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UNITED STATES SECURITIES AND EXCHANGE COMMISSION  WASHINGTON, D.C. 20549
 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2005 Commission file number 000-13109 LAIDLAW INTERNATIONAL, INC.  DELAWARE
    
    98-0390488(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 55 Shuman Boulevard, Suite 400
Naperville, Illinois, 60563
(Address of principal executive