correction			Six Months Ended December 31, 2005 As restated
Net revenue	$	224,729		$	—		$	224,729
Other operating expenses		60,227			(137	)		60,090
Total operating expenses		197,199			(137	)		197,062
Operating income		27,530			137			27,667
Income (loss) from continuing operations before income taxes and minority interest		12,599			137			12,736
Income tax (provision) benefit		(5,868	)		(48	)		(5,916	)
Income (loss) from continuing operations		6,416			89			6,505
Net income	$	6,346		$	89		$	6,435
Net income applicable to common stock	$	6,346		$	89		$	6,435
Basic earnings per share	$	0.26		$	0.01		$	0.27
Diluted earnings per share	$	0.25			—		$	0.25

(4) New Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for the Company in the first quarter of fiscal 2008. The Company is currently evaluating the impact, if any, the adoption of FIN 48 will have on its consolidated financial statements and related disclosures.

In September 2006, the FASB issued SFAS Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosure about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for the Company in the first quarter of fiscal 2009. The Company is currently evaluating the impact, if any, the adoption of SFAS 157 will have on its consolidated financial statements and related disclosures.

In September 2006, the FASB issued SFAS Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106, and 132R” (“SFAS 158”). This standard requires balance sheet recognition of the funded status for all pension and postretirement benefit plans in the year in which the changes occur through accumulated other comprehensive income. Additionally, this standard requires the measurement of the funded status of a plan as of the end of the employer’s fiscal year. The balance sheet recognition provisions of SFAS 158 are effective for the Company as of June 30, 2007 while the measurement date provisions are effective for the Company for the fiscal year ended June 30, 2009. As further discussed in Note 14 to our consolidated financial statements, the Company has a defined benefit pension plan that will be

13

subject to the provisions of SFAS 158. As of December 31, 2006, the Company’s defined benefit pension plan was overfunded. The Company is currently evaluating the impact, if any, the adoption of the balance sheet recognition provisions of SFAS 158 will have on its consolidated financial statements and related disclosures. As the Company currently measures the funded status of its plan as of the end of its fiscal year, the measurement date provisions will have no impact on its consolidated financial statements and related disclosures.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). This statement provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of materiality assessment. For prior year immaterial misstatements that are considered material under SAB 108, a one-time transitional cumulative adjustment would be made to beginning retained earnings in the first interim period in which the statement is adopted. SAB 108 is effective for the Company on June 30, 2007.

In November 2005, the FASB issued Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards” (“FSP 123(R)-3”). Under the provisions of FSP 123(R)-3, entities may follow either the transition guidance for the additional-paid-in-capital pool as prescribed by SFAS 123(R) or elect to use the alternative transition method as described in FSP 123(R)-3. 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 FSP 123(R)-3. The Company elected to use the alternative transition method provided in FSP 123(R)-3 to calculate the pool of windfall tax benefits as of the adoption date of SFAS 123(R).

(5) Stock Based Compensation

At December 31, 2006, 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, which provided for the issuance of stock options to employees and non-employees, including executive officers and the Board of Directors, expired on November 5, 2002. The 2000 Plan, which provides for the issuance of stock options to employees and non-employees, excluding executive officers and the Board of Directors, had 480,664 common shares available for issuance at December 31, 2006.

The Company recognized $0 and $7,000 of stock based compensation benefit in the statement of operations for the three and six months ended December 31, 2006. The Company recognized approximately $7,000 and $16,000 of stock based compensation expense for the three and six months ended December 31, 2005, respectively. At December 31, 2006, there were no remaining unvested awards under either stock compensation plan. Upon an option grant, 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 three and six months ended December 31, 2006.

(6) Accrued Severance

At December 31, 2006, the Company had approximately $1.0 million in accrued severance benefits pursuant to an employment agreement with the Company’s former Chief Financial Officer. Approximately $1.1 million is included in payroll and employee benefits expense in the consolidated statement of operations for the six months ended December 31, 2006.

14

(7) General Liability and Worker’s Compensation Plans

General Liability

The Company maintains insurance policies for comprehensive 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 claims are obtained.

The Company engaged its independent actuaries to perform updated valuations of its related claim reserves during the six month periods ended December 31, 2006 and 2005. Based on these analyses, the Company reduced its general liability claim reserves by $0.4 million during the second quarter of fiscal 2007 and increased its general liability claim reserves by $0.2 million during the second quarter of fiscal 2006. The related benefit and expense is reflected in other operating expenses for the three and six months ended December 31, 2006 and 2005, respectively.

Workers’ Compensation

The Company maintains insurance policies for workers’ compensation and employer’s liability. The Company is required by law to maintain 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 claims are obtained. These adjustments may be reflected as changes to the Company’s reserve liabilities or collateral deposit assets.

The Company engaged its independent actuaries to perform updated valuations of its related claim reserves during the six month periods ended December 31, 2006 and 2005. Based on these analyses, the Company reduced its workers’ compensation claim reserves by $3.1 million and $1.5 million during the second quarters of fiscal 2007 and 2006, respectively. The related benefit is reflected as a reduction of payroll and employee benefits for the three and six months ended December 31, 2006 and 2005, respectively.

Additionally, the Company recognized estimated premium refunds and reserve adjustments totaling $0.4 million as an increase to payroll and employee benefits and a decrease to other assets for the three and six months ended December 31, 2006, and $1.1 million as a reduction of payroll and employee benefits for the three and six months ended December 31, 2005 based upon an updated loss assessment prepared by its independent actuaries. Of the $1.1 million recognized during the second quarter of fiscal 2006, $0.8 million pertained to policy years ended April 30, 2004 and 2003 and was reflected as an increase in other assets and 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.

15

(8) Long-term Debt

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

	December 31, 2006			June 30, 2006
Senior Secured Term Loan B due March 2011	$	100,000		$	107,000
9.875% Senior Subordinated Notes due March 2015		125,000			125,000
12.75% Senior Discount Notes due March 2016		62,942			59,170
Other obligations, at varying rates from 6.0% to 12.75%, due through 2013		185			204
Long-term debt		288,127			291,374
Less: Current maturities		(38	)		(37	)
Long-term debt, net of current maturities	$	288,089		$	291,337

The Senior Secured Term Loan B due March 2011 (the “Term Loan B”) bears interest at LIBOR plus 2.25 percent per annum based on contractual periods from one to six months in length at the Company’s option. At December 31, 2006, $85.0 million of the outstanding Term Loan B balance was under a LIBOR option six-month contract accruing interest at 7.61 percent per annum, while the remaining $15.0 million was under a LIBOR option three-month contract accruing interest at 7.62 percent. At June 30, 2006, $97.0 million of the outstanding Term Loan B balance was under a LIBOR option six-month contract accruing interest at 7.50 percent per annum, and the remaining $10.0 million outstanding was under a LIBOR option three-month contract accruing interest at 7.40 percent.

The Company has capitalized $13.5 million of expenses associated with its outstanding debt and is amortizing these costs as interest expense over the terms of the respective agreements. Unamortized deferred financing costs were $9.9 million and $10.8 million at December 31, 2006 and June 30, 2006, respectively, and are included in other assets in the consolidated balance sheet.

On November 8, 2006, 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. In connection with this payment, the Company wrote-off approximately $0.2 million of deferred financing costs during the second quarter of fiscal 2007. Rural/Metro LLC has made inception-to-date unscheduled principal payments totaling $35.0 million, and may, from time to time, make additional unscheduled principal payments at its discretion.

At December 31, 2006, the Company had $39.0 million issued under its $45.0 million Letter of Credit Facility, primarily in support of insurance deductible arrangements. In addition, the Company’s $20.0 million Revolving Credit Facility, which includes a letter of credit sub-line in the amount of $10.0 million, was undrawn at December 31, 2006.

The senior secured credit facilities (collectively, the “2005 Credit Facility”), the $125.0 million aggregate principal amount 9.875% senior subordinated notes due 2015 (the “Senior Subordinated Notes”) and the $93.5 million aggregate principal amount at maturity 12.75% senior discount notes due 2016 (the “Senior Discount Notes”) include various financial and non-financial covenants as well as quarterly and annual financial reporting obligations.

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

16

The Company was in compliance with all of its covenants, as amended, under its 2005 Credit Facility at December 31, 2006. Due to the restatement of the financial statements, we did not timely file this Quarterly Report on Form 10-Q for the quarter ended December 31, 2006, as disclosed on Form 12b-25 filed on February 12, 2007. As a result, we received a notice of default on February 22, 2007 from the trustee of its 9.875% Senior Subordinated Notes due 2015, and its 12.75% Senior Discount Notes due 2016. Any default under the Indentures that govern the notes also constitutes an “event of default” under the 2005 Credit Facility and could lead to an acceleration of the unpaid principal and accrued interest under the 2005 Credit Facility, unless a waiver is obtained. On March 13, 2007, we obtained a waiver under the 2005 Credit Facility for any defaults relating to the restatement and the untimely filing of this Form 10-Q. In addition, any default under the notes relating to the untimely filing of this Form 10-Q, will be cured within the 60-day cure period (expires April 23, 2007) upon the filing of this report with the SEC. See Credit Facility Amendments below and Note 16 to the consolidated financial statements.

	Level Specified in Agreement	Level Achieved for Specified Period	Level to be Achieved at
Financial Covenant			March 31, 2007	June 30, 2007
Debt leverage ratio	< 4.75	3.84	< 4.75		< 4.75
Interest expense coverage ratio	> 2.00	2.67	> 2.00		> 2.00
Fixed charge coverage ratio	> 1.10	1.42	> 1.10		> 1.10
Maintenance capital expenditure (1), (2)	N/A	N/A	N/A	< $	22.0 million
New business capital expenditure (2)	N/A	N/A	N/A	< $	4.0 million

(1) Capital expended in the normal course of operating in existing markets.

(2) Measured annually at June 30^th.

Credit Facility Amendments

On November 10, 2006, the Company amended the 2005 Credit Facility (“Amendment No. 4”) to modify the definition of the Consolidated EBITDA covenant to exclude the severance benefits associated with the termination of the Company’s former Chief Financial Officer. Amendment No. 4 was effective as of September 30, 2006.

On January 18, 2007, the Company amended the 2005 Credit Facility (“Amendment No. 5”) to modify certain financial covenant requirements contained in the Credit Agreement, including total leverage ratio, interest expense coverage ratio and fixed charge coverage ratio. In addition, Amendment No. 5 modified the definitions of “Consolidated Net Income” and “Consolidated Net Rental and Operating Lease Expense” to exclude discontinued operations prior to June 30, 2006. In connection with Amendment No. 5, the Company paid $0.7 million in lender and administration fees during the third quarter of fiscal 2007. Of this amount, $0.5 million was capitalized and will be amortized to interest expense over the remaining term of the 2005 Credit Facility. As a result of entering into Amendment No. 5, which is effective as of December 31, 2006, the Company is in compliance with all of its covenants under the 2005 Credit Facility at December 31, 2006. See the discussion above in this Note.

Condensed Consolidating Financial Information

The Senior Subordinated Notes are unsecured senior subordinated obligations of Rural/Metro LLC and Rural/Metro (Delaware) Inc. (“Rural/Metro Inc”, collectively referred to as 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 8) 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 Note 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”. Certain information presented has been restated from that originally reported to reflect the effect of the change in accounting policy relating to the classification of estimated uncollectible amounts related to self-pay patients and the restated results relating from the correction of certain accounting practice errors relating to inventory discussed in Notes 2 and 3 to the consolidated financial statements, respectively.

17

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2006

(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
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—	$	—	$	6,820		$	979		$	—		$	7,799	$	—		$	7,799
Short-term investments		—			—		—		—			—			—			—		—			—
Accounts receivable, net		—			—		—		78,430			8,126			—			86,556		—			86,556
Inventories		—			—		—		9,332			—			—			9,332		—			9,332
Deferred tax assets		—			—		—		7,514			—			—			7,514		—			7,514
Prepaid expenses and other		—			25		—		6,074			—			—			6,099		—			6,099
Total current assets		—			25		—		108,170			9,105			—			117,300		—			117,300
Property and equipment, net		—			—		—		47,362			203			—			47,565		—			47,565
Goodwill		—			—		—		38,362			—			—			38,362		—			38,362
Deferred tax assets		—			—		—		69,308			—			—			69,308		—			69,308
Insurance deposits		—			—		—		1,928			—			—			1,928		—			1,928
Other assets		1,806			8,132		—		7,836			525			—			16,493		—			18,299
Due from (to) affiliates (1)		—			137,060		125,000		(134,238	)		(2,822	)		(125,000	)		—		—			—
Due from (to) Parent		(42,704	)		42,704		—		—			—			—			42,704		—			—
Rural/Metro LLC investment in subsidiaries		—			53,233		—		—			—			(53,233	)		—		—			—
Parent Company investment in Rural/Metro LLC		10,928			—		—		—			—			—			—		(10,928	)		—
Total assets	$	(29,970	)	$	241,154	$	125,000	$	138,728		$	7,011		$	(178,233	)	$	333,660	$	(10,928	)	$	292,762
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	—		$	—	$	—	$	13,538		$	1,283		$	—		$	14,821	$	—		$	14,821
Accrued liabilities		—			5,226		—		31,212			649			—			37,087		—			37,087
Deferred revenue		—			—		—		21,233			—			—			21,233		—			21,233
Current portion of long-term debt		—			—		—		38			—			—			38		—			38
Total current liabilities		—			5,226		—		66,021			1,932			—			73,179		—			73,179
Long-term debt, net of current portion (1)		62,942			225,000		125,000		147			—			(125,000	)		225,147		—			288,089
Other liabilities		—			—		—		21,866			—			—			21,866		—			21,866
Total liabilities		62,942			230,226		125,000		88,034			1,932			(125,000	)		320,192		—			383,134
Minority interest		—			—		—		—			—			2,540			2,540		—			2,540
Stockholders’ equity (deficit):					—		—
Common stock		246			—		—		90			—			(90	)		—		—			246
Additional paid-in capital		154,266			—		—		74,770			20			(74,790	)		—		—			154,266
Treasury stock		(1,239	)		—		—		—			—			—			—		—			(1,239	)
Accumulated deficit		(246,185	)		—		—		(24,166	)		5,059			19,107			—		—			(246,185	)
Member equity		—			10,928		—		—			—			—			10,928		(10,928	)		—
Total stockholders’ equity (deficit)		(92,912	)		10,928		—		50,694			5,079			(55,773	)		10,928		(10,928	)		(92,912	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	(29,970	)	$	241,154	$	125,000	$	138,728		$	7,011		$	(178,233	)	$	333,660	$	(10,928	)	$	292,762

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, 2006 consists of equity and due to affiliates totaling an amount equal to $100.

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

18

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2006

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers				Senior Subordinated Notes Guarantors (As restated)														Rural/Metro Corporation Consolidated (As restated)
	Parent (As restated)			Rural/Metro LLC (As restated)		Rural/Metro Inc.					Non- Guarantor			Eliminations (As restated)			Rural/Metro LLC - Consolidated (As restated)		Eliminations (As restated)
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—	$	—	$	1,891		$	1,150		$	—		$	3,041	$	—		$	3,041
Short-term investments		—			—		—		6,201			—			—			6,201		—			6,201
Accounts receivable, net		—			—		—		76,605			6,762			—			83,367		—			83,367
Inventories		—			—		—		8,828			—			—			8,828		—			8,828
Current portion of deferred tax assets		—			—		—		9,574			—			—			9,574		—			9,574
Prepaid expenses and other		—			75		—		3,619			4			—			3,698		—			3,698
Total current assets		—			75		—		106,718			7,916			—			114,709		—			114,709
Property and equipment, net		—			—		—		45,766			204			—			45,970		—			45,970
Goodwill		—			—		—		38,362			—			—			38,362		—			38,362
Deferred tax asset		—			—		—		71,051			—			—			71,051		—			71,051
Insurance deposits		—			—		—		2,842			—			—			2,842		—			2,842
Other assets		1,904			8,879		—		12,146			525			—			21,550		—			23,454
Due from (to) affiliates (1)		—			154,242		125,000		(151,408	)		(2,834	)		(125,000	)		—		—			—
Due from (to) Parent Company		(43,023	)		43,023		—		—			—			—			43,023		—			—
LLC investment in subsidiaries		—			35,020		—		—			—			(35,020	)		—		—			—
Parent Company investment in LLC		4,017			—		—		—			—			—					(4,017	)		—
Total assets	$	(37,102	)	$	241,239	$	125,000	$	125,477		$	5,811		$	(160,020	)	$	337,507	$	(4,017	)	$	296,388
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	—		$	—	$	—	$	12,730		$	1,227		$	—		$	13,957	$	—		$	13,957
Accrued liabilities		—			5,222		—		32,914			454			—			38,590		—			38,590
Deferred revenue		—			—		—		21,342			—			—			21,342		—			21,342
Current portion of long-term debt		—			—		—		37			—			—			37		—			37
Total current liabilities		—			5,222		—		67,023			1,681			—			73,926		—			73,926
Long-term debt, net of current portion (1)		59,170			232,000		125,000		167			—			(125,000	)		232,167		—			291,337
Other liabilities		—			—		—		25,332			—			—			25,332		—			25,332
Total liabilities		59,170			237,222		125,000		92,522			1,681			(125,000	)		331,425		—			390,595
Minority interest		—			—		—		—			—			2,065			2,065		—			2,065
Stockholders’ equity (deficit):
Common stock		245			—		—		90			—			(90	)		—		—			245
Additional paid-in capital		153,955			—		—		74,770			20			(74,790	)		—		—			153,955
Treasury stock		(1,239	)		—		—		—			—			—			—		—			(1,239	)
Accumulated deficit		(249,233	)		—		—		(41,905	)		4,110			37,795			—		—			(249,233	)
Member equity		—			4,017		—		—			—			—			4,017		(4,017	)		—
Total stockholders’ equity (deficit)		(96,272	)		4,017		—		32,955			4,130			(37,085	)		4,017		(4,017	)		(96,272	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	(37,102	)	$	241,239	$	125,000	$	125,477		$	5,811		$	(160,020	)	$	337,507	$	(4,017	)	$	296,388

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

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

19

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2006

(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
Net revenue	$	—		$	—		$	—	$	113,377		$	10,126	$	(6,562	)	$	116,941		$	—		$	116,941
Operating expenses:
Payroll and employee benefits		—			—			—		72,404			25		—			72,429			—			72,429
Depreciation and amortization		—			—			—		3,007			—		—			3,007			—			3,007
Other operating expenses		—			—			—		27,254			9,717		(6,562	)		30,409			—			30,409
Loss on sale of assets		—			—			—		11			—		—			11			—			11
Total operating expenses		—			—			—		102,676			9,742		(6,562	)		105,856			—			105,856
Operating income		—			—			—		10,701			384		—			11,085			—			11,085
Equity in earnings of subsidiaries		3,277			9,231			—		—			—		(9,231	)		—			(3,277	)		—
Interest expense		(1,982	)		(5,954	)		—		(50	)		—		—			(6,004	)		—			(7,986	)
Interest income		—			—			—		121			19		—			140			—			140
Income from continuing operations before income taxes and minority interest		1,295			3,277			—		10,772			403		(9,231	)		5,221			(3,277	)		3,239
Income tax provision		—			—			—		(2,126	)		—		—			(2,126	)		—			(2,126	)
Minority interest		—			—			—		—			—		(201	)		(201	)		—			(201	)
Income from continuing operations		1,295			3,277			—		8,646			403		(9,432	)		2,894			(3,277	)		912
Income from discontinued operations, net of income taxes		—			—			—		383			—		—			383			—			383
Net income	$	1,295		$	3,277		$	—	$	9,029		$	403	$	(9,432	)	$	3,277		$	(3,277	)	$	1,295

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

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

20

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2005

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers
	Parent (As restated)			Rural/Metro LLC (As restated)			Rural/Metro Inc.		Senior Subordinated Notes Guarantors (As restated)			Non- Guarantor (As restated)		Eliminations (As restated)			Rural/Metro LLC - Consolidated (As restated)			Eliminations (As restated)			Rural Metro Corporation Consolidated (As restated)
Net revenue	$	—		$	—		$	—	$	109,590		$	9,479	$	(5,673	)	$	113,396		$	—		$	113,396
Operating expenses:
Payroll and employee benefits		7			—			—		66,800			25		—			66,825			—			66,832
Depreciation and amortization		—			—			—		2,805			2		—			2,807			—			2,807
Other operating expenses		—			—			—		26,783			9,156		(5,673	)		30,266			—			30,266
Loss on sale of assets		—			—			—		35			—		—			35			—			35
Total operating expenses		7			—			—		96,423			9,183		(5,673	)		99,933			—			99,940
Operating income (loss)		(7	)		—			—		13,167			296		—			13,463			—			13,456
Equity in earnings of subsidiaries		4,627			10,614			—		—			—		(10,614	)		—			(4,627	)		—
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		2,856			4,627			—		13,332			306		(10,614	)		7,651			(4,627	)		5,880
Income tax provision		—			—			—		(2,412	)		—		—			(2,412	)		—			(2,412	)
Minority interest		—			—			—		—			—		(153	)		(153	)		—			(153	)
Income from continuing operations		2,856			4,627			—		10,920			306		(10,767	)		5,086			(4,627	)		3,315
Loss from discontinued operations, net of income taxes		—			—			—		(459	)		—		—			(459	)		—			(459	)
Net income	$	2,856		$	4,627		$	—	$	10,461		$	306	$	(10,767	)	$	4,627		$	(4,627	)	$	2,856

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

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

21

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2006

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers					Senior Subordinated Notes Guarantors								Rural/Metro LLC -Consolidated						Rural Metro Corporation Consolidated
	Parent			Rural/Metro LLC			Rural/Metro Inc.					Non- Guarantor		Eliminations						Eliminations
Net revenue	$	—		$	—		$	—	$	226,277		$	20,653	$	(13,148	)	$	233,782		$	—		$	233,782
Operating expenses:
Payroll and employee benefits		(7	)		—			—		145,330			47		—			145,377			—			145,370
Depreciation and amortization		—			—			—		6,026			1		—			6,027			—			6,027
Other operating expenses		—			—			—		53,492			18,689		(13,148	)		59,033			—			59,033
Loss on sale of assets		—			—			—		8			—		—			8			—			8
Total operating expenses		(7	)		—			—		204,856			18,737		(13,148	)		210,445			—			210,438
Operating income		7			—			—		21,421			1,916		—			23,337			—			23,344
Equity in earnings of subsidiaries		6,911			18,713			—		—			—		(18,713	)		—			(6,911	)		—
Interest expense		(3,870	)		(11,802	)		—		(99	)		—		—			(11,901	)		—			(15,771	)
Interest income		—			—			—		228			32		—			260			—			260
Income from continuing operations before income taxes and minority interest		3,048			6,911			—		21,550			1,948		(18,713	)		11,696			(6,911	)		7,833
Income tax provision		—			—			—		(4,180	)		—		—			(4,180	)		—			(4,180	)
Minority interest		—			—			—		—			—		(974	)		(974	)		—			(974	)
Income from continuing operations		3,048			6,911			—		17,370			1,948		(19,687	)		6,542			(6,911	)		2,679
Income from discontinued operations, net of income taxes		—			—			—		369			—		—			369			—			369
Net income	$	3,048		$	6,911		$	—	$	17,739		$	1,948	$	(19,687	)	$	6,911		$	(6,911	)	$	3,048

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

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

22

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2005

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers
	Parent (As restated)			Rural/Metro LLC (As restated)			Rural/Metro Inc.		Senior Subordinated Notes Guarantors (As restated)			Non- Guarantor (As restated)			Eliminations (As restated)			Rural/Metro LLC - Consolidated (As restated)			Eliminations (As restated)			Rural Metro Corporation Consolidated (As restated)
Net revenue	$	—		$	—		$	—	$	217,212		$	18,891		$	(11,374	)	$	224,729		$	—		$	224,729
Operating expenses:
Payroll and employee benefits		16			—			—		132,701			34			—			132,735			—			132,751
Depreciation and amortization		—			—			—		5,526			2			—			5,528			—			5,528
Other operating expenses		—			—			—		53,214			18,250			(11,374	)		60,090			—			60,090
Gain on sale of assets		—			—			—		(1,297	)		(10	)		—			(1,307	)		—			(1,307	)
Total operating expenses		16			—			—		190,144			18,276			(11,374	)		197,046			—			197,062
Operating income (loss)		(16	)		—			—		27,068			615			—			27,683			—			27,667
Equity in earnings of subsidiaries		9,901			21,672			—		—			—			(21,672	)		—			(9,901	)		—
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		6,435			9,901			—		27,343			630			(21,672	)		16,202			(9,901	)		12,736
Income tax provision		—			—			—		(5,916	)		—			—			(5,916	)		—			(5,916	)
Minority interest		—			—			—		—			—			(315	)		(315	)		—			(315	)
Income from continuing operations		6,435			9,901			—		21,427			630			(21,987	)		9,971			(9,901	)		6,505
Loss from discontinued operations, net of income taxes		—			—			—		(70	)		—			—			(70	)		—			(70	)
Net income	$	6,435		$	9,901		$	—	$	21,357		$	630		$	(21,987	)	$	9,901		$	(9,901	)	$	6,435

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

(1) Senior Subordinated Notes interest expense has been allocated to Rural/Metro LLC only.

23

RURAL/METRO CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2006

(unaudited)

(in thousands)

				Senior Subordinated Notes Issuers					Senior Subordinated Notes Guarantors															Rural Metro Corporation Consolidated
	Parent			Rural/Metro LLC			Rural/Metro Inc.					Non- Guarantor			Eliminations			Rural/Metro LLC - Consolidated			Eliminations
Cash flows from operating activities:
Net income	$	3,048		$	6,911		$	—	$	17,739		$	1,948		$	(19,687	)	$	6,911		$	(6,911	)	$	3,048
Adjustments to reconcile net income to cash provided by operating activities—
Depreciation and amortization		—			—			—		6,027			1			—			6,028			—			6,028
Accretion of 12.75% Senior Discount Notes		3,772			—			—		—			—			—			—			—			3,772
Deferred income taxes		(93	)		—			—		3,896			—			—			3,896			—			3,803
Insurance adjustments		—			—			—		(3,128	)		—			—			(3,128	)		—			(3,128	)
Amortization of deferred financing costs		98			909			—		—			—			—			909			—			1,007
Earnings of minority shareholder		—			—			—		—			—			975			975			—			975
Gain on sale of property and equipment		—			—			—		(667	)		—			—			(667	)		—			(667	)
Stock-based compensation benefit		(7	)		—			—		—			—			—			—			—			(7	)
Changes in assets and liabilities—
Accounts receivable		—			—			—		(1,825	)		(1,364	)		—			(3,189	)		—			(3,189	)
Inventories		—			—			—		(504	)		—			—			(504	)		—			(504	)
Prepaid expenses and other		—			(50	)		—		(2,347	)		(4	)		—			(2,401	)		—			(2,401	)
Insurance deposits		—			—			—		914			—			—			914			—			914
Other assets		—			—			—		3,831			—			—			3,831			—			3,831
Accounts payable		—			—			—		706			56			—			762			—			762
Accrued liabilities		—			4			—		(481	)		195			—			(282	)		—			(282	)
Deferred revenue		—			—			—		(109	)		—			—			(109	)		—			(109	)
Other liabilities		—			—			—		(1,189	)		—			—			(1,189	)		—			(1,189	)
Net cash provided by operating activities		6,818			7,774			—		22,863			832			(18,712	)		12,757			(6,911	)		12,664
Cash flows from investing activities:
Sales of short-term investments		—			—			—		18,451			—			—			18,451			—			18,451
Purchases of short-term investments		—			—			—		(12,250	)		—			—			(12,250	)		—			(12,250	)
Capital expenditures		—			—			—		(7,432	)		—			—			(7,432	)		—			(7,432	)
Proceeds from the sale of property and equipment		—			—			—		687			—			—			687			—			687
Net cash used in investing activities		—			—			—		(544	)		—			—			(544	)		—			(544	)
Cash flows from financing activities:
Repayment of debt		—			—			—		(7,019	)		—			—			(7,019	)		—			(7,019	)
Distributions to minority shareholders		—			—			—		—			(500	)		—			(500	)		—			(500	)
Distributions to Rural/Metro LLC		—			500			—		—			(500	)		—			—			—			—
Issuance of common stock		—			—			—		226			—			—			226			—			226
Cash paid for debt issuance costs		—			(162	)		—		—			—			—			(162	)		—			(162	)
Tax benefit from the exercise of stock options		93			—			—		—			—			—			—			—			93
Due to/from affiliates		(6,911	)		(8,112	)		—		(10,597	)		(3	)		18,712			—			6,911			—
Net cash used in financing activities		(6,818	)		(7,774	)		—		(17,390	)		(1,003	)		18,712			(7,455	)		6,911			(7,362	)
Increase (decrease) in cash and cash equivalents		—			—			—		4,929			(171	)		—			4,758			—			4,758
Cash and cash equivalents, beginning of period		—			—			—		1,891			1,150			—			3,041			—			3,041
Cash and cash equivalents, end of period	$	—		$	—		$	—	$	6,820		$	979		$	—		$	7,799		$	—		$	7,799

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.

24

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 (As restated)			Rural/Metro LLC (As restated)			Rural/Metro Inc.		Senior Subordinated Notes Guarantors (As restated)			Non- Guarantor (As restated)			Eliminations (As restated)			Rural/Metro LLC - Consolidated (As restated)			Eliminations (As restated)			Rural Metro Corporation Consolidated (As restated)
Cash flows from operating activities:
Net income	$	6,435		$	9,901		$	—	$	21,357		$	630		$	(21,987	)	$	9,901		$	(9,901	)	$	6,435
Adjustments to reconcile net income to cash provided by operating activities—
Depreciation and amortization		—			—			—		5,718			2			—			5,720			—			5,720
Accretion of 12.75% Senior Discount Notes		3,349			—			—		—			—			—			—			—			3,349
Deferred income taxes		—			—			—		5,302			—			—			5,302			—			5,302
Insurance adjustments		—			—			—		(2,387	)		—			—			(2,387	)		—			(2,387	)
Amortization of deferred financing costs		101			999			—		—			—			—			999			—			1,100
Earnings of minority shareholder		—			—			—		—			—			315			315			—			315
Gain on sale of property and equipment		—			—			—		(1,307	)		—			—			(1,307	)		—			(1,307	)
Stock-based compensation expense		16			—			—		—			—			—			—			—			16
Changes in assets and liabilities—
Accounts receivable		—			—			—		(12,749	)		(143	)		—			(12,892	)		—			(12,892	)
Inventories		—			—			—		(142	)		—			—			(142	)		—			(142	)
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		—			—			—		204			(302	)		—			(98	)		—			(98	)
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		9,901			10,720			—		16,431			317			(21,672	)		5,796			(9,901	)		5,796
Cash flows from investing activities:
Sales of short-term investments		—			—			—		30,100			—			—			30,100			—			30,100
Purchases of short-term investments		—			—			—		(37,700	)		—			—			(37,700	)		—			(37,700	)
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	)
Distributions to minority shareholders		—			—			—		—			(155	)		—			(155	)		—			(155	)
Distributions to Rural/Metro LLC		—			155			—		—			(155	)		—			—			—			—
Issuance of common stock		595			—			—		—			—			—			—			—			595
Tax benefit from the exercise of stock options		436			—			—		—			—			—			—			—			436
Due to/from affiliates		(10,932	)		(10,875	)		—		(9,518	)		(248	)		21,672			1,031			9,901			—
Net cash used in financing activities		(9,901	)		(10,720	)		—		(17,256	)		(558	)		21,672			(6,862	)		9,901			(6,862	)
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.

25

(9) Income Taxes

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005 (As restated)			2006			2005 (As restated)
Current income tax benefit (provision)	$	(193	)	$	98		$	(475	)	$	(457	)
Deferred income tax provision		(2,133	)		(2,311	)		(3,896	)		(5,478	)
Total income tax provision	$	(2,326	)	$	(2,213	)	$	(4,371	)	$	(5,935	)
Continuing operations provision	$	(2,126	)	$	(2,412	)	$	(4,180	)	$	(5,916	)
Discontinued operations benefit (provision)		(200	)		199			(191	)		(19	)
Total income tax provision	$	(2,326	)	$	(2,213	)	$	(4,371	)	$	(5,935	)

The effective tax rate for the three and six months ended December 31, 2006 for continuing operations was 65.6 percent and 53.4 percent, respectively, which differs from the federal statutory rate of 35.0 percent primarily as a result of the portion of non-cash interest expense related to the Senior Discount Notes which is not deductible for income tax purposes, non-deductible executive compensation and state income taxes. The Company made income tax payments of $0.2 million for the three and six months ended December 31, 2006.

The effective tax rate for the three and six months ended December 31, 2005 for continuing operations was 41.0 percent and 46.4 percent, respectively, which differs from the federal statutory rate of 35.0 percent primarily as a result of the portion of non-cash interest expense related to the Senior Discount Notes which is not deductible for income tax purposes, non-deductible executive compensation and state income taxes. The Company made income tax payments of $0.4 million for the three and six months ended December 31, 2005.

The Internal Revenue Service examination of the Company’s federal income tax return for the year ended June 30, 2004 closed in the three months ended December 31, 2006. Management had previously provided for expected adjustments from the examination and that the final outcome resulted in no adjustments to the Company’s consolidated financial condition, results of operations or cash flows.

(10) 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 on sale of assets in the consolidated statement of operations for the six months ended December 31, 2005.

(11) Net Income Per Share

A reconciliation of the weighted average number of shares outstanding utilized in the basic and diluted income per share computations is as follows (in thousands, except per share amounts):

	Three Months Ended December 31,				Six Months Ended December 31,
	2006		2005 (As restated)		2006		2005 (As restated)
Income from continuing operations	$	912	$	3,315	$	2,679	$	6,505
Average number of shares outstanding—Basic		24,581		24,330		24,546		24,281
Add: Incremental shares for dilutive effect of stock options		430		968		407		999
Average number of shares outstanding—Diluted		25,011		25,298		24,953		25,280
Income per share—basic	$	0.04	$	0.14	$	0.11	$	0.27
Income per share—diluted	$	0.04	$	0.13	$	0.11	$	0.26

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Option shares with exercise prices above the average market prices of the Company’s common stock during the respective periods have been excluded from the calculation of diluted income per share. Such options totaled 0.2 million and 0.5 million for the three and six months ended December 31, 2006, respectively, and 1.1 million for each of the three and six months ended December 31, 2005.

(12) Segment Reporting

The Company has four regional reporting segments that correspond with the manner in which the associated operations are managed and evaluated by the Chief Executive Officer. Although some of the Company’s operations do not align with the segments’ geographic designation, all operations have been structured to capitalize on management’s strengths. These segments comprise operations within the following areas:

Segment	Operations
Mid-Atlantic	Georgia, New York, Ohio, Pennsylvania
South	Alabama, California (fire), Florida (fire), Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Dakota, New Jersey (fire), Ohio, Tennessee, Wisconsin
Southwest	Arizona, New Mexico, Oregon (fire), Utah
West	California (medical transportation), Florida (medical transportation), Colorado, Oregon (medical transportation), Nebraska, South Dakota, Washington

Each reporting segment provides medical transportation and related services while the Company’s fire and other services are predominantly in the South and Southwest Segments.

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 interest. Additionally, corporate overhead allocations have been included within segment profits. Segment results presented below reflect continuing operations only. Certain information presented has been restated from that originally reported to reflect the effect of the change in accounting policy relating to the classification of estimated uncollectible amounts related to self-pay patients and the restated results relating from the correction of certain accounting practice errors relating to inventory discussed in Notes 2 and 3 to the consolidated financial statements, respectively.

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The following table summarizes segment information (in thousands):

	Mid-Atlantic		South		Southwest			West		Total
Three months ended December 31, 2006
Net revenues from external customers;
Medical transportation	$	23,835	$	17,109	$	33,706		$	24,255	$	98,905
Fire and other (1)		838		5,811		11,155			232		18,036
Total net revenue	$	24,673	$	22,920	$	44,861		$	24,487	$	116,941
Segment profit from continuing operations	$	4,456	$	2,529	$	4,781		$	2,326	$	14,092
Three months ended December 31, 2005, as restated
Net revenues from external customers;
Medical transportation	$	23,236	$	16,068	$	33,996		$	23,412	$	96,712
Fire and other (1)		846		5,415		10,387			36		16,684
Total net revenue	$	24,082	$	21,483	$	44,383		$	23,448	$	113,396
Segment profit from continuing operations	$	3,867	$	2,697	$	6,927		$	2,772	$	16,263
Six months ended December 31, 2006
Net revenues from continuing operations:
Medical transportation	$	48,497	$	33,407	$	66,447		$	49,023	$	197,374
Fire and other (1)		1,862		11,544		22,502			500		36,408
Total net revenue	$	50,359	$	44,951	$	88,949		$	49,523	$	233,782
Segment profit from continuing operations	$	9,806	$	4,640	$	8,876		$	6,049	$	29,371
Six months ended December 31, 2005, as restated
Net revenues from continuing operations:
Medical transportation	$	47,515	$	33,093	$	65,541		$	45,621	$	191,770
Fire and other (1)		1,705		10,720		20,459			75		32,959
Total net revenue	$	49,220	$	43,813	$	86,000		$	45,696	$	224,729
Segment profit from continuing operations	$	8,301	$	5,868	$	14,696	(2)	$	4,330	$	33,195

(1) Other revenue consists of revenue generated from home health care services, dispatch contracts, billing contracts and other miscellaneous forms of revenue.

(2) Southwest profit for the six months ended December 30, 2005 includes a $1.3 million gain on the sale of real estate located in Arizona.

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005 (As restated)			2006			2005 (As restated)
Segment profit	$	14,092		$	16,263		$	29,371		$	33,195
Depreciation and amortization		(3,007	)		(2,807	)		(6,027	)		(5,528	)
Interest expense		(7,986	)		(7,748	)		(15,771	)		(15,256	)
Interest income		140			172			260			325
Income from continuing operations before income taxes and minority interest	$	3,239		$	5,880		$	7,833			12,736

Segment assets consist of accounts receivable, inventory and goodwill. The following table summarizes segment asset information (in thousands):

	December 31, 2006		June 30, 2006 (As restated)
Mid-Atlantic	$	15,051	$	14,724
South		14,663		17,385
Southwest		30,943		29,377
West		25,899		21,881
Total segment assets	$	86,556	$	83,367

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The following table represents a reconciliation of segment assets to total assets (in thousands):

	December 31, 2006		June 30, 2006 (As restated)
Segment assets	$	86,556	$	83,367
Cash and cash equivalents		7,799		3,041
Short-term investments		—		6,201
Inventories		9,332		8,828
Prepaid expenses and other		6,099		3,698
Deferred tax assets		76,822		80,625
Property and equipment, net		47,565		45,970
Goodwill		38,362		38,362
Insurance deposits		1,928		2,842
Other assets		18,299		23,454
Total assets	$	292,762	$	296,388

(13) Discontinued Operations

During the prior fiscal year, the Company made the decision to exit two medical transportation markets and, as a result, the financial results of these service areas for the three and six months ended December 31, 2006 and 2005 are included in income (loss) from discontinued operations.

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005			2006			2005
Net revenue:
Mid-Atlantic	$	—		$	571		$	—		$	2,027
South		—			3,448			—			7,445
Southwest		—			—			—			—
West		—			—			—			—
Net revenue from discontinued operations	$	—		$	4,019		$	—		$	9,472
	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005			2006			2005
Income (loss):
Mid-Atlantic	$	(9	)	$	(537	)	$	95		$	(435	)
South		392			78			279			365
Southwest		—			—			—			—
West		—			—			(5	)		—
Income (loss) from discontinued operations, net of income taxes	$	383		$	(459	)	$	369		$	(70	)

Income from discontinued operations for the three and six months ended December 31, 2006 is presented net of income tax expense of $228,000 and $219,000, respectively. Loss from discontinued operations for the three months ended December 31, 2005 is presented net of income tax benefit of $199,000 while loss from discontinued operations for the six months ended December 31, 2005 is presented net of income tax expense of $19,000. Income from discontinued operations for the six months ended December 31, 2006

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for Mid-Atlantic includes a pre-tax gain of $0.7 million due to the sale of a business license held by one of the Company’s subsidiaries, as well as a $0.1 million reversal of closure-related costs due to the true-up of certain estimated accrual items related to the Company’s operations in Augusta, Georgia. Loss from discontinued operations of $5,000 for the six months ended December 31, 2006 for West is a result of legal expenses incurred for the settlement negotiations with the U.S. government regarding the alleged violation of the federal Anti-Kickback Statute in connection with certain contracts related to the Company’s discontinued operations in the State of Texas.

On October 20, 2006, the Company sold an operating license held by one of its subsidiaries for cash proceeds of $0.7 million. This transaction generated a pre-tax gain of $0.7 million which is included in income from discontinued operations for the three and six months ended December 31, 2006.

(14) Defined Benefit Plan

The Company provides a defined benefit pension plan covering eligible employees of one of its subsidiaries. This benefit is limited to employees covered by collective bargaining agreements. Eligibility is achieved upon the completion of one year of service, with full vesting achieved after the completion of five years of service. The amount of benefit is determined using a two-part formula, one of which is based upon compensation and the other which is based upon a flat dollar amount.

The following table presents the components of net periodic pension benefit cost (in thousands):

	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005			2006			2005
Service cost	$	369		$	225		$	738		$	451
Interest cost		23			11			46			22
Expected return on plan assets		(59	)		(23	)		(118	)		(47	)
Amortization of gain		(2	)		—			(4	)		—
Net periodic pension benefit cost	$	331		$	213		$	662		$	426

The following table presents the assumptions used in the determination of net periodic benefit cost:

	2006		2005
Discount rate	6.48	%	5.00	%
Rate of increase in compensation levels	4.0	%	2.5	%
Expected long-term rate of return on assets	7.5	%	7.5	%

The Company contributed approximately $0.7 million and $1.2 million during the three and six months ended December 31, 2006, respectively, and $0.3 million and $0.5 million during the three and six months ended December 31, 2005, respectively. The Company’s fiscal 2007 contributions are anticipated to approximate $2.4 million.

(15) Commitments and Contingencies

Legal Proceedings

From time to time, the Company is a party to, or otherwise involved in, lawsuits, claims, proceedings, investigations and other legal matters that have arisen in the ordinary course of business. The Company cannot predict with certainty the ultimate outcome of any of these lawsuits, claims, proceedings, investigations and other legal matters which it is a party to, or otherwise involved in, due to, among other things, the inherent uncertainties of litigation, government investigations and proceedings and legal matters in general. The Company is also subject to requests and subpoenas for information in independent investigations. An unfavorable outcome in any of the lawsuits pending against the Company or in a government investigation or proceeding could result in substantial potential

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liabilities and have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows. Further, these proceedings, and the Company’s actions in response to these proceedings, could result in substantial potential liabilities, additional defense and other costs, increase the Company’s indemnification obligations, divert management’s attention, and/or adversely impact the Company’s ability to execute its business and financial strategies.

The U.S. government is conducting an investigation into alleged discounts made in violation of the federal Anti-Kickback Statute in connection with certain contracts related to the Company’s discontinued operations in the State of Texas. The Company is currently negotiating a settlement with the government regarding these allegations. Although there can be no assurances that a settlement agreement will be reached, any such settlement agreement would likely require the Company to make a substantial payment to the government and may require the Company to enter into a Corporate Integrity Agreement. If a settlement is not reached, the government has indicated that it will pursue further civil action. There can be no assurances that this matter will be fully resolved by settlement or that other investigations or legal action related to these matters will not be pursued against the Company in other jurisdictions or for different time frames.

Regulatory Compliance

The Company is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity is ongoing with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. 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. 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’s compliance program initiates its own investigations and conducts audits to examine compliance with various policies and regulations. In addition, internal investigations or audits may result in significant repayment obligations for patient services previously billed. The Company believes that it is substantially in compliance with fraud and abuse statutes and their applicable governmental interpretation.

Management believes that reserves established for specific contingencies of $2.8 million and $2.9 million as of December 31, 2006 and June 30, 2006, respectively, (including $2.5 million for the Texas matter described above at both December 31, 2006 and June 30, 2006) are adequate based on information currently available.

(16) Subsequent Events

Unscheduled principal payment

On March 22, 2007, the Company, through its wholly owned subsidiary, Rural/Metro LLC, made an $7.0 million unscheduled principal payment on its Term Loan B. In connection with this payment, the Company wrote-off approximately $0.2 million of deferred financing costs during the third quarter of fiscal 2007.

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Amendment to 2005 Credit Facility

The Company entered into Amendment No. 5 to the 2005 Credit Facility. The amendment is effective December 31, 2006. See Note 8 to the consolidated financial statements for further discussion.

2005 Credit Facility Waiver

On March 13, 2007, the Company obtained a waiver under the 2005 Credit Facility for any defaults relating to the restatement and the untimely filing of this Form 10-Q. See Note 8 to the consolidated financial statements.

Change of Control Agreement

Effective March 22, 2007, the Company entered into a change of control agreement with Kristine B. Ponczak, Senior Vice President and Chief Financial Officer. The agreement provides benefits upon the occurrence of both of two triggering events: (i) a change of control; and (ii) within two years after the change in control, the surviving entity or individuals in control terminate Ms. Ponczak’s employment without cause, or Ms. Ponczak terminates employment for good reason. Upon the occurrence of both triggers, but subject to the limitation described in the last sentence of this paragraph, Ms. Ponczak will receive a sum equal to (A) 200% of (i) her annual base salary, and (ii) the amount of incentive compensation paid or payable to her during the calendar year preceding the calendar year in which the change of control occurs, plus (B) the full amount of any payments due under her employment agreement. The agreement further provides that Ms. Ponczak is entitled to receive certain benefits, including the acceleration of exercisability of stock options or the payment of the value of such stock options in the event they are not accelerated or replaced with comparable options. Health and other benefits received under the change of control agreement will be reduced or eliminated to the extent such benefits are received under an employment agreement. The aggregate payment may not exceed 2.99 times the amount of annualized includable compensation received by Ms. Ponczak as determined under the Internal Revenue Code.

For purposes of the change of control agreement, “good reason” includes a reduction of duties and/or salary, the surviving entity’s failure to assume the executive’s employment and change of control agreement, or relocation of more than 50 miles from the current corporate headquarters. A “change of control” includes (i) the acquisition of beneficial ownership by certain persons, acting alone or in concert with others, of 30% or more of the combined voting power of the Company’s then-outstanding voting securities; (ii) during any two-year period, the Board members at the beginning of such period cease to constitute at least a majority thereof (except that any new Board member approved by at least two-thirds of the Board members then still in office, who where directors at the beginning of such period, is considered to be a member of the current Board); or (iii) approval by the Company’s stockholders of certain reorganizations, mergers, consolidations, liquidations, or sales of all or substantially all of our assets.

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

Forward-Looking Statements

The statements, estimates, projections, guidance or outlook contained in this Quarterly Report on Form 10-Q include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). Wherever we refer to such words or phrases as “believes”, “anticipates”, “expects”, “plans”, “seeks”, “intends”, “will likely result”, “estimates”, “projects” or similar expressions are intended to identify such forward-looking statements. We caution readers that such forward-looking statements, including those relating to the outcome of our ongoing efforts to remediate deficiencies in our disclosure controls and procedures and internal control over financial reporting, our future business prospects, working capital, accounts receivable collection, liquidity, cash flow, insurance coverage and claim reserves, capital needs, future operating results and future compliance with covenants in our debt facilities or instruments, wherever they appear in this Report or in other statements attributable to us, are necessarily estimates reflecting the best judgment of our senior management about future results or events and, as such, involve a number of risks and uncertainties that could cause actual results or events to differ materially from those suggested by our forward-looking statements.

Forward-looking statements can be found throughout this Quarterly Report on Form 10-Q, including but not limited to this section containing Management’s Discussion and Analysis of Financial Condition and Results of Operation, as updated to reflect the restatement of our financial statements for the quarter ended December 31, 2005 as well as the full fiscal year ended June 30, 2006, as reflected in our Annual Report on Form 10-K/A filed today with the Commission. As such, these forward-looking statements are susceptible to the updated risk factors set forth in full in Item 1A of Part I of the Company’s Annual Report on Form 10-K/A filed, today with the Commission.

Any or all forward-looking statements made in this Form 10-Q (and in any other public filings or statements we might make) may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Accordingly, except to the extent required by applicable law, we undertake no duty to update the forward-looking statements made in this Report on Form 10-Q.

Rural/Metro Corporation is strictly a holding company. All services, operations and management functions are provided through its subsidiaries and affiliated entities. 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. The website for Rural/Metro Corporation is located at www.ruralmetro.com. Information contained on the website, including any external information which is referenced or “linked” on our 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 Annual Report on Form 10-K/(A) filed with the SEC on March 22, 2007.

Restatement and Accounting Change

During the quarter ended December 31, 2006, and as more fully described in Note 2 of the financial statements, we changed our accounting policy relating to the classification of estimated uncollectible amounts related to self-pay patients, defined as “uncompensated care.” This change in accounting was applied retrospectively in accordance with SFAS 154. We now reflect revenue net of estimated uncompensated care within the Consolidated Statement of Operations, and this Form 10-Q reflects such change. Previously, we recorded revenue at full established rates and recorded a provision for estimated amounts not expected to be realized as an operating expense, as is generally accepted

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practice under the AICPA Guide, Accounting for Health Care Organizations (“Guide”). We believe that the new method of accounting is preferable given recent industry practice and the direction of deliberations relating to proposed revisions to the Guide relating to revenue recognition for self-pay patients, and its consistency with the criteria for revenue recognition pursuant to Staff Accounting Bulletin No. 104. This Form 10-Q for the quarter ended December 31, 2006, restates the revenue and other operating expenses for the three and six months ended December 31, 2005, which have been reduced by $23.9 million and $46.7 million, respectively. The restated financial statements resulting from this change in accounting policy do not change the previously reported operating income, net income, earnings per share, and operating cash flows. There was no material effect on cash flows from operating, investing or financing activities as a result of the change in accounting policy.

As more fully described in Note 3 of the financial statements, in connection with the preparation of the financial statements for the second quarter of fiscal 2007, management determined that inventory had been historically overstated by the inclusion of certain durable medical supply items that should instead have been expensed as incurred. Previously issued financial statements for the three- and six-months ended December 31, 2005 have been restated for the impact of expensing these items and resulted in an increase in net earnings of $89,000. The cumulative effect of this error on net income for all periods preceding fiscal 2007 was an increase in the accumulated deficit as of July 1, 2006 of $2.8 million. There was no material effect on cash flows from operating, investing or financing activities as a result of the adjustment to inventory. See Explanatory Note and Item 4 – Controls and Procedures.

Management’s Overview

During the three and six months ended December 31, 2006, net revenue increased 3.1 percent and 4.0 percent, respectively. We continue to be pleased with our ability to renew existing contracts and win new contracts. For the six months ended December 31, 2006, our revenue reflects a $4.3 million increase related to medical transport volume, $6.5 million related to medical transport rate increases, $3.6 million from new medical transportation contracts and $3.5 million from fire and other services. However, revenue growth has been offset by an $8.8 million increase in uncompensated care. We remain focused on initiatives designed to improve our billing and collections processes, as we have experienced an overall decline in collections rates.

Executive Summary

We provide both emergency and non-emergency medical transportation services, private fire protection and related services, and to a lesser extent, wheelchair transportation services in response to our customers’ needs. Our services are primarily provided under contracts with governmental entities, hospitals, nursing homes, other healthcare facilities and public safety organizations.

Our business strategy focuses on obtaining exclusive 911 emergency medical transportation contracts within growing communities and subsequently expanding those operations to include non-emergency medical transportation services. We believe this approach diversifies our revenue stream, improves the utilization of our work force and vehicle fleet and enhances profitability.

County and municipal governments may elect to outsource their 911 emergency medical transportation services to a private provider and solicit requests for proposals. These proposals typically stipulate response times and resource requirements, including dedicated 911 fleets. We experience varying levels of fleet dedication depending on the community we serve and its contract stipulations. Dedicated 911 resources cannot be utilized to provide non-emergency medical transports and may, therefore, experience a lower utilization rate than resources deployed under an integrated system.

Our private fire protection services business strategy focuses on two areas: (1) subscription fire protection services, and (2) master contracts for on-site fire protection at airports.

Subscription fire services are marketed to residential and commercial property owners in growing unincorporated areas contiguous to urban population centers. These areas also present opportunities to expand our emergency and non-emergency medical transportation services, thereby enhancing our ability to leverage total resources in a marketplace.

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Master fire protection services are primarily marketed to airport, industrial and other commercial sites and consist of on-site management and staffing of certified firefighters and emergency medical first responders.

Our fiscal 2007 second quarter and year-to-date results reflect our continued focus on enhancing shareholder value through:

• targeting new markets that present excellent opportunities for sustainable and profitable growth;

• expanding existing 911-emergency medical transportation markets as we seek to further leverage our fixed base of labor and fleet assets to serve a growing demand for non-emergency medical transportation services;

• aligning growth with developing industry trends, including opportunities to partner with municipal systems or hospital-based ambulance systems;

• managing our business through continued investments in technology, including billing systems, electronic patient care records, electronic data management and labor management systems;

• enhancing risk management and workplace safety in order to reduce insurance expenses; and

• continuing to reduce debt and improving the Company’s capital structure.

Operating Statistics

In evaluating our business, we monitor a number of key operating and financial statistics, including net/net EMS Average Patient Charge (“net/net EMS APC”), average Days Sales Outstanding (“DSO”, see further discussion in “Results of Operations” and “Liquidity and Capital Resources”), Earnings (income from continuing operations) Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), EBITDA adjusted for stock-based compensation, (gains) losses on sale of assets, impairment charges and other unusual or non-recurring transactional events (“adjusted EBITDA”), 911 and non-emergency medical transport volume (see further discussion in “Results of Operations”), alternative transport volume (see further discussion in “Results of Operations”) and fire subscriptions (see further discussion in “Results of Operations), among others.

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2006		2005 (As restated)		2006		2005 (As restated)
Net/net EMS APC (1)	$	341	$	347	$	341	$	344
DSO (2)		68		57		68		57
EBITDA (3)	$	13,891	$	16,110	$	28,397	$	32,880
Adjusted EBITDA (3)	$	14,029	$	16,313	$	29,635	$	32,443
Medical Transports (4)		269,939		260,697		537,194		519,985
Fire Subscriptions (5)		119,615		116,424		119,615		116,424

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

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

(3) See discussion of EBITDA and adjusted EBITDA along with a reconciliation of adjusted EBITDA to net cash provided by operating activities at “Liquidity and Capital Resources – EBITDA and Adjusted EBITDA”.

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

(5) Fire subscriptions are exclusive to our South and Southwest Segments.

Factors Affecting Operating Results

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

Transport Volume

Our medical transportation and related services business segment is dependent upon transport volume, which may increase or decrease depending on population growth, age demographics and seasonal or one-time factors. Additionally, non-emergency transport volume is dependent on the number of healthcare facilities within any given community and the concentration of competitors in that area. We typically provide non-emergency medical transportation services to large healthcare systems under preferred provider contracts. We compete for non-emergency transports originating from smaller healthcare facilities and long-term care centers that are not under contract.

Uncompensated Care

A significant portion of our revenue is derived from Medicare, Medicaid and commercial insurance payers, all of which receive discounts from our standard rates (contractual discounts). A factor within these payers would be the deductible or co-pay portion of the charge, which requires that we pursue the insured individual for reimbursement. We have also experienced an increase in the number of patients we transport who are uninsured, primarily under our 911 contracts. This trend is indicative of recent U.S. Census Bureau data that showed the number of uninsured Americans has reached an all-time high, primarily due to the erosion of employer-based insurance coverage.

Healthcare reimbursement is complicated and may result in extended collection cycles that are outside of management’s control. We have experienced an increase in third-party governmental and commercial payers. We believe that such payers have extended their reimbursement cycles by denying or impeding reimbursement for 911 and/or non-emergency medical transportation services through a series of repeated requests for duplicate or supplemental patient documentation.

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Several factors drive our uncompensated care, including the following:

• Patients we transport who are uninsured or otherwise have no ability to pay for our services (“self-pay”). Such patients have increased in volume from 11.1 percent of our transport mix in the first half of fiscal 2006 to approximately 13.1 percent in the first half of fiscal 2007. We believe that this increase is in line with overall U.S. healthcare trends specific to our locations. This is largely due to an increasing percentage of people who lack employer-sponsored coverage, with significant declines in health insurance coverage for those in the Southern and Western states.

• Rate increases. On a periodic basis, we evaluate our cost structure and payer mix within each area we serve and, as appropriate, request rate increases. Ambulance rate increases generate additional revenue only from certain commercial insurance programs and self-pay patients, due to the fixed rates, co-pay amounts and deductibles of payers such as Medicare, Medicaid and certain commercial insurance. Rate increases applied to patients who are self-pay patients can compound an already challenging collection process. Increasing the dollars per transport on this payer group may in turn result in an increase in the uncompensated care.

• Our methodology for reserving for uncompensated care. This methodology is based on a standardized procedure that includes periodic reviews of subsequent historical receipts to determine actual historical percentages. These percentages are utilized to determine current anticipated collection percentages, which are applied to gross revenue in order to calculate net revenue. Net revenue is defined as gross medical transportation revenue less provisions for discounts applicable to Medicare, Medicaid and other third-party payers and uncompensated care. Therefore, a sustained disruption in receipts from government or commercial payers may result in an increase in the level of uncompensated care due to various collection challenges related to older receivables.

• The quality of our billing documentation and procedures. Collection of complete and accurate patient billing information during an emergency service call is sometimes difficult due to the acuity of the patients we serve at the time patient care is rendered, and incomplete information hinders post-service collection efforts. As a result, we often receive partial or no compensation for our services.

Work Force Management

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

Insurance Programs

We continue to deploy our risk management strategy to close worker’s compensation and general liability claims promptly. We have also worked to minimize future insurance-related losses through proactive risk management and work place safety initiatives. These programs include the implementation of DriveCam technology in the ambulance fleet, ergonomic safety programs designed to reduce on-the-job injuries and complementary return to work, fit for duty and wellness programs.

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Contract Activity

New Contracts

We commenced service to several new markets during the first half of fiscal 2007, including the following:

• One-year contract as the preferred non-emergency medical transportation provider to Deaconess Hospital located in Cincinnati, Ohio, effective July 1, 2006;

• Three-year contract to provide exclusive airport fire fighting and emergency medical transportation services to the Sarasota Bradenton International Airport, effective October 1, 2006;

• Three-year contract as the preferred provider of non-emergency medical transportation services to Valley Medical Center in Renton, Washington, effective October 1, 2006;

• Three-year contract as the exclusive provider of emergency medical transportation services to the City of Spring Hill, Tennessee, effective November 1, 2006; and

• Ten-year contract as the exclusive provider of emergency medical transportation services within Butler County, Missouri and non-emergency transportation services to Poplar Bluff Regional Medical Center, effective December 15, 2006.

Contract Renewals

We were awarded various contract renewals throughout our operations during the first half of fiscal 2007 including the following:

• 15-month renewal of our long-standing contract to provide 911 medical transportation services in Orange County, Florida;

• Three-year renewal to continue as the preferred provider of emergency and non-emergency transportation services to Baptist Memorial Health Care System in Memphis, Tennessee;

• Five-year renewal to continue as the preferred provider of non-emergency medical transportation services and critical care medical transportation services to the University of Colorado Hospital located in Aurora, Colorado;

• Three-year renewal to continue providing specialty firefighting and emergency medical services to Morristown Municipal Airport located in Morristown, New Jersey; and

• Five-year renewal to continue providing emergency medical services to the City of Tucson, Arizona.

New Accounting Standards

FIN 48

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for us in the first quarter of fiscal 2008. We are currently evaluating the impact, if any, the adoption of FIN 48 will have on our consolidated financial statements and related disclosures.

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SFAS 157

In September 2006, the FASB issued Statement of Financial Accounting Standards Board (“SFAS”) Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosure about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for us in the first quarter of fiscal 2009. We are currently evaluating the impact, if any, the adoption of SFAS 157 will have on our consolidated financial statements and related disclosures.

SFAS 158

In September 2006, the FASB issued SFAS Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106, and 132R” (“SFAS 158”). This standard requires balance sheet recognition of the funded status for all pension and postretirement benefit plans in the year in which the changes occur through accumulated other comprehensive income. Additionally, this standard requires the measurement of the funded status of a plan as of the end of the employer’s fiscal year. The balance sheet recognition provisions of SFAS 158 are effective for us as of June 30, 2007, while the measurement date provisions are effective for the fiscal year ended June 30, 2009. As further discussed in Note 14, we have a defined benefit pension plan that will be subject to the provisions of SFAS 158. As of December 31, 2006, our defined benefit pension plan was overfunded. We are currently evaluating the impact, if any, the adoption of the balance sheet recognition provisions of SFAS 158 will have on our consolidated financial statements and related disclosures. As we currently measure the funded status of our plan as of the end of our fiscal year, the measurement date provisions will have no impact on our consolidated financial statements and related disclosures.

SAB 108

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). This statement provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of materiality assessment. For prior year immaterial misstatements that are considered material under SAB 108, a one-time transitional cumulative adjustment would be made to beginning retained earnings in the first interim period in which the statement is adopted. SAB 108 is effective for us on June 30, 2007.

FSP 123(R)-3

In November 2005, the FASB issued Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards” (“FSP 123(R)-3”). Under the provisions of FSP 123(R)-3, entities may follow either the transition guidance for the additional-paid-in-capital pool as prescribed by SFAS 123(R) or elect to use the alternative transition method as described in FSP 123(R)-3. 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 FSP 123(R)-3. We elected to use the alternative transition method provided in FSP 123(R)-3 to calculate the pool of windfall tax benefits as of the adoption date of SFAS 123(R).

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Results of Operations

Three Months Ended December 31, 2006 Compared to Three Months Ended December 31, 2005

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

For The Three Months Ended December 31, 2006 and 2005

(in thousands, except per share amounts)

	2006			% of Net Revenue		2005 (As restated)			% of Net Revenue		$ Change			% Change
Net revenue	$	116,941		100.0	%	$	113,396		100.0	%	$	3,545		3.1	%
Operating expenses:
Payroll and employee benefits		72,429		61.9	%		66,832		58.9	%		5,597		8.4	%
Depreciation and amortization		3,007		2.6	%		2,807		2.5	%		200		7.1	%
Other operating expenses		30,409		26.0	%		30,266		26.7	%		143		0.5	%
Loss on sale of assets		11		0.0	%		35		0.0	%		(24	)	(68.6	%)
Total operating expenses		105,856		90.5	%		99,940		88.1	%		5,916		5.9	%
Operating income		11,085		9.5	%		13,456		11.9	%		(2,371	)	(17.6	%)
Interest expense		(7,986	)	(6.8	%)		(7,748	)	(6.8	%)		(238	)	3.1	%
Interest income		140		0.1	%		172		0.2	%		(32	)	(18.6	%)
Income from continuing operations before income taxes and minority interest		3,239		2.8	%		5,880		5.2	%		(2,641	)	(44.9	%)
Income tax provision		(2,126	)	(1.8	%)		(2,412	)	(2.1	%)		286		(11.9	%)
Minority interest		(201	)	(0.2	%)		(153	)	(0.1	%)		(48	)	31.4	%
Income from continuing operations		912		0.8	%		3,315		2.9	%		(2,403	)	(72.5	%)
Income (loss) from discontinued operations, net of income taxes		383		0.3	%		(459	)	(0.4	%)		842		#
Net income	$	1,295		1.1	%	$	2,856		2.5	%	$	(1,561	)	(54.7	%)
Income per share
Basic -
Income from continuing operations	$	0.04				$	0.14				$	(0.10	)
Income (loss) from discontinued operations		0.01					(0.02	)				0.03
Net income	$	0.05				$	0.12				$	(0.07	)
Diluted-
Income from continuing operations	$	0.04				$	0.13				$	(0.09	)
Income (loss) from discontinued operations		0.01					(0.02	)				0.03
Net income	$	0.05				$	0.11				$	(0.06	)
Average number of common shares outstanding - Basic		24,581					24,330					251
Average number of common shares outstanding - Diluted		25,011					25,298					(287	)

# - Variances over 100% not displayed.

Net revenue growth of $3.5 million, or 3.1 percent, resulted from a $2.2 million, or 2.3 percent, increase in medical transportation and related services revenue and a $1.4 million, or 8.1 percent, increase in fire and other services revenue.

As a percentage of net revenue, operating expenses were 240 basis points higher for the three months ended December 31, 2006 compared to the prior period primarily due to a 300 basis point increase in payroll and employee benefits, partially offset by a 70 basis point reduction in other operating expenses, all as a percentage of net revenue. These fluctuations are described in further detail below.

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Net Revenue

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

	Three Months Ended December 31,
	2006		2005 (As restated)		$ Change		% Change
Medical transportation and related services	$	98,905	$	96,712	$	2,193	2.3	%
Fire and other services		18,036		16,684		1,352	8.1	%
Total net revenue	$	116,941	$	113,396	$	3,545	3.1	%

Medical Transportation and Related Services

Same service area revenue accounted for $0.9 million of the increase in medical transportation and related services revenue, of which $3.1 million, related to increased transports offset by a $2.2 million decrease due to decreased collectible rate. The remaining $1.3 million resulted from revenues generated under new contracts.

The following tables provide comparative details reflecting trends in transport volume on a quarterly basis. Results include same service area medical transports, new contracts, transports originating from 911 emergency calls and transports originating from non-emergency requests for medical transportation services.

A comparison of same service area and new contract medical transports is included in the table below:

	Three Months Ended December 31,
	2006	2005	Transport Change	% Change
Same service area medical transports	266,726	260,697	6,029	2.3	%
New contract medical transports	3,213	—	3,213	#
Medical transports from continuing operations	269,939	260,697	9,242	3.5	%

# - Variances over 100% not displayed

Medical transportation volume increased 3.5 percent from 260,697 transports for the three months ended December 31, 2005 to 269,939 for the three months ended December 31, 2006. This increase was a result of same service area transport growth of 6,029 transports and 3,213 transports from our new contracts in Utah and Washington.

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A comparison of total transports is included in the table below:

	Three Months Ended December 31,
	2006	2005	Transport Change		% Change
Emergency medical transports	128,325	118,242	10,083		8.5	%
Non-emergency medical transports	141,614	142,455	(841	)	(0.6	%)
Total medical transports	269,939	260,697	9,242		3.5	%
Alternative transports	22,159	19,183	2,976		15.5	%
Total transports from continuing operations	292,098	279,880	12,218		4.4	%

Total transportation volume increased by 12,218 transports, or 4.4 percent. Medical transport growth accounted for 75.6 percent of total transport growth, and the increase in alternative transports accounted for 24.4 percent of total transport growth. The increase in transports in our alternative transportation services (“ATS”) business is a function of the broad range of services provided to our non-emergency medical transportation customers.

Net/net EMS APC for the three months ended December 31, 2006 was $341 compared to $347 for the three months ended December 31, 2005. The 1.7 percent decrease was primarily due to an increase in the number of uninsured patients transported under our 911 contracts, as well as the sustained disruption in receipts from certain government payers.

Discounts applicable to contractual allowances related to continuing operations, which are reflected as a reduction of gross medical transportation revenue, totaled $67.3 million and $61.3 million for the three months ended December 31, 2006 and 2005, respectively. Such discounts represented 36.1 percent and 35.0 percent of gross medical transportation fees for the three months ended December 31, 2006 and 2005, respectively. The increase of 110 basis points is primarily a result of rate increases. Such rate increases are applicable to commercial insurance and self-pay patients. We are unable to pass on these rate increases to Medicare, Medicaid and certain other payers. The estimate for uncompensated care related to continuing operations, which are also reflected as a reduction of gross medical transport revenue, totaled $27.4 million and $23.4 million for the three months ended December 31, 2006 and 2005, respectively. As a percentage of gross medical transportation revenue, the uncompensated care was 14.7 percent and 13.4 percent for the three months ended December 31, 2006 and 2005.

The increase in uncompensated care is primarily a result of two components

• the impact of ambulance rate increases specific to our self-pay patients, and

• the increase in the number of uninsured patients being transported primarily under our 911 contracts.

Additionally, the impact of disruptions in our collections cycle has affected the estimate. During the second quarter of fiscal 2007, we continued to experience what we believe to be a permanent extension of the collection cycle related to certain Medicaid managed care payers in Arizona. To a lesser extent, we continued to experience collection delays stemming from Medicare patients’ transition to Medicare Advantage (“MA”) plans, primarily in the Southwest Segment. These disruptions in collections from government and private payers have caused an increase in uncompensated care. Management continues to closely monitor collection efforts for these impacted areas.

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Fire and Other Services

The increase in fire and other services revenue is primarily due to fire subscription revenue growth totaling $1.2 million, or 11.7 percent, of which $0.9 million, or 76.5 percent, was related to higher subscription rates and $0.3 million, or 23.5 percent, was related to an increase in the number of subscribers. Additionally, master fire fees increased $0.4 million due to increases in various master fire contract rates and other revenue decreased $0.6 million primarily due to hurricane relief revenue recognized in the prior year.

Operating Expenses

Payroll and Employee Benefits

Of the $5.6 million increase in payroll and employee benefits expense, $1.0 million is attributable to increased employee health insurance expenses due to higher claims paid under our self insurance programs. The Company has experienced an increase in total payroll expenses related to an overall increase in transport volume, wage rate increase under certain union contracts, and competitive wages offered in specific markets to counter paramedic shortages.

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 2007.

Other Operating Expenses

The $0.1 million increase in other operating expenses was primarily due to an increase in professional fees due to the Company’s proxy contest.

Interest Expense

The increase in interest expense is primarily due to the continued non-cash accretion of our Senior Discount Notes.

Income Tax Provision

During the three months ended December 31, 2006, we recorded a $2.0 million income tax provision related to continuing operations, including a deferred income tax provision of $1.9 million, resulting in an effective tax rate of 63.1 percent. This rate differs from the federal statutory rate of 35.0 percent primarily as a result of increases for the portion of non-cash interest expense related to our Senior Discount Notes, which is not deductible for income tax purposes, non-deductible executive compensation, and state income taxes. Additionally, our effective tax rate includes a reduction related to income included in pretax income that is attributable to the minority interest in our joint venture with the City of San Diego.

We also recorded $0.2 million income tax expense related to discontinued operations during the three months ended December 31, 2006. The Company income tax payments of $0.2 million for the three months ended December 31, 2006.

During the three months ended December 31, 2005, we recorded a $2.4 million income tax provision related to continuing operations, including a deferred income tax provision of $2.5 million, resulting in an effective tax rate of 41.0 percent. This rate differs from the federal statutory rate of 35.0 percent primarily as a result of increases for the portion of non-cash interest expense related to our Senior Discount Notes, which is not deductible for income tax purposes, non-deductible executive compensation, and state income taxes.

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We also recorded $0.2 million in income tax benefit related to discontinued operations during the three months ended December 31, 2005. The Company made income tax payments of $0.4 million for the three months ended December 31, 2005.

Minority Interest

Minority interest relates to the City of San Diego’s portion (50 percent) of the San Diego Medical Services Enterprise, LLC fiscal year-to-date net income.

Discontinued Operations

During the prior fiscal year, we made the decision to exit two medical transportation markets and, as a result, the financial results of these service areas for the three months ended December 31, 2006 and 2005 are included in income (loss) from discontinued operations.

For the three months ended December 31, 2006 and 2005, net revenue associated with discontinued service areas totaled zero and $4.0 million, respectively. Net income from discontinued operations for the three months ended December 31, 2006 was $0.5 million, net of income tax provision of $0.2 million. Net loss from discontinued operations for the three months ended December 31, 2005 was $0.5 million, net of income tax benefit of $0.2 million. Income from discontinued operations for the three months ended December 31, 2006 includes a pre-tax gain of $0.7 million due to the sale of a business license held by one of our subsidiaries, as well as $5,000 in legal expenses incurred for the settlement negotiations with the U.S. government regarding the alleged violation of the federal Anti-Kickback Statute in connection with certain contracts related to the Company’s discontinued operations in the State of Texas. 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 associated costs will be redirected to support new markets or for the expansion of existing service areas.

Three Months Ended December 31, 2006 Compared to Three Months Ended December 31, 2005 - Segments

Overview

We have four regional reporting segments that correspond with the manner in which our operations are managed and evaluated by our Chief Executive Officer. Although some of our operations do not align with the Segments’ geographic designation, all operations have been structured to capitalize on management’s strengths. These segments comprise operations within the following areas:

Segment	Operations
Mid-Atlantic	Georgia, New York, Ohio, Pennsylvania
South	Alabama, California (fire), Florida (fire), Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Dakota, New Jersey (fire), Ohio, Tennessee, Wisconsin
Southwest	Arizona, New Mexico, Oregon (fire), Utah
West	California (medical transportation), Florida (medical transportation), Colorado, Oregon (medical transportation), Nebraska, South Dakota, Washington

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Each reporting segment provides medical transportation services while our fire and other services are predominantly in the South and Southwest Segments.

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 interest. 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 transport volume, rates charged for such services, mix of payers, the acuity of the patients we transport, the mix of activity between emergency medical transportation services and non-emergency medical transportation services, our ability to negotiate government subsidies as well as other competitive and market factors. The main drivers of fire and other revenue are fire subscription rates and the number of subscribers. These drivers can vary significantly from market-to-market and can change over time.

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Mid-Atlantic

The following table presents financial results and key operating statistics for the Mid-Atlantic operations (in thousands, except medical transports, alternative transports, net/net EMS APC and DSO):

	Three Months Ended December 31,						$ Change			% Change
	2006			2005 (As restated)
Net revenue
Medical transportation and related services	$	23,835		$	23,236		$	599		2.6	%
Other services		838			846			(8	)	(1.1	%)
Total net revenue	$	24,673		$	24,082		$	591		2.5	%
Segment profit	$	4,456		$	3,867		$	589		15.2	%
Segment profit margin		18.1	%		16.1	%
Medical transports		72,039			71,016			1,023		1.4	%
Alternative transports		6,360			4,849			1,511		31.2	%
Net/net EMS APC	$	307		$	305		$	2		0.6	%
DSO		56			57			(1	)	(2.2	%)

The increase in the number of transports contributed $0.8 million of the increase in net medical transportation and related services revenue offset by a decrease in collectible rate of $0.2 million. Uncompensated care as a percentage of gross revenue increased from 10.6 percent in the second quarter of fiscal 2006 to 11.6 percent in the second quarter of fiscal 2007 primarily due to ambulance rate increases specific to self-pay patients, along with an increase in the number of uninsured patients transported under our 911 contracts. The increase in alternative transports is a function of the broad range of services provided to our non-emergency medical transportation customers.

Payroll-related expense as a percentage of net revenue decreased from 58.9 percent in the second quarter of fiscal 2006 to 56.3 percent in the second quarter of fiscal 2007 primarily due to reductions in headcount, health insurance costs and workers’ compensation expense partially offset by increased incentives. Other operating expenses as a percentage of net revenue increased from 21.5 percent in the second quarter of fiscal 2006 to 21.8 percent in the second quarter of fiscal 2007 primarily driven by a $0.2 million increase in operating supplies due to medical supplies inventory used in response to the increased transports.

The increase in net/net EMS APC was primarily a result of rate increases and the change in payer mix in certain markets.

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South

The following table presents financial results and key operating statistics for the South operations (in thousands, except medical transports, alternative transports, net/net EMS APC, fire subscriptions and DSO):

	Three Months Ended December 31,						$ Change			% Change
	2006			2005 (As restated)
Net revenue
Medical transportation and related services	$	17,109		$	16,068		$	1,041		6.5	%
Fire and other services		5,811			5,415			396		7.3	%
Total net revenue	$	22,920		$	21,483		$	1,437		6.7	%
Segment profit	$	2,529		$	2,697		$	(168	)	(6.2	%)
Segment profit margin		11.0	%		12.6	%
Medical transports		61,907			57,678			4,229		7.3	%
Alternative transports		4,638			3,016			1,622		53.8	%
Net/net EMS APC	$	257		$	260		$	(3	)	(1.2	%)
Fire subscriptions at period end		34,459			34,912			(453	)	(1.3	%)
DSO		73			64			9		13.9	%

The increase in the number of medical transports contributed to a $1.5 million increase in net medical transportation and related services revenue offset by a decrease in the collectible rate of $0.5 million. Uncompensated care as a percentage of gross revenue increased from 13.2 percent in the second quarter of fiscal 2006 to 13.8 percent for the second quarter of fiscal 2007 primarily due to ambulance rate increases specific to our self-pay patients. The increase in medical transports was primarily due to increases in the Indiana, Kentucky and Cincinnati markets. The increase in fire and other services revenue was driven by higher master fire contract fees in our specialty fire business line and higher fire subscription rates despite a slight decline in the number of fire subscriptions. The increase in alternative transports is specific to the Birmingham market where such transports were outsourced until August 2006.

Payroll related expense as a percentage of net revenue increased from 62.6 percent in the second quarter of fiscal 2006 to 64.1 percent in the second quarter of fiscal 2007 primarily due to beginning wage rate increases and sign-on bonuses used to attract and retain talent, an increase in overtime due to staffing shortages throughout the Segment and an across-the-board wage increase for employees under a Tennessee contract. Other operating expenses as a percentage of net revenue increased from 21.0 percent in the second quarter of fiscal 2006 to 21.2 percent in the second quarter of fiscal 2007 primarily driven by a $0.1 million increase in professional fees due to the use of lobbyists and a public relations firm in Tennessee.

DSO increased 9 days as a result of the change in collection patterns stemming from the consolidation of a regional billing location in fiscal 2006. The 9 day increase includes approximately 8 day associated with the discontinued New Jersey operations.

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Southwest

The following table presents financial results and key operating statistics for the Southwest operations (in thousands, except medical transports, alternative transports, net/net EMS APC, fire subscriptions and DSO):

	Three Months Ended December 31,						$ Change			% Change
	2006			2005 (As restated)
Net revenue
Medical transportation and related services	$	33,706		$	33,996		$	(290	)	(0.9	%)
Fire and other services		11,155			10,387			768		7.4	%
Total net revenue	$	44,861		$	44,383		$	478		1.1	%
Segment profit	$	4,781		$	6,927		$	(2,146	)	(31.0	%)
Segment profit margin		10.7	%		15.6	%
Medical transports		66,533			65,871			662		1.0	%
Alternative transports		3,376			3,770			(394	)	(10.5	%)
Net/net EMS APC	$	495		$	504		$	(9	)	(1.9	%)
Fire subscriptions at period end		85,156			81,512			3,644		4.5	%
DSO		62			41			21		50.5	%

The $0.3 million decrease in net medical transportation and related services revenue was driven by a $1.2 million increase from our new 911 contract in Utah offset by a $1.4 million decrease in same service area revenue. The $1.4 million decrease in same service area net medical transportation and related services revenue is the result of a $1.2 million decrease related to transport volume and a $0.2 million decrease in collectible rate. Uncompensated care as a percentage of gross medical transportation revenue increased from 11.6 percent in the second quarter of fiscal 2006 to 12.7 percent in the second quarter of fiscal 2007 primarily due to ambulance rate increases specific to our self-pay patients along with the increase in the number of uninsured patients transported under our 911 contracts. Additionally, we continued to experience what we believe to be a permanent extension of the collection cycle related to certain Medicaid managed care payers in Arizona. To a lesser extent, we continued to experience collection delays stemming from Medicare patients’ transition to MA plans. The increase in fire and other services revenue is primarily due to 4.5 percent growth in the number of fire subscriptions and higher fire subscription rates.

Payroll related expense as a percentage of net revenue increased from 56.0 percent in the second quarter of fiscal 2006 to 62.2 percent in the second quarter of fiscal 2007 primarily due to wage increases under union contracts, increased health insurance expense and increased pension funding requirements. Other operating expenses as a percentage of revenue decreased from 25.3 percent in the second quarter of fiscal 2006 to 23.6 percent in the second quarter of fiscal 2007 primarily driven by a $0.4 million reduction in vehicle related expenses.

The decrease in net/net EMS APC can primarily be attributed to the increase in uncompensated care, which is discussed in detail above.

DSO increased 21 days primarily as a result of the extended collection cycle related to increases in the number of self-pay patients, Medicaid payers in Arizona and the continued difficulty in collecting receivables from patients utilizing MA plans as discussed above. Of the 21 day increase, approximately 6 days are specific to the Medicaid issue.

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West

The following table presents financial results and key operating statistics for the West operations (in thousands, except medical transports, alternative transports, net/net EMS APC and DSO):

	Three Months Ended December 31,						$ Change			% Change
	2006			2005 (As restated)
Net revenue
Medical transportation and related services	$	24,255		$	23,412		$	843		3.6	%
Other services		232			36			196		#
Total net revenue	$	24,487		$	23,448		$	1,039		4.4	%
Segment profit	$	2,326		$	2,772		$	(446	)	(16.1	%)
Segment profit margin		9.5	%		11.8	%
Medical transports		69,460			66,132			3,328		5.0	%
Alternative transports		7,785			7,548			237		3.1	%
Net/net EMS APC	$	304		$	310		$	(6	)	(1.8	%)
DSO		85			76			9		12.1	%

The $0.8 million increase in medical transportation and related services revenue was driven by a $0.7 million increase in same service area revenue and a $0.1 million increase from our new contract in Washington. Of the $0.7 million increase in same service area revenue, $1.0 million related to increased transport volume offset by a decrease in collectible rate of $0.3 million. Uncompensated care as a percentage of gross medical transport revenue increased from 18.7 percent in the second quarter of fiscal 2006 to 19.8 percent in the second quarter of fiscal 2007 primarily due a change in payer mix in certain markets.

Payroll related expense as a percentage of net revenue increased from 53.1 percent in the second quarter of fiscal 2006 to 56.0 percent in the second quarter of fiscal 2007. The increase is attributable to increased wages and taxes due to the addition of personnel in San Diego. Other operating expenses as a percentage of net revenue decreased from 32.4 percent in the second quarter of fiscal 2006 to 31.8 percent in the second quarter of fiscal 2007 primarily driven by a $0.6 million decrease in expenses related to our partnership with the City of San Diego, partially offset by a $0.2 million increase in professional fees associated with franchise protection efforts in certain markets.

The decrease in net/net EMS APC can be attributed to the change in payer mix in certain markets.

DSO increased 9 days as a result of a disruption in collections related to certain Medicaid payers in Washington and Colorado.

49

Six Months Ended December 31, 2006 Compared to Six Months Ended December 31, 2005

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

For The Six Months Ended December 31, 2006 and 2005

(in thousands)

	2006			% of Net Revenue		2005 (As restated)			% of Net Revenue		$ Change			% Change
Net revenue	$	233,782		100.0	%	$	224,729		100.0	%	$	9,053		4.0	%
Operating expenses:
Payroll and employee benefits		145,370		62.2	%		132,751		59.1	%		12,619		9.5	%
Depreciation and amortization		6,027		2.6	%		5,528		2.5	%		499		9.0	%
Other operating expenses		59,033		25.3	%		60,090		26.7	%		(1,057	)	(1.8	%)
(Gain) loss on sale of assets		8		0.0	%		(1,307	)	(0.6	%)		1,315		#
Total operating expenses		210,438		90.0	%		197,062		87.7	%		13,376		6.8	%
Operating income		23,344		10.0	%		27,667		12.3	%		(4,323	)	(15.6	%)
Interest expense		(15,771	)	(6.7	%)		(15,256	)	(6.8	%)		(515	)	3.4	%
Interest income		260		0.1	%		325		0.1	%		(65	)	(20.0	%)
Income (loss) from continuing operations before income taxes and minority interest		7,833		3.4	%		12,736		5.7	%		(4,903	)	(38.5	%)
Income tax provision		(4,180	)	(1.8	%)		(5,916	)	2.6	%		1,736		(29.3	%)
Minority interest		(974	)	(0.4	%)		(315	)	0.1	%		(659	)	#
Income from continuing operations		2,679		1.1	%		6,505		2.9	%		(3,826	)	(58.8	%)
Income (loss) from discontinued operations, net of income taxes		369		0.2	%		(70	)	(0.0	%)		439		#
Net income	$	3,048		1.3	%	$	6,435		2.9	%	$	(3,387	)	(52.6	%)
Income (loss) per share
Basic -
Income from continuing operations	$	0.11				$	0.27				$	(0.16	)
Income (loss) from discontinued operations		0.01					(0.00	)				0.01
Net income	$	0.12				$	0.27				$	(0.15	)
Diluted-
Income from continuing operations	$	0.11				$	0.26				$	(0.15	)
Income (loss) from discontinued operations		0.01					(0.01	)				0.02
Net income	$	0.12				$	0.25				$	(0.13	)
Average number of common shares outstanding - Basic		24,546					24,281					265
Average number of common shares outstanding - Diluted		24,953					25,280					(327	)

# - Variances over 100% not displayed.

Net revenue growth of $9.1 million, or 4.0 percent, resulted from a $5.6 million, or 2.9 percent, increase in medical transportation and related services revenue and a $3.4 million, or 10.5 percent, increase in fire and other services revenue.

As a percentage of net revenue, operating expenses were 230 basis points higher for the six months ended December 31, 2006 compared to the prior period primarily due to a 310 basis point increase in payroll and employee benefits and a 1,000 basis point decrease in net gain on sale of assets, partially offset by a 140 basis point reduction in other operating expenses, all as a percentage of net revenue. These fluctuations are described in further detail below.

50

Net Revenue

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

	Six Months Ended December 31,
	2006		2005 (As restated)		$ Change		% Change
Medical transportation and related services	$	197,374	$	191,770	$	5,604	2.9	%
Fire and other services		36,408		32,959		3,449	10.5	%
Total net revenue	$	233,782	$	224,729	$	9,053	4.0	%

Medical Transportation and Related Services

Same service area revenue accounted for $2.0 million, or 34.9 percent, of the increase in medical transportation and related services revenue, of which $4.3 million related to increased transports offset by a decrease in collectible rate of $2.3 million. The remaining $3.6 million, or 65.1 percent, resulted from revenues generated under new contracts.

The following tables provide comparative details reflecting trends in transport volume on a quarterly basis. Results include same service area medical transports, new contracts, transports originating from 911 emergency calls and transports originating from non-emergency requests for medical transportation services.

A comparison of same service area and new contract medical transports is included in the table below:

	Six Months Ended December 31,
	2006	2005	Transport Change	% Change
Same service area medical transports	527,101	519,985	7,116	1.4	%
New contract medical transports	10,093	—	10,093	#
Medical transports from continuing operations	537,194	519,985	17,209	3.3	%

# - Variances over 100% not displayed

Medical transportation volume increased 3.3 percent from 519,985 transports for the six months ended December 31, 2005 to 537,194 for the six months ended December 31, 2006. This increase was a result of same service area transport growth of 7,116 transports and 10,093 transports from our new contracts in Florida, Utah and Washington.

51

A comparison of total transports is included in the table below:

	Six Months Ended December 31,
	2006	2005	Transport Change	% Change
Emergency medical transports	249,405	233,105	16,300	7.0	%
Non-emergency medical transports	287,789	286,880	909	0.3	%
Total medical transports	537,194	519,985	17,209	3.3	%
Alternative transports	43,279	37,905	5,374	14.2	%
Total transports from continuing operations	580,473	557,890	22,583	4.0	%

Total transportation volume increased by 22,583 transports, or 4.0 percent. Medical transport growth accounted for 76.2 percent of total transport growth, and the increase in alternative transports accounted for 23.8 percent of total transport growth. The 14.2 percent increase in transports in our ATS business is a function of the broad range of services provided to our non-emergency medical transportation customers.

Net/net EMS APC for the six months ended December 31, 2006 was $341 compared to $344 for the six months ended December 31, 2005. The 0.9% decrease was primarily due to an increase in the number of uninsured patients transported under our 911 contracts, as well as the sustained disruption in receipts from certain government payers.

Discounts applicable to contractual allowances related to continuing operations, which are reflected as a reduction of gross medical transportation revenue, totaled $132.9 million and $119.0 million for the six months ended December 31, 2006 and 2005, respectively. Such discounts represented 35.8 percent and 34.6 percent of gross medical transportation fees for the six months ended December 31, 2006 and 2005, respectively. The increase of 120 basis points is primarily a result of rate increases. Such rate increases are applicable to commercial insurance and self-pay patients. We are unable to pass on these rate increases to Medicare, Medicaid and certain other payers. The estimate for uncompensated care related to continuing operations, which are also reflected as a reduction of gross medical transport revenue, totaled $54.7 million and $45.9 million for the six months ended December 31, 2006 and 2005, respectively. As a percentage of gross medical transport revenue, the uncompensated care was 14.8 percent and 13.4 percent for the six months ended December 31, 2006 and 2005, respectively.

The increase in uncompensated care is primarily a result of two components:

• the impact of ambulance rate increases specific to our self-pay patients, and

• the increase in the number of uninsured patients being transported primarily under our 911 contracts.

Additionally, the impact of disruptions in our collections cycle has affected the estimate. We continued to experience what we believe to be a permanent extension of the collection cycle related to certain Medicaid managed care payers in Arizona. During the second quarter of fiscal 2007, to a lesser extent, we continued to experience collection delays stemming from Medicare patients’ transition to MA plans, primarily in the Southwest Segment. Finally, in the first quarter of fiscal 2007 we experienced delays in collections from the consolidation of three regional billing locations in fiscal 2006, directly affecting the Mid-Atlantic and South Segments. These disruptions in collections from government and private payers have caused an increase in uncompensated care. Management continues to closely monitor collection efforts for these impacted areas.

52

Fire and Other Services

The increase in fire and other services revenue is primarily due to fire subscription revenue growth totaling $2.7 million, or 13.0 percent, of which $2.1 million, or 78.9 percent, was related to higher subscription rates and $0.6 million, or 21.1 percent, was related to an increase in the number of subscribers. Additionally, master fire fees increased $0.8 million due to increases in various master fire contract rates and other revenue decreased $0.5 million primarily due to hurricane relief revenue recognized in the prior year.

Operating Expenses

Payroll and Employee Benefits

Of the $12.6 million increase in payroll and employee benefits expense, $2.1 million is due to increased health insurance expense due to higher claims paid under our self insurance programs, $1.1 million is related to severance benefits pursuant to the employment agreement of the Company’s former Chief Financial Officer, with the balance related to wage rate increases under certain union contracts, as well as competitive wages offered in specific markets to counter paramedic shortages, and an increase in transport volume.

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 2007.

Other Operating Expenses

The decrease in other operating expenses was primarily due to a decrease in professional fees resulting from higher accounting and auditing fees associated with Section 404 of the Sarbanes-Oxley Act in the prior year.

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 three months ended September 30, 2005. Cash proceeds from this transaction totaled $1.6 million.

Interest Expense

The increase in interest expense is primarily due to the continued non-cash accretion of our Senior Discount Notes.

Income Tax Provision

Our income tax provision consists primarily of deferred income tax expense, as we utilize net operating loss carryforwards to reduce federal and state taxes currently payable and the associated deferred tax benefits are realized. As a result, minimal current cash payments are required.

During the six months ended December 31, 2006, we recorded a $4.2 million income tax provision related to continuing operations, including a deferred income tax provision of $3.7 million, resulting in an effective tax rate of 53.4 percent. This rate differs from the federal statutory rate of 35.0 percent primarily as a result of increases for the portion of non-cash interest expense related to our Senior Discount Notes, which is not deductible for income tax purposes, non-deductible executive compensation, and state income taxes. Additionally, our effective tax rate includes a reduction related to income included in pretax income that is attributable to the minority interest in our joint venture with the City of San Diego. The effective tax rate for the six months ended December 31, 2006

53

differs from the effective tax rate for the year ended June 30, 2006 primarily as a result of adjustments to prior year tax provisions included in the tax provision for the year ended June 30, 2006 that increased the effective tax rate by 4%.

We also recorded $0.2 million in income tax expense related to discontinued operations during the six months ended December 31, 2006. The Company received income tax refunds of $8,200 and made income tax payments of $0.2 million for the six months ended December 31, 2006.

During the six months ended December 31, 2005, we recorded a $5.9 million income tax provision related to continuing operations, including a deferred income tax provision of $5.5 million, resulting in an effective tax rate of 46.4 percent. This rate differs from the federal statutory rate of 35.0 percent primarily as a result of increases for the portion of non-cash interest expense related to our Senior Discount Notes, which is not deductible for income tax purposes, non-deductible executive compensation, and state income taxes.

We also recorded $19,000 in income tax expense related to discontinued operations during the six months ended December 31, 2005. The Company made income tax payments of $0.4 million for the six months ended December 31, 2005.

Minority Interest

Minority interest relates to the City of San Diego’s portion (50 percent) of the San Diego Medical Services Enterprise, LLC fiscal year-to-date net income.

Discontinued Operations

During the prior fiscal year, we made the decision to exit two medical transportation markets and, as a result, the financial results of these service areas for the six months ended December 31, 2006 and 2005 are included in income (loss) from discontinued operations.

For the six months ended December 31, 2006 and 2005, net revenue associated with discontinued service areas totaled zero and $12.9 million, respectively. Net income from discontinued operations for the six months ended December 31, 2006 was $340,000, net of income tax expense of $220,000. Net loss from discontinued operations for the six months ended December 31, 2005 was $70,000, net of income tax expense of $19,000. Income from discontinued operations for the six months ended December 31, 2006 includes a pre-tax gain of $0.7 million due to the sale of a business license held by one of our subsidiaries, as well as a $0.1 million reversal of closure-related costs due to the true-up of certain estimated accrual items related to our discontinued operations in the City of Augusta, Georgia as well as legal expenses incurred for the settlement negotiations with the U.S. government regarding the alleged violation of the federal Anti-Kickback Statute in connection with certain contracts related to our discontinued operations in the State of Texas. 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 associated costs will be redirected to support new markets or for the expansion of existing service areas.

54

Six Months Ended December 31, 2006 Compared to Six Months Ended December 31, 2005 - Segments

Mid-Atlantic

The following table presents financial results and key operating statistics for the Mid-Atlantic operations (in thousands, except medical transports, alternative transports, net/net EMS APC and DSO):

	Six Months Ended December 31,						$ Change			% Change
	2006			2005 (As restated)
Net revenue
Medical transportation and related services	$	48,497		$	47,515		$	982		2.1	%
Other services		1,862			1,705			157		9.2	%
Total net revenue	$	50,359		$	49,220		$	1,139		2.3	%
Segment profit	$	9,806		$	8,301		$	1,505		18.1	%
Segment profit margin		19.5	%		16.9	%
Medical transports		145,348			144,997			351		0.2	%
Alternative transports		12,273			10,056			2,217		22.0	%
Net/net EMS APC	$	309		$	303		$	6		1.8	%
DSO		56			57			(1	)	(2.2	%)

The increase in medical transportation rates contributed $0.8 million, or 80.3 percent to the increase in net medical transportation and related services revenue while the increase in the number of medical transports contributed $0.2 million, or 19.7 percent to the increase in net medical transportation revenue. Uncompensated care as a percentage of gross medical transport revenue increased from 10.4 percent in the first half of fiscal 2006 to 11.6 percent in the first half of fiscal 2007 primarily due to a change in collection patterns stemming from the consolidation of two regional billing locations in fiscal 2006, ambulance rate increases specific to our self-pay patients along with the increase in the number of uninsured patients transported under our 911 contracts. The increase in alternative transports is a function of the broad range of services provided to our non-emergency medical transportation customers.

Payroll-related expense as a percentage of net revenue decreased from 58.2 percent in the first half of fiscal 2006 to 55.1 percent in the first half of fiscal 2007 primarily due to reductions in headcount, health insurance costs and unemployment and workers’ compensation expense partially offset by increased fill-in wages. Other operating expenses as a percentage of net revenue decreased from 20.9 percent in the first half of fiscal 2006 to 20.4 percent in the first half of fiscal 2007 primarily driven by a decrease in general liability insurance costs, partially offset by an increase in vehicle related expenses.

The increase in net/net EMS APC was primarily a result of rate increases and a change in payer mix in certain markets.

55

South

The following table presents financial results and key operating statistics for the South operations (in thousands, except medical transports, alternative transports, net/net EMS APC, fire subscriptions and DSO):

	Six Months Ended December 31,						$ Change			% Change
	2006			2005 (As restated)
Net revenue
Medical transportation and related services	$	33,407		$	33,093		$	314		1.0	%
Fire and other services		11,544			10,720			824		7.7	%
Total net revenue	$	44,951		$	43,813		$	1,138		2.6	%
Segment profit	$	4,640		$	5,868		$	(1,228	)	(21.0	%)
Segment profit margin		10.3	%		13.4	%
Medical transports		121,183			117,062			4,121		3.5	%
Alternative transports		8,271			6,437			1,834		28.5	%
Net/net EMS APC	$	254		$	263		$	(9	)	(3.1	%)
Fire subscriptions at period end		34,459			34,912			(453	)	(1.3	%)
DSO		73			64			9		13.9	%

The increase in the number of transports contributed to a $1.6 million increase in net medical transportation and related services revenue offset by a decrease in collectible rate of $1.3 million. The increase in medical transports was primarily due to increases in the Indiana, Kentucky and Cincinnati markets. Uncompensated care as a percentage of net revenue increased from 13.0 percent in the first half of fiscal 2006 to 14.6 percent for the first half of fiscal 2007 primarily due to a change in collection patterns stemming from consolidation of a regional billing location in fiscal 2006 and ambulance rate increases specific to our self-pay patients. The increase in fire and other services revenue was driven by higher master fire contract fees in our specialty fire business line and higher fire subscription rates despite a slight decline in the number of fire subscriptions. The increase in alternative transports is specific to the Birmingham market where such transports were outsourced until August 2006.

Payroll related expense as a percentage of net revenue increased from 61.1 percent in the first half of fiscal 2006 to 64.7 percent in the first half of fiscal 2007 primarily due to beginning wage rate increases and sign-on bonuses used to attract and retain talent, an increase in overtime due to staffing shortages throughout the Segment and an across-the-board wage increase for employees under a Tennessee contract. Other operating expenses as a percentage of net revenue declined from 21.2 percent in the first half of fiscal 2006 to 20.0 percent in the first half of fiscal 2007 primarily driven by a $0.3 million reduction in vehicle related expenses.

The decrease in net/net EMS APC can be attributed to the increase in the uncompensated care, which is discussed in detail above, as well as a shift in payer mix in certain markets.

DSO increased 9 days as a result of the change in collection patterns stemming from the consolidation of a regional billing location in fiscal 2006. The 9 day increase includes approximately 8 day associated with the discontinued New Jersey operations.

56

Southwest

The following table presents financial results and key operating statistics for the Southwest operations (in thousands, except medical transports, alternative transports, net/net EMS APC, fire subscriptions and DSO):

	Six Months Ended December 31,						$ Change			% Change
	2006			2005 (As restated)
Net revenue
Medical transportation and related services	$	66,447		$	65,541		$	906		1.4	%
Fire and other services		22,502			20,459			2,043		10.0	%
Total net revenue	$	88,949		$	86,000		$	2,949		3.4	%
Segment profit	$	8,876		$	14,696		$	(5,820	)	(39.6	%)
Segment profit margin		10.0	%		17.1	%
Medical transports		132,071			127,994			4,077		3.2	%
Alternative transports		6,741			7,074			(333	)	(4.7	%)
Net/net EMS APC	$	492		$	501		$	(9	)	(1.7	%)
Fire subscriptions at period end		85,156			81,512			3,644		4.5	%
DSO		62			41			21		50.5	%

The $0.9 million increase in medical transportation and related services revenue was driven by a $2.4 million increase from our new 911 contract in Utah offset by a $1.5 million decrease in same service area revenue. The $1.5 million decrease in same service area medical transportation and related services revenue is the result of $1.0 million decrease in collectible rate and a $0.5 million decrease related to transport volume. Uncompensated care as a percentage of gross medical transport revenue increased from 11.4 percent in the first half of fiscal 2006 to 12.7 percent in the first half of fiscal 2007 primarily due to ambulance rate increases specific to our self-pay patients along with the increase in the number of uninsured patients transported under our 911 contracts. Additionally, we continued to experience what we believe to be a permanent extension of the collection cycle related to certain Medicaid managed care payers in Arizona. To a lesser extent, throughout the second quarter of fiscal 2007 we continued to experience collection delays stemming from Medicare patients’ transition to MA plans. The increase in fire and other services revenue is primarily due to 4.5 percent growth in the number of fire subscriptions and higher fire subscription rates.

Payroll related expense as a percentage of net revenue increased from 56.2 percent in the first half of fiscal 2006 to 61.7 percent in the first half of fiscal 2007 primarily due to wage increases under union contracts, increased headcount, increased health insurance expense and increased pension funding requirements. Other operating expenses as a percentage of revenue decreased from 24.8 percent in the first half of fiscal 2006 to 23.6 percent in the first half of fiscal 2007 primarily driven by a $0.7 million reduction in vehicle related expenses.

The decrease in net/net EMS APC can primarily be attributed to the increase in the uncompensated care, which is discussed in detail above.

DSO increased 21 days primarily as a result of the extended collection cycle related to Medicaid payers in Arizona and the continued difficulty in collecting receivables from patients utilizing MA plans as discussed above. Of the 21 day increase, approximately 6 days are specific to the Medicaid issue.

57

West

The following table presents financial results and key operating statistics for the West operations (in thousands, except medical transports, alternative transports, net/net EMS APC and DSO):

	Six Months Ended December 31,						$ Change		% Change
	2006			2005 (As restated)
Net revenue
Medical transportation and related services	$	49,023		$	45,621		$	3,402	7.5	%
Other services		500			75			425	564.2	%
Total net revenue	$	49,523		$	45,696		$	3,827	8.4	%
Segment profit	$	6,049		$	4,330		$	1,719	39.7	%
Segment profit margin		12.2	%		9.5	%
Medical transports		138,592			129,932			8,660	6.7	%
Alternative transports		15,994			14,338			1,656	11.5	%
Net/net EMS APC	$	307		$	307			—	—
DSO		85			76			9	12.1	%

The $3.4 million increase in medical transportation and related services revenue was driven by a $2.2 million increase in same service area revenue and a $1.2 million increase from our new contracts in Florida and Washington. Of the $2.2 million increase in same service area medical transportation and related services revenue, $1.9 million, or 86.6 percent related to increased transport volume, and $0.3 million, or 13.4 percent related to increased rates. Uncompensated care as a percentage of gross medical transport revenue increased from 18.7 percent in the first half of fiscal 2006 to 19.6 percent in the first half of fiscal 2007 primarily due to a change in payer mix in certain markets.

Payroll related expense as a percentage of net revenue increased from 54.0 percent in the first half of fiscal 2006 to 54.5 percent in the first half of fiscal 2007 attributable to increased wages and taxes due to the hiring of paramedics in the San Diego operation that were historically independent contractors and thus reflected in other operating expenses. Other operating expenses as a percentage of net revenue decreased from 33.9 percent in the first half of fiscal 2006 to 29.7 percent in the first half of fiscal 2007 primarily driven by a $1.5 million decrease in independent contractor fees expensed related to our San Diego operations. We have now hired these independent contractor and thus reflect this expense above in payroll related expense. This is partially offset by a $0.5 million increase in professional fees incurred in fiscal 2007 associated with franchise protection efforts in certain markets and a $0.2 million increase in general liability insurance costs.

DSO increased 9 days as a result of a disruption in collections related to certain Medicaid payers in Washington and Colorado.

58

Liquidity and Capital Resources

Our ability to service our long-term debt, to remain in compliance with the various restrictions and covenants contained in our debt agreements and to fund working capital, capital expenditures and business development efforts will depend on our 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 our control.

If we fail to generate sufficient cash flow from operating activities, we may need to borrow additional funds or issue additional debt or equity securities to achieve our longer-term business objectives. There can be no assurance that we will be able to borrow such funds or issue such debt or equity securities or, if we can, that we can do so at rates or prices acceptable to us. Management believes that cash flow from operating activities coupled with existing cash balances and amounts available under our $20.0 million Revolving Credit Facility will be adequate to fund our operating and capital needs as well as enable us to maintain compliance with our various debt agreements through December 31, 2007. To the extent that actual results or events differ from our financial projections or business plans, our liquidity may be adversely impacted. See Explanatory Note and Notes 2 and 3 to the consolidated financial statements.

Cash Flow

Throughout the year, we experience significant periodic outflows of cash for debt service, capital expenditures, workers compensation and general liability insurance premium deposits, 401(k) matching contributions and management bonuses.

These outflows include $6.2 million in semi-annual interest payments on our Senior Subordinated Notes payable on September 15 and March 15. Additionally, during each of the six months ended December 31, 2006 and 2005 we made $7.0 million in unscheduled principal payments and made $4.2 million and $3.8 million, respectively, in interest payments associated with our Term Loan B. In addition to cash outflows associated with debt service, we made payments totaling $7.4 million and $9.1 million, respectively, for capital expenditures, made payments of $1.2 million and $0.5 million, respectively, associated with our defined benefit pension plan and made payments of $4.4 million and $4.0 million, respectively, associated with our Management Incentive Plan during the six months ended December 31, 2006 and 2005. During the six months ended December 31, 2005, we paid a settlement of $0.5 million in conjunction with a legal matter in Sioux Falls, South Dakota.

Deposits on our annual workers’ compensation and general liability insurance programs are typically paid in the fourth quarter of the fiscal year. These deposits totaled $2.6 million and $5.8 million in fiscal 2006 and 2005, respectively.

The table below summarizes cash flow information for the three months ended December 31, 2006 and 2005 (in thousands):

	Six Months Ended December 31,
	2006			2005 (As restated)
Net cash provided by operating activities	$	12,664		$	5,796
Net cash used in investing activities		(544	)		(15,137	)
Net cash used in financing activities		(7,362	)		(6,862	)

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Operating Activities

Net cash provided by operating activities totaled $12.7 million and $5.8 million for the six months ended December 31, 2006 and 2005, respectively. The $3.4 million decrease in net income and the $10.6 million increase in net operating assets from the first half of fiscal 2006 to the corresponding period of fiscal 2007 were partially offset by a $.3 million increase in non-cash charges. The decrease in net income is primarily attributable to a gain recognized on the sale of real estate in Arizona during the first quarter of fiscal 2006 and severance benefits expense associated with the employment agreement of the Company’s former Chief Financial Officer during the first quarter of fiscal 2007. The increase in net operating assets is primarily attributable to growth in medical transportation revenue and the impact of disruptions of our collections cycle, an increase in prepaid assets due to increased current general liability and workers compensation insurance premiums and an increase in other liabilities due to a decrease in the long-term portion of general liability insurance claims reserves, partially offset by an increase in other assets due to a decrease in the long-term portion of the general liability insurance receivable. The increase in non-cash items is primarily attributable to an increase in insurance adjustments pursuant to the independent actuarial reviews performed on our insurance programs, as well as the previously mentioned gain on real estate, partially offset by depreciation and amortization expenses, accretion on the 12.75% Senior Discount Notes and a decrease in deferred income tax benefit relating to the utilization of a portion of our net operating loss carryforwards,

We had working capital of $44.1 million at December 31, 2006, including cash, cash equivalents and short-term investments of $7.8 million, compared to working capital of $40.8 million, including cash, cash equivalents and short-term investments of $9.2 million, at June 30, 2006. The increase in working capital as of December 31, 2006 is primarily related to higher net accounts receivable due to the previously mentioned growth in medical transportation revenue and the impact of disruptions of our collections cycle, higher prepaid expenses due to increased general liability insurance premiums, and a decrease in accrued bonuses, partially offset by a decrease in the current portion of the deferred tax asset relating to utilization of a portion of our net operating loss carryforwards.

DSO increased 11 days from December 31, 2005 to December 31, 2006, primarily due to the disruption in collections related to certain Medicaid managed care payers in Arizona which accounts for 2 days of the 11 day total increase. Additionally, collection delays stemming from the consolidation of three regional billing locations in fiscal 2006 also contributed to the increase in DSO.

Investing Activities

Cash used in investing activities includes the purchase and sale of short-term investments, capital expenditures and proceeds from the sale of property and equipment. We invest excess funds in highly liquid, short-term taxable auction rate securities. We had net sales of such securities of $6.2 million during the six months ended December 31, 2006 and net purchases of $7.6 million during the six months ended December 31, 2005. We had capital expenditures totaling $7.4 million and $9.1 million for the six months ended December 31, 2006 and 2005, respectively.

Financing Activities

Financing activities include the tax benefits from the exercise of stock options, proceeds from the issuance of common stock, repayment of debt and minority shareholder distributions. The reduction in current year stock option exercises contributed to a $0.4 million decrease in cash provided by the issuance of common stock and a $0.3 million decrease in the tax benefit realized from the exercise of such options. During the six months ended December 31, 2006 and 2005, we made distributions of $0.5 million and $0.2 million, respectively, to the City of San Diego, the minority shareholder in our medical services joint venture.

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Debt Covenants

The 2005 Credit Facility, Senior Subordinated Notes and Senior Discount Notes include various financial and non-financial covenants as well as quarterly and annual financial reporting obligations.

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

We were in compliance with all of our covenants, as amended, under our 2005 Credit Facility at December 31, 2006. Due to the restatement of the financial statements, we did not timely file this Quarterly Report on Form 10-Q for the quarter ended December 31, 2006, as disclosed on Form 12b-25 filed on February 12, 2007. As a result, we received a notice of default on February 22, 2007 from the trustee of its 9.875% Senior Subordinated Notes due 2015, and its 12.75% Senior Discount Notes due 2016. Any default under the Indentures that govern the notes also constitutes an “event of default” under the 2005 Credit Facility and could lead to an acceleration of the unpaid principal and accrued interest under the 2005 Credit Facility, unless a waiver is obtained. On March 13, 2007, we obtained a waiver under the 2005 Credit Facility for any defaults relating to the restatement and the untimely filing of this Form 10-Q. In addition, any default under the notes relating to the untimely filing of this Form 10-Q, will be cured within the 60-day cure period (expires April 23, 2007) upon the filing of this report with the SEC. See Note 16 to the consolidated financial statements.

	Level Specified in Agreement	Level Achieved for Specified Period	Levels to be Achieved at
Financial Covenant			March 31, 2007	June 30, 2007
Debt leverage ratio	< 4.75	3.84	< 4.75		< 4.75
Interest expense coverage ratio	> 2.00	2.67	> 2.00		> 2.00
Fixed charge coverage ratio	> 1.10	1.42	> 1.10		> 1.10
Maintenance capital expenditure (1), (2)	N/A	N/A	N/A	< $	22.0 million
New business capital expenditure (2)	N/A	N/A	N/A	< $	4.0 million

(1) Capital expended in the normal course of operating in existing markets.

(2) Measured annually at June 30^th.

EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA are key indicators that management uses to evaluate our operating performance. While EBITDA and adjusted EBITDA are not intended to replace any presentation included in our consolidated financial statements under generally accepted accounting principles (“GAAP”) and should not be considered an alternative to 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.

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The following table sets forth our EBITDA and adjusted EBITDA for the three and six months ended December 31, 2006 and 2005, as well as a reconciliation to income from continuing operations, the most directly comparable financial measure under GAAP (in thousands):

	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005 (As restated)			2006			2005 (As restated)
Income from continuing operations	$	912		$	3,315		$	2,679		$	6,505
Add back:
Depreciation and amortization		3,007			2,807			6,027			5,528
Interest expense on borrowings		5,463			5,374			10,992			10,807
Amortization of deferred financing costs		589			665			1,007			1,100
Accretion of 12.75% Senior Discount Notes		1,934			1,709			3,772			3,349
Interest income		(140	)		(172	)		(260	)		(325	)
Income tax provision		2,126			2,412			4,180			5,916
EBITDA from continuing operations	$	13,891		$	16,110		$	28,397		$	32,880
EBITDA from discontinued operations		583			(558	)		560			141
The items listed below have not been included as adjustments in the above calculation of EBITDA:
Stock-based compensation (benefit) expense		—			7			(7	)		16
(Gain) loss on sale of property and equipment		(664	)		41			(667	)		(1,307	)
Debt amendment fees		47			500			47			500
Debt issuance cost write-offs		172			213			172			213
Executive severance (1)		—			—			1,133			—
Adjusted EBITDA from all operations	$	14,029		$	16,313		$	29,635		$	32,443
Increase (decrease):
Items added back to arrive at EBITDA		(12,979	)		(12,795	)		(25,718	)		(26,375	)
Items added back to arrive at Adjusted EBITDA		445			(761	)		(678	)		578
Income tax benefit (provision) on discontinued operations		(200	)		199			(191	)		(19	)
Depreciation and amortization on discontinued operations		—			(100	)		—			(192	)
Depreciation and amortization		3,008			2,907			6,028			5,720
Accretion of 12.75% Senior Discount Notes		1,934			1,709			3,772			3,349
Deferred income taxes		2,175			2,136			3,803			5,302
Insurance adjustments		(3,128	)		(2,387	)		(3,128	)		(2,387	)
Amortization of deferred financing costs		589			665			1,007			1,100
Undistributed earnings of minority shareholder		202			153			975			315
(Gain) loss on sale of property and equipment		(664	)		41			(667	)		(1,307	)
Stock based compensation (benefit) expense		—			7			(7	)		16
Changes in operating assets and liabilities		2,511			(7,278	)		(2,167	)		(12,747	)
Net cash provided by operating activities	$	7,922		$	809		$	12,664		$	5,796

(1) At December 31, 2006, the Company had accrued approximately $1.1 million in severance benefits pursuant to the employment agreement of the Company’s former Chief Financial Officer. This amount is included in payroll and employee benefits expense in the consolidated statement of operations for the six months ended December 31, 2006.

For the three months ended December 31, 2006, consolidated EBITDA from continuing operations of $13.9 million included a 130 basis point increase in uncompensated care as a percentage of gross medical transport revenue. Consolidated EBITDA from continuing operations for the three months ended December 31, 2005 was $16.1 million.

For the six months ended December 31, 2006, consolidated EBITDA from continuing operations of $28.4 million included a 140 basis point increase in uncompensated care as a percentage of gross medical transport revenue and the negative impact of a $0.7 million increase in minority interest associated with our joint venture with the City of San Diego. Consolidated EBITDA from continuing operations for the six months ended December 31, 2005 of $32.9 million included the positive impact of a $1.3 million gain on the sale of real estate in Arizona.

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Subsequent Events

Unscheduled principal payment

On March 22, 2007, we, through our wholly owned subsidiary, Rural/Metro LLC, made an $7.0 million unscheduled principal payment on our Term Loan B. In connection with this payment, we wrote-off approximately $0.2 million of deferred financing costs during the third quarter of fiscal 2007.

Withdrawal of Shelf Registration Statement

On March 22, 2007, we announced that we will withdraw our Registration Statement on Form S-3 that was previously filed with the SEC on February 8, 2006. The Registration Statement has not been declared effective by the SEC, and no securities were sold in connection with the Registration Statement.

Credit Facility Amendment No. 5

On January 18, 2007, the Company amended the 2005 Credit Facility (“Amendment No. 5”). See further discussion in Note 8 to the consolidated financial statements.

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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 2.25 percent and amounts drawn under our Revolving Credit Facility bear interest at LIBOR plus 3.25 percent. Based on amounts outstanding under Term Loan B at December 31, 2006, a 1 percent increase in the LIBOR rate would increase our interest expense on an annual basis by approximately $1.0 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. We had no investments in auction rate securities at December 31, 2006.

Item 4. Controls and Procedures

Restatement

As discussed in Item 4.02 (a) of the Company’s Current Report on Form 8-K, dated February 13, 2007, management of the Company has amended its Annual Report on Form 10-K for the year ended June 30, 2006 to restate the Company’s annual consolidated financial statements as of and for the years ended June 30, 2006, 2005 and 2004 and the interim consolidated financial statements for each of the quarters within the years ended June 30, 2006 and 2005. Additionally, management of the Company has amended its Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 to restate the Company’s interim consolidated financial statements for the quarter ended September 30, 2006. The determination to restate these consolidated financial statements was made as a result of the Company’s identification of certain material errors relating to its accounting for inventory. Specifically, the Company has determined that certain durable medical supply items were incorrectly included in inventory.

Evaluation of Disclosure Controls and Procedures

Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Report (the fiscal quarter ended December 31, 2006). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2006 because of the material weakness described below.

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 will not be prevented or detected. Management identified the following material weakness in internal control over financial reporting as of June 30, 2006, which continued to exist as of December 31, 2006. The Company did not maintain effective internal controls over the classification of certain durable medical supply items within inventory. Specifically, the Company did not have effective procedures to detect that certain durable medical supply items were improperly included in inventory. This control deficiency resulted in the restatement of the Company’s fiscal 2006, 2005 and 2004 annual consolidated financial statements, the interim consolidated financial statements for each of the quarters within the fiscal years in 2006 and 2005, and the interim consolidated financial statements for the quarter ended September 30, 2006. Additionally, this control deficiency could result in a material misstatement of inventory and operating expenses that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected.

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Remediation of Material Weakness in Internal Control Over Financial Reporting

In an effort to remediate the material weakness described above and in connection with the preparation of its Amended Annual Report on Form 10-K/A for fiscal 2006, and its Amended Quarterly Reports on Form 10-Q/A for the interim periods ended March 31, 2006 and September 30, 2006, the Company has conducted and completed a review of its controls relating to accounting for inventory, and corrected its method of accounting. These steps were completed subsequent to December 31, 2006 but prior to the filing date of this Form 10-Q. While the remediation measures have improved the design effectiveness of our internal control over financial reporting, the newly designed controls have not yet operated for a sufficient period of time to demonstrate operating effectiveness. We continue to monitor and assess our remediation activities to ensure that the material weakness discussed above is remediated as soon as practicable. Additionally, management intends to enhance its controls and procedures related to the performance and analysis of periodic physical inventory counts so as to properly identify items that should be excluded from the inventory balance. Management currently expects that these steps will be completed by June 30, 2007.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) that occurred during the three month period ended December 31, 2006 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information.

Item 1. Legal Proceedings

The information contained in Footnote 15 to the consolidated financial statements is hereby incorporated by referenced into this Part II – Item 1 of this report.

ITEM 1A. Risk Factors

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

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

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

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

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

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

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

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

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

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

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

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

Our revenues may decline if Medicare reduces its reimbursement rates or otherwise changes its current Medicare fee schedule. We received approximately 27 percent and 28 percent of our medical transportation fee collections from Medicare during fiscal 2006 and 2005, respectively. Any reductions in reimbursement rates or other changes to the Medicare fee schedule could result in a reduction in reimbursements we receive for our medical transportation services.

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

State or local government regulations or administrative policies regulate the rates we can charge in some states for medical transportation services. For example, the State of Arizona establishes the rates we may charge in the various communities we serve in that state. Medical transportation services revenue generated in Arizona accounted for approximately 33 percent and 31 percent of net revenue for fiscal 2006 and 2005, respectively. In some service areas in other states in which we are the exclusive provider of services, the municipality or fire district sets the rates for emergency medical transportation services pursuant to a master contract and establishes the rates for general medical transportation services that we are permitted to charge. In areas where we are regulated, there is no assurance that we will receive medical transportation service rate increases on a timely basis, or at all.

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

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

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

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

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

Changes to existing programs also can create unanticipated risks.

Certain governmental actions could:

• change existing laws, rules or regulations;

• adopt new laws, rules or regulations that increase our cost of doing business;

• lower reimbursement levels; or,

• otherwise adversely affect our business, financial condition, results of operations or cash flows.

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

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

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

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

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

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

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

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

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

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

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

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

Healthcare laws and regulations may change significantly in the future. We monitor these developments and modify our operations from time to time where we perceive a need to do so in response to the regulatory changes. However, we cannot assure you that any new healthcare laws or regulations will not materially adversely affect our business. We cannot assure you that a review of our business by judicial, law enforcement, or regulatory authorities will not result in a determination that could adversely affect our operations or that healthcare regulation will not change in a way that may have a material adverse effect on our business, financial condition, results of operations or cash flows.

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

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

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

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

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

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

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

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

As we announced on February 14, 2007, our historical financial information should no longer be relied upon.

On February 14, 2007, we announced that management of the Company had concluded, and the Audit Committee had approved the conclusion, that due solely to our error in improperly including certain durable medical supply items within inventory, the Company’s consolidated financial statements as of and for the years ended June 30, 2006, 2005 and 2004, and the interim periods therein, and the unaudited condensed consolidated financial statements as and for the three months ended September 30, 2006, and any related financial information, should no longer be relied upon.

Until we are able to become current with our filings with the SEC, we may face several adverse consequences.

As described above, we have delayed filing our Quarterly Report on Form 10-Q for the quarter ended December 31, 2006 and, although we are working as quickly as possible to complete our restatement and return to current filing status, we cannot provide assurance as to when this process will be completed. Because we are not current with our filings with the SEC, investors in our securities do not have the information required by SEC rules regarding our business and financial condition with which to make decisions regarding investment in our securities. In addition, until we are current with our SEC filings, the SEC will not declare a registration statement covering a public offering of securities effective under the Securities Act of 1933, and we will not be able to make offerings pursuant to existing registration statements or pursuant to certain “private placement” rules of the SEC under Regulation D to any purchasers not qualifying as “accredited investors.” We also will not be eligible to use a “short form” registration statement on Form S-3 to make equity or debt offerings for a period of 12 months after the time we become current in our filings. These restrictions could adversely affect our ability to raise capital, as well as our business, financial condition and results of operations. In addition, as discussed in the risk factor below, if we are not able to make these filings by April 23, 2007, our ability to obtain immediate and continued access to additional liquidity would likely be impaired, unless we received waivers or amendments from our lenders. We cannot assure you that these amendments or waivers will be received.

In addition, due to the need for restatement of the financial statements identified above, the Company did not timely file the Quarterly Report on Form 10-Q for the quarter ended December 31, 2006, as disclosed on Form 12b-25 filed on February 12, 2007. As a result, the Company received a notice of default on February 22, 2007 from the trustee of its 9.875% Senior Subordinated Notes due 2015, and its 12.75% Senior Discount Notes due 2016. Any default under the Indentures that govern the notes also constitutes an “event of default” under the Company’s 2005 Credit Facility and could lead to an acceleration of the unpaid principal and accrued interest under the 2005 Credit Facility, unless a waiver is obtained. On March 13, 2007, the Company obtained a waiver of any defaults, including the event of default described above, under its 2005 Credit Facility. In addition, any default under the notes relating to the untimely filing of the Quarterly Report on Form 10-Q for the quarter ended December 31, 2006, will be cured within the 60-day cure period (April 23, 2007) upon the filing of such with the SEC. We cannot assure that we will be able to file the Quarterly Report on Form 10-Q for the quarter ended December 31, 2006 by April 23, 2007, or if we are not able to make these filings by April 23, 2007, that we will be able to obtain additional amendments or waivers.

Material weaknesses or deficiencies in our internal control over financial reporting could harm stockholder and business confidence on our financial reporting, our ability to obtain financing and other aspects of our business. Maintaining an effective system of internal control over financial reporting is necessary for us to provide reliable financial reports.

Management reevaluated the Management Report on Internal Control Over Financial Reporting included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2006 (the “2006 Management Internal Control Report”). We concluded that we had a material weakness in our internal control related to inventory. The existence of a material weakness as of June 30, 2006 would preclude management from concluding that the Company’s internal control over financial reporting was effective as of June 30, 2006. The Company intends to amend its 2006 Management Internal Control Report. The existence of a material weakness is an indication that there is more than a remote likelihood that a material misstatement of our financial statements will not be prevented or detected. As a result of this material weakness, management’s assessment as of June 30, 2006 will conclude that our internal control over financial reporting is ineffective. It is also possible that additional material weaknesses will be identified in the future.

Because we will conclude that our internal control over financial reporting is not effective and because we expect our independent registered public accountants to issue an adverse opinion on the effectiveness of our internal controls over financial reporting, and to the extent we identify future weaknesses or deficiencies, there could be material misstatements in our financial statements and we could fail to meet our financial reporting obligations. As a result, our ability to obtain additional financing, or obtain additional financing on favorable terms, could be materially and adversely affected which, in turn, could materially and adversely affect our business, our financial condition and the market value of our securities. In addition, perceptions of us could also be adversely affected among customers, lenders, investors, securities analysts and others. This current material weakness or any future weaknesses or deficiencies could also hurt confidence in our business and consolidated financial statements and our ability to do business with these groups.

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

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

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We are dependent on maintaining our business relationships.

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

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

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

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

Our new contracts increasingly involve a competitive bidding process. When we obtain new contracts, we must accurately assess the costs we will incur in providing services, as well as other factors such as expected transport volume, geographical issues affecting response time and the implementation of technology upgrades, in order to realize adequate profit margins or otherwise meet our financial and strategic objectives. Increasing pressures from healthcare payers to restrict or reduce reimbursement rates at a time when the costs of providing medical services continue to increase make assessing the costs associated with the pricing of new contracts, as well as maintenance of existing contracts, more difficult. In addition, integrating new contracts, particularly those in new geographic locations, could prove more costly, and could require more management time, than we anticipate. Our failure to accurately predict costs or to negotiate an adequate profit margin could have a material adverse effect on our business, financial condition, results of operations or cash flows. We face risks in attempting to terminate unfavorable contracts prior to their stated termination date because of the possibility of forfeiting performance bonds and the potential material adverse effect on our public relations, business, financial condition, results of operations or cash flows.

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

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

• quality of medical care;

• historical response time performance;

• customer service;

• financial stability;

• personnel policies and practices;

• managerial strength; and

• cost.

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

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

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

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

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

• we will be able to successfully compete with private providers of fire protection services.

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

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

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

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

We may not pay dividends.

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

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

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

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

We held our annual meeting of stockholders in Scottsdale, Arizona, on December 1, 2006, and adjourned until December 11, 2006, when it concluded. The matters before the meeting were:

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

• The ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2007.

The following individuals were elected at the annual meeting as directors to serve a three-year term or until their respective successors are duly elected and qualified:

Election of Directors	For	Withheld	Abstentions	Broker Non-Votes
Cor J. Clement, Sr.	12,240,026	2,010,858	—	—
Henry G. Walker	12,241,186	2,009,698	—	—

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In addition, Class I Directors (Jack E. Brucker, Mary Anne Carpenter and Conrad A. Conrad) and Class II Directors (Louis G. Jekel and Robert E. Wilson) continued their respective terms of office following the 2006 annual meeting of stockholders.

The following individuals were not elected as directors at the annual meeting:

Election of Directors	For	Withheld	Abstentions	Broker Non-Votes
Gabe Hoffman	5,559,039	64,724	—	—
Nicole Viglucci	5,558,742	65,021	—	—

Our stockholders ratified the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2007. Votes totaled 19,785,896 for, 75,546 against, 13,204 abstentions and no broker non-votes.

Item 5. Other Information

Effective March 22, 2007, we entered into a change of control agreement with Kristine B. Ponczak, Senior Vice President and Chief Financial Officer. The agreement provides benefits upon the occurrence of both of two triggering events: (i) a change of control; and (ii) within two years after the change in control, the surviving entity or individuals in control terminate Ms. Ponczak’s employment without cause, or Ms. Ponczak terminates employment for good reason. Upon the occurrence of both triggers, but subject to the limitation described in the last sentence of this paragraph, Ms. Ponczak will receive a sum equal to (A) 200% of (i) her annual base salary, and (ii) the amount of incentive compensation paid or payable to her during the calendar year preceding the calendar year in which the change of control occurs, plus (B) the full amount of any payments due under her employment agreement. The agreement further provides that Ms. Ponczak is entitled to receive certain benefits, including the acceleration of exercisability of stock options or the payment of the value of such stock options in the event they are not accelerated or replaced with comparable options. Health and other benefits received under the change of control agreement will be reduced or eliminated to the extent such benefits are received under an employment agreement. The aggregate payment may not exceed 2.99 times the amount of annualized includable compensation received by Ms. Ponczak as determined under the Internal Revenue Code.

For purposes of the change of control agreement, “good reason” includes a reduction of duties and/or salary, the surviving entity’s failure to assume the executive’s employment and change of control agreement, or relocation of more than 50 miles from the current corporate headquarters. A “change of control” includes (i) the acquisition of beneficial ownership by certain persons, acting alone or in concert with others, of 30% or more of the combined voting power of the Company’s then-outstanding voting securities; (ii) during any two-year period, the Board members at the beginning of such period cease to constitute at least a majority thereof (except that any new Board member approved by at least two-thirds of the Board members then still in office, who where directors at the beginning of such period, is considered to be a member of the current Board); or (iii) approval by the Company’s stockholders of certain reorganizations, mergers, consolidations, liquidations, or sales of all or substantially all of our assets.

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Item 6. Exhibits

Exhibits

10.1 Amendment No. 5, dated as of January 18, 2007 to the Credit Agreement, dated as of March 4, 2005, among Rural/Metro Operating Company LLC, as borrower; the lenders party thereto; Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A., as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc, as joint lead arrangers and joint lead bookrunners. ⁽¹⁾

10.2 Waiver, dated March 13, 2007, among Rural/Metro Operating Company LLC, as borrower; the lenders party thereto; Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A., as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc, as joint lead arrangers and joint lead bookrunners. ⁽²⁾

10.3 Change of Control Agreement by and between the Registrant and Kristine B. Ponczak, dated March 20, 2007. * **

18.1 Preferability Letter from PricewaterhouseCoopers LLP *

31.1 Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended *

31.2 Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended *

32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002 ⁺

32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002 ⁺

⁽¹⁾ Incorporated by reference to the Registrant’s Form 8-K Current Report filed with the Commission on January 23, 2007.

⁽²⁾ Incorporated by reference to the Registrant’s Form 8-K Current Report filed with the Commission on March 19, 2007.

* Filed herewith.

** Management contracts or compensatory plan or arrangement.

+ 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: March 22, 2007
	By:	/s/ Jack E. Brucker
		Jack E. Brucker, President & Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Kristine Beian Ponczak
		Kristine Beian Ponczak, Senior Vice President and Chief Financial Officer (Principal Financial Officer)
	By:	/s/ Gregory A. Barber
		Gregory A. Barber, Vice President and Controller (Principal Accounting Officer)

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Exhibit Index

10.1 Amendment No. 5, dated as of January 18, 2007 to the Credit Agreement, dated as of March 4, 2005, among Rural/Metro Operating Company LLC, as borrower; the lenders party thereto; Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A., as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc, as joint lead arrangers and joint lead bookrunners. ⁽¹⁾

10.2 Waiver, dated March 13, 2007, among Rural/Metro Operating Company LLC, as borrower; the lenders party thereto; Citibank, N.A., as LC facility issuing bank; Citicorp North America, Inc., as administrative agent for the lenders; JPMorgan Chase Bank, N.A., as syndication agent; and Citigroup Global Markets Inc. and J.P. Morgan Securities Inc, as joint lead arrangers and joint lead bookrunners. ⁽²⁾

10.3 Change of Control Agreement by and between the Registrant and Kristine A. Beian-Ponczak, dated March 20, 2007.* **

18.1 Preferability Letter from PricewaterhouseCoopers LLP*

31.1 Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*

31.2 Certification pursuant to Rule 13a – 14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended*

32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002+

32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002+

⁽¹⁾ Incorporated by reference to the Registrant’s Form 8-K Current Report filed with the Commission on January 23, 2007.

⁽²⁾ Incorporated by reference to the Registrant’s Form 8-K Current Report filed with the Commission on March 19, 2007.

* Filed herewith.

** Management contracts or compensatory plan or arrangement.

+ Furnished but not filed.

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EX-10.3

Exhibit 10.3

March 20, 2007

Kristine B. Ponczak

c/o Rural/Metro Corporation

9221 East Via de Ventura

Scottsdale, Arizona 85258

Re: Change of Control Agreement

Dear Kristi:

Our Board of Directors (the “Board”) has concluded that it is in the best interests of Rural/Metro Corporation (“Rural/Metro”) and its stockholders to take appropriate steps to allay any concerns you may have had about your future employment opportunities with Rural/Metro and its subsidiaries (Rural/Metro and its subsidiaries are collectively referred to as the “Company”). As a result, the Board hereby offers you a special package of benefits described in this Change of Control Agreement (“Agreement”).

Please note that the special benefits package described below will only be effective if you sign the extra copy of this Agreement which is enclosed, and return it to the Company on or before March 22, 2007.

1. TERM OF AGREEMENT.

This Agreement is effective as of March 22, 2007, and will continue in effect as long as you are actively employed by Rural/Metro, unless you and Rural/Metro agree in writing to its termination.

2. ELIGIBILITY FOR COC PAYMENT.

You will receive the “COC Payment,” as defined in Section 3, if:

(a) Your employment with the Company is terminated without “Cause” (as defined in Section 9) within two years following a Change of Control; or

(b) You terminate your employment with the Company for “Good Reason” (as defined in Section 8) within two years following a Change of Control.

Notwithstanding the foregoing, no COC Payment will be payable if your employment is terminated for Cause, if you terminate your employment without Good Reason, or if your employment is terminated by reason of your “Disability” (as defined in Section 11(d)) or your death. In addition, the COC Payment will not be payable if your employment is

Kristine B. Ponczak

Page 2

terminated by you or the Company for any or no reason before a Change of Control occurs or if your employment is terminated by you or the Company for any or no reason more than two years after a Change of Control has occurred.

In order to receive the COC Payment, you must execute any release reasonably requested by Rural/Metro of claims that you may have pursuant to this Agreement (but not any other claims).

The COC Payment will be payable without regard to whether you look for or obtain alternative employment following your termination of employment with the Company.

3. COMPUTATION OF COC PAYMENT.

The “COC Payment” is a lump sum payment equal to the sum of: (a) 200% of your annualized base salary as of the day on which the Change of Control occurs; plus (b) 200% of an amount equal to (i) the incentive compensation paid or payable to you pursuant to our Management Incentive Program on account of performance during the calendar year immediately preceding the calendar year in which the Change of Control occurs and (ii) any other bonuses or incentive compensation paid or payable to you for such year. The COC Payment is in addition to and distinct from any payments to which you may be entitled due to your termination pursuant to the terms of your “Employment Agreement” (as defined in Section 21), any applicable law, or otherwise.

The COC Payment will be paid in one lump sum within five days following your termination of employment provided, however, that if, at the time of your termination of employment, you are a “specified employee” within the meaning of Section 409A of the Internal Revenue Code (the “Code”) and are subject to the provisions of Section 409A(a)(2)(B) of the Code (or any comparable successor provision), the COC Payment will be paid in one lump sum on the date that is six months after the date of your “separation from service” from the Company (as such term is defined for purposes of Section 409A of the Code). In the event of your death, any unpaid portion of the COC Payment will be paid immediately to your surviving spouse or, if there is no surviving spouse, to your family trust or, if there is no family trust, to your estate.

4. ACCELERATION OF OR PAYMENT FOR OPTIONS.

If an agreement is entered into that will result in a Change of Control, before the Change of Control occurs the Board will accelerate the vesting and exercisability of any options you hold to acquire Company stock that, pursuant to their terms, are not yet vested and exercisable (the “Existing Options”). As a general rule, the Existing Options and any other options that you hold will remain exercisable following the Change of Control until the options lapse in accordance with their terms. However, if your employment with the Company is

Kristine B. Ponczak

Page 3

terminated without “Cause” within two years following a Change of Control or you terminate your employment with the Company for “Good Reason” within two years following a Change of Control, the Existing Options and any other options that you hold will remain exercisable until (i) in the case of an option that does not qualify as an incentive stock option under Section 422 of the Code, the later of ninety days after the last day of the Benefit Period (as defined below), or ten years after the Grant Date or (ii) in the case of an incentive stock option, ten years after the Grant Date (five years after the Grant Date if the Options are incentive stock options and you are a shareholder who at the Grant Date owned stock possessing more than 10% of the combined voting power of all classes of stock of Rural/Metro or any parent or subsidiary of Rural/Metro). The “Benefit Period” shall be as defined in Section 8 of your Employment Agreement (if applicable), but not less than two years after termination of employment for purposes of this Agreement.

5. BENEFITS CONTINUATION.

If your employment is terminated by the Company without Cause, or if you terminate your employment for Good Reason, within two years following a Change of Control, you will continue to receive life, disability, accident and group health insurance benefits substantially similar to those which you were receiving immediately prior to your termination of employment for a period of twenty-four (24) months following your termination of employment. Such benefits shall be provided on substantially the same terms and conditions as they were provided prior to the Change of Control. If a particular insurance benefit may not be continued for any reason, the Company shall pay a “Benefit Allowance” to the Executive. The Benefit Allowance will equal 145% of the cost to Rural/Metro of providing the unavailable insurance benefit to a similarly situated employee. The Benefit Allowance shall be paid on a monthly basis or in a single lump sum. The cost of providing the unavailable benefit to a similarly situated employee and whether the Benefit Allowance will be paid in monthly installments or in a lump sum will be determined by Rural/Metro in the exercise of its discretion.

The Company does not intend to provide duplicative benefits. As a result, benefits otherwise receivable pursuant to this Section shall be reduced or eliminated if and to the extent that you receive such benefits pursuant to your Employment Agreement.

Benefits otherwise receivable pursuant to this Section also shall be reduced or eliminated if and to the extent that you receive comparable benefits from any other source (for example, another employer).

6. INCENTIVE COMPENSATION.

If you are employed by the Company on the day on which a Change of Control occurs, the incentive compensation to which you will be entitled under the Management

Kristine B. Ponczak

Page 4

Incentive Program for the calendar year in which the Change of Control occurs will equal at least the “Minimum Incentive Compensation Amount”. The “Minimum Incentive Compensation Amount” will equal the incentive compensation to which you would have been entitled if the year were to end on the day on which the Change of Control occurs, based upon performance up to that date. In measuring financial performance, financial results through the date of the Change of Control will be annualized.

7. CHANGE OF CONTROL DEFINED.

For purposes of this Agreement, the term Change of Control shall mean any one or more of the following transactions or situations:

(a) A sale, transfer, or other disposition by Rural/Metro through a single transaction or a series of transactions of securities of Rural/Metro representing 30% or more of the combined voting power of Rural/Metro’s then outstanding securities to any “Unrelated Person” or “Unrelated Persons” acting in concert with one another. For purposes of this Section, the term “Person” shall mean and include any individual, partnership, joint venture, association, trust, corporation, or other entity (including a “group” as referred to in Section 13(d)(3) of the Securities Exchange Act of 1934 (the “Act”)). For purposes of this Section, the term “Unrelated Person” shall mean and include any Person other than: Rural/Metro, a wholly-owned subsidiary of Rural/Metro, or an employee benefit plan of Rural/Metro.

(b) A sale, transfer, or other disposition through a single transaction or a series of transactions of all or substantially all of the assets of Rural/Metro to an Unrelated Person or Unrelated Persons acting in concert with one another.

(c) A change in the ownership of Rural/Metro through a single transaction or a series of transactions such that any Unrelated Person or Unrelated Persons acting in concert with one another become the “Beneficial Owner”, directly or indirectly, of securities of Rural/Metro representing at least 30% of the combined voting power of Rural/Metro’s then outstanding securities. For purposes of this Section, the term “Beneficial Owner” shall have the same meaning as given to that term in Rule l3d-3 promulgated under the Act, provided that any pledgee of voting securities shall not be deemed to be the Beneficial Owner thereof prior to its acquisition of voting rights with respect to such securities.

(d) Any consolidation or merger of Rural/Metro with or into an Unrelated Person, unless immediately after the consolidation or merger the holders of the common stock of Rural/Metro immediately prior to the consolidation or merger are the Beneficial Owners of securities of the surviving corporation representing at least 50% of the combined voting power of the surviving corporation’s then outstanding securities.

Kristine B. Ponczak

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(e) During any period of two (2) years, individuals who, at the beginning of such period, constituted the Board of Directors of Rural/Metro cease, for any reason, to constitute at least a majority thereof, unless the election or nomination for election of each new director was approved by the vote of at least two-thirds (2/3rds) of the directors then still in office who were directors at the beginning of such period.

(f) A change in control of Rural/Metro of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Act, or any successor regulation of similar import, regardless of whether Rural/Metro is subject to such reporting requirement.

Notwithstanding any provision herein to the contrary, the filing of a proceeding for the reorganization of Rural/Metro under Chapter 11 of the Federal Bankruptcy Code or any successor or other statute of similar import shall not be deemed to be a Change of Control for purpose of this Agreement.

If more than one of the transactions or situations referred to above occurs during the term of this Agreement, each shall be treated as a separate Change of Control.

8. GOOD REASON DEFINED.

For purposes of this Agreement, “Good Reason” shall mean any one or more of the following:

(a) The failure of Rural/Metro to cause any successor to expressly assume and agree to perform this Agreement pursuant to Section 12 hereof.

(b) Any purported termination by Rural/Metro of your employment that is not effected by a Notice of Termination pursuant to Section 11 below or for grounds not constituting Cause.

(c) You are assigned duties inconsistent with the positions, duties, responsibility and status of the Senior Vice President and Chief Financial Officer of Rural/Metro;

(d) You are required to relocate to an employment location that is more than fifty (50) miles from your current employment location (which the parties agree is Rural/Metro’s present Scottsdale headquarters); or

(e) Your base salary rate is reduced to a level that is at least ten percent (10%) less than the salary paid to you during the immediately prior calendar year, unless you

Kristine B. Ponczak

Page 6

have agreed to said reduction or unless Rural/Metro makes an across-the-board reduction that applies to all executives.

9. CAUSE DEFINED.

For purposes of this Agreement, the term “Cause” shall be given the meaning ascribed to such term in your Employment Agreement, and shall be determined in the same manner as provided in your Employment Agreement, as it may be amended from time to time. If no written Employment Agreement is in effect at the time of your termination of employment, “Cause” shall be given the meaning ascribed to it in the last written Employment Agreement that was in effect between you and the Company that included a definition of “Cause”.

10. CEILING ON BENEFITS.

The Internal Revenue Code (the “Code”) places significant tax burdens on you and the Company if the total payments made to you due to a Change of Control exceed prescribed limits. For example, if your limit is $300,000 and the total payments equal or exceed the limit, you are subject to an excise tax under Section 4999 of the Code of 20% of all amounts paid to you in excess of $100,000. If your limit is $300,000, you will not be subject to an excise tax if you receive $299,999. If you receive $300,000, you will be subject to an excise tax of $40,000 (20% of $200,000).

In order to avoid this excise tax and the related adverse tax consequences for the Company, by signing this Agreement, you will be agreeing that the present value of your “Total Payments” (as defined below) will not exceed an amount equal to two and ninety-nine hundredths (2.99) times your “Base Period Income” (as defined below). This is the maximum amount which you may receive without becoming subject to the excise tax imposed by Section 4999 of the Code or which the Company may pay without loss of deduction under Section 280G of the Code.

“Base Period Income” is an amount equal to your “annualized includable compensation” for the “base period” as defined in Sections 280G(d)(1) and (2) of the Code and the regulations adopted thereunder. Generally, your “annualized includable compensation” is the average of your annual taxable income from the Company for the “base period”, which is the five calendar years prior to the year in which the Change of Control occurs. These concepts are complicated and technical and all of the rules set forth in the applicable regulations apply for purposes of this Agreement.

Your “Total Payments” include the sum of the COC Payment and any other “payments in the nature of compensation” (as defined in Section 280G of the Code and the

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regulations adopted thereunder) to or for your benefit, the receipt of which is contingent on a Change of Control and to which Section 280G of the Code applies.

If Rural/Metro believes that these rules will result in a reduction of the payments to which you are entitled under this Agreement, it will so advise you within 60 days following delivery of the “Notice of Termination” described in Section 11. You and Rural/Metro will then, at Rural/Metro’s expense, retain legal counsel, certified public accountants, and/or a firm of recognized executive compensation consultants to provide an opinion or opinions concerning whether your Total Payments exceed the limit discussed above.

Rural/Metro will select the legal counsel, certified public accountants and executive compensation consultants. If you do not accept one or more of the parties selected by Rural/Metro, you may provide Rural/Metro with the names of legal counsel, certified public accountants and/or executive compensation consultants acceptable to you. If Rural/Metro does not accept the party or parties selected by you, the legal counsel, certified public accountants and/or executive compensation consultants selected by you and Rural/Metro, respectively, will select the legal counsel, certified public accountants and/or executive compensation consultants to provide the opinions required.

At a minimum, the opinions required by this Section must set forth (a) the amount of your Base Period Income, (b) the present value of the Total Payments and (c) the amount and present value of any payments in excess of 3 times your Base Period Income.

If the opinions state that there would be such an excess, your payments under this Agreement will be reduced to the extent necessary to eliminate the excess. If the legal counsel or certified public accountants selected to provide the opinions referred to above so requests in connection with the opinion required by this Section, a firm of recognized executive compensation consultants, selected by you and Rural/Metro pursuant to the procedures set forth above, shall provide an opinion, upon which such legal counsel or certified public accountants may rely, as to the reasonableness of any item of compensation as reasonable compensation for services rendered before or after the Change of Control.

If Rural/Metro believes that your Total Payments will exceed the limitations of this Section, it will nonetheless make payments to you, at the times stated above, in the maximum amount that it believes may be paid without exceeding such limitations. The balance, if any, will then be paid after the opinions called for above have been received. If the amount paid to you by Rural/Metro is ultimately determined, pursuant to the opinion referred to above or by the Internal Revenue Service, to have exceeded the limitation of this Section, Rural/Metro will promptly pay you an additional amount in cash (the “Gross-up Payment”) equal to the sum of any excise tax imposed pursuant to Section 4999 of the Code or any comparable provision of state or local law (an “Excise Tax”) and all taxes, interest and penalties including, without

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limitation, any federal, state and local income taxes payable by you as a result of the receipt of the Gross-up Payment, or as a result of any liability for or the withholding or the assessment of any Excise Tax or the receipt of the Gross-up Payment. For such purposes, federal income taxes shall be determined net of the maximum reduction in such federal income taxes that could be obtained from the deduction of such state and local taxes as calculated by (i) taking into account the effects of all limitations on the deductibility for federal income tax purposes of such state and local taxes (including without limitation the nondeductibility of state and local taxes for federal alternative minimum tax purposes, limitations on deductibility of itemized deductions or miscellaneous itemized deductions, and the phase-out of personal exemptions, (ii) assuming that your only income consists of compensation paid to you by Rural/Metro, and (iii) utilizing your actual itemized deductions other than for state and local income taxes for your taxable year immediately preceding the taxable year the Gross-Up Payment is to be made. It is intended that under this provision Rural/Metro will indemnify you in such a manner that you shall not suffer any loss or expense by reason of the assessment of any Excise Tax or your receipt of or entitlement to the Gross-Up Payment. For purposes of this Agreement, “federal income taxes” include, without limitation, federal alternative minimum taxes.

In the event that the provisions of Sections 280G and 4999 of the Code are repealed without succession, this Section shall be of no further force or effect.

11. TERMINATION NOTICE AND PROCEDURE.

Any termination by the Company or you of your employment shall be communicated by written Notice of Termination to you if such Notice of Termination is delivered by the Company and to the Company if such Notice of Termination is delivered by you, all in accordance with the following procedures:

(a) The Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances alleged to provide a basis for termination.

(b) Any Notice of Termination by the Company shall be in writing signed by the Chairman of the Board of Rural/Metro, specifying in detail the basis for such termination.

(c) If the Company shall furnish a Notice of Termination for Cause and you in good faith notify the Company that a dispute exists concerning such termination within the 15 day period following your receipt of such notice, you may elect to continue your employment during such dispute. If it is thereafter determined that (i) Cause did exist, your “Termination Date” shall be the earlier of (A) the date on which the dispute is finally determined, either by mutual written agreement of the parties or pursuant to the alternative

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dispute resolution provisions of Section 18 or (B) the date of your death, or (ii) Cause did not exist, your employment shall continue as if the Company had not delivered its Notice of Termination and there shall be no Termination Date arising out of such notice.

(d) If the Company shall furnish a Notice of Termination by reason of Disability and you in good faith notify the Company that a dispute exists concerning such termination within the 15-day period following your receipt of such notice, you may elect to continue your employment during such dispute. The dispute relating to the existence of a Disability shall be resolved by the opinion of the licensed physician selected by Rural/Metro; provided, however, that if you do not accept the opinion of the licensed physician selected by Rural/Metro, the dispute shall be resolved by the opinion of a licensed physician who shall be selected by you; provided further, however, that if Rural/Metro does not accept the opinion of the licensed physician selected by you, the dispute shall be finally resolved by the opinion of a licensed physician selected by the licensed physicians selected by Rural/Metro and you, respectively. If it is thereafter determined that (i) a Disability did exist, your Termination Date shall be the earlier of (A) the date on which the dispute is resolved or (B) the date of your death, or (ii) a Disability did not exist, your employment shall continue as if the Company had not delivered its Notice of Termination and there shall be no Termination Date arising out of such notice. For purposes of this Agreement, “Disability” shall be given the meaning ascribed to such term in your Employment Agreement at the time the Disability determination is being made. If there is no Employment Agreement that defines “Disability”, “Disability” shall mean your inability to perform your customary duties for the Company due to a physical or mental condition that is considered to be of long-lasting or indefinite duration.

(e) If you in good faith furnish a Notice of Termination for Good Reason and the Company notifies you that a dispute exists concerning the termination within the 15 day period following the Company’s receipt of such notice, you may elect to continue your employment during such dispute. If it is thereafter determined that Good Reason did exist, your Termination Date shall be the earlier of (A) the date on which the dispute is finally determined, either by mutual written agreement of the parties or pursuant to the alternative dispute resolution provisions of Section 18, (B) the date of your death or (C) one day prior to the second anniversary of a Change of Control, and your payments hereunder shall reflect events occurring after you delivered the Notice of Termination. If it is determined that Good Reason did not exist, you will be deemed to have terminated your employment without Good Reason, and your Termination Date shall be either (A) the date on which you furnished the Notice of Termination for Good Reason, if you did not elect to continue your employment during the dispute concerning whether Good Reason existed, or (B) the date on which it is determined that Good Reason did not exist, if you elected to continue your employment during the dispute concerning whether Good Reason existed. You may withdraw any Notice of Termination at any time and the employment relationship shall continue.

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(f) If you do not elect to continue employment pending resolution of a dispute regarding a Notice of Termination, and it is finally determined that the reason for termination set forth in such Notice of Termination did not exist, if such notice was delivered by you, you shall be deemed to have voluntarily terminated your employment other than for Good Reason and, if delivered by the Company, the Company will be deemed to have terminated you other than by reason of Disability or Cause.

(g) For purposes of this Agreement, a transfer from Rural/Metro to one of its subsidiaries or a transfer from a subsidiary to Rural/Metro or another subsidiary shall not be treated as a termination of employment although it may, in certain circumstances, provide you with Good Reason to terminate employment pursuant to Section 8.

12. SUCCESSORS.

Rural/Metro will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Rural/Metro or any of its subsidiaries to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Rural/Metro or any subsidiary would be required to perform it if no such succession had taken place. Failure of Rural/Metro to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation in the same amount and on the same terms to which you would be entitled hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Termination Date. As used in this Agreement, “Rural/Metro” shall mean Rural/Metro as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

13. BINDING AGREEMENT.

This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder had you continued to live, all such amounts shall be paid in accordance with the second paragraph of Section 3.

14. NOTICE.

For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested,

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postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to Rural/Metro shall be directed to the attention of the Chairman of the Board of Rural/Metro with a copy to the Secretary of Rural/Metro, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

15. MISCELLANEOUS.

No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and the Chairman of the Board of Rural/Metro. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Arizona without regard to its conflicts of law principles. All references to sections of the Securities Exchange Act of 1934 or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company that arise prior to the expiration of this Agreement shall survive the expiration of the term of this Agreement.

16. VALIDITY.

The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

17. COUNTERPARTS.

This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

18. ALTERNATIVE DISPUTE RESOLUTION.

All claims, disputes and other matters in question between the parties arising under this Agreement shall, unless otherwise provided herein (such as in Sections 10 and 11(d)), be resolved in accordance with the arbitration or alternative dispute resolution provisions included in your Employment Agreement. If no written Employment Agreement is in effect at the time of your termination of employment, or, if the Employment Agreement in effect at the

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time of your termination of employment does not include arbitration or alternative dispute resolution provisions, all claims, disputes and other matters in question between the parties arising under this Agreement shall be decided by arbitration in Phoenix, Arizona, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (including such procedures governing selection of the specific arbitrator or arbitrators), unless the parties mutually agree otherwise. The Company shall pay the costs of any such arbitration. The award by the arbitrator or arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any state or Federal court having jurisdiction thereof.

19. EXPENSES AND INTEREST.

If a good faith dispute shall arise with respect to the enforcement of your rights under this Agreement or if any arbitration or legal proceeding shall be brought in good faith to enforce or interpret any provision contained herein, or to recover damages for breach hereof, and you are the prevailing party, you shall recover from the Company any reasonable attorneys’ fees and necessary costs and disbursements incurred as a result of such dispute or legal proceeding, and prejudgment interest on any money judgment obtained by you calculated at the rate of interest announced by Citibank from time to time as its prime rate from the date that payments to you should have been made under this Agreement. It is expressly provided that the Company shall in no event recover from you any attorneys’ fees, costs, disbursements or interest as a result of any dispute or legal proceeding involving the Company and you.

20. PAYMENT OBLIGATIONS ABSOLUTE.

Rural/Metro’s obligation to pay you the compensation and to make the arrangements in accordance with the provisions herein shall be absolute and unconditional and shall not be affected by any circumstances; provided, however, that Rural/Metro may apply amounts payable under this Agreement to any debts owed to Rural/Metro by you on your Termination Date. All amounts payable by Rural/Metro in accordance with this Agreement shall be paid without notice or demand. If Rural/Metro has paid you more than the amount to which you are entitled under this Agreement, Rural/Metro shall have the right to recover all or any part of such overpayment from you or from whomsoever has received such amount.

21. EFFECT ON EMPLOYMENT AGREEMENT.

This Agreement supplements, and does not replace, your Employment Agreement, as it may be amended or replaced from time to time (the “Employment Agreement”). You will be entitled to receive all amounts due to you pursuant to your Employment Agreement, but some benefits due pursuant to your Employment Agreement may reduce the benefits due

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pursuant to Section 5. If there is any conflict between the provisions of this Agreement and your Employment Agreement, the provisions of this Agreement shall control.

22. ENTIRE AGREEMENT.

This Agreement, your Employment Agreement, and any Stock Option Agreements set forth the entire agreement between you and the Company concerning the subject matter discussed in this Agreement and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether written or oral, by any officer, employee or representative of the Company. Any prior agreements or understandings with respect to the subject matter set forth in this Agreement are hereby terminated and canceled.

23. DEFERRAL OF PAYMENTS.

To the extent that any payment under this Agreement, when combined with all other payments received during the same calendar year that are subject to the limitations on deductibility under Section 162(m) of the Code, would exceed the limitations on deductibility under Section 162(m) of the Code for such year, such excess shall be deferred until the earliest date(s) at which Rural/Metro reasonably anticipates that the deduction of such payment will not be limited or eliminated by application of Section 162(m). Such deferred amounts shall bear interest at the rate of eight percent (8%) per annum.

24. PARTIES.

This Agreement is an agreement between you and Rural/Metro. In certain cases, though, obligations imposed upon Rural/Metro may be satisfied by a Rural/Metro subsidiary. Any payment made or action taken by a Rural/Metro subsidiary shall be considered to be a payment made or action taken by Rural/Metro for purposes of determining whether Rural/Metro has satisfied its obligations under this Agreement.

[signature page follows]

Kristine B. Ponczak

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If you would like to participate in this special benefits program, please sign and return the extra copy of this letter which is enclosed.

Sincerely,
RURAL/METRO CORPORATION
By:	/s/ Mary Anne Carpenter
	Mary Anne Carpenter
	Chair of Compensation Committee

ACCEPTANCE

I hereby accept the offer to participate in this special benefit program and I agree to be bound by all of the provisions noted above.

/s/ Kristine B. Ponczak

Kristine B. Ponczak

EX-18.1

Exhibit 18.1

March 22, 2007

Board of Directors

Rural/Metro Corporation

9221 E. Via de Ventura

Scottsdale, AZ 85258

Dear Directors:

We are providing this letter to you for inclusion as an exhibit to your Form 10-Q filing pursuant to Item 601 of Regulation S-K.

We have been provided a copy of the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2006. Note 2 therein describes a change in accounting principle from presenting estimated uncollectible amounts related to self-pay patients as an operating expense to reporting such amount as a deduction from revenue, similar to the treatment given to contractual allowances. It should be understood that the preferability of one acceptable method of accounting over another for the presentation of such provisioning has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management’s determination that this change in accounting principle is preferable. Based on our reading of management’s stated reasons and justification for this change in accounting principle in the Form 10-Q, and our discussions with management as to their judgment about the relevant business planning factors relating to the change, we concur with management that such change represents, in the Company’s circumstances, the adoption of a preferable accounting principle in conformity with Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections.

We have not audited any financial statements of the Company as of any date or for any period subsequent to June 30, 2006. Accordingly, our comments are subject to change upon completion of an audit of the financial statements covering the period of the accounting change.

Very truly yours,

PricewaterhouseCoopers LLP

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: March 22, 2007

/s/ Jack E. Brucker

President and Chief Executive Officer

Rural/Metro Corporation

79

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Kristine Beian Ponczak, 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: March 22, 2007

/s/ Kristine Beian Ponczak

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

Rural/Metro Corporation

80

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, 2006, 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: March 22, 2007

/s/ Jack E. Brucker

Jack E. Brucker

President and Chief Executive Officer

81

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, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kristine Beian Ponczak, 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: March 22, 2007

/s/ Kristine Beian Ponczak

Kristine Beian Ponczak

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

82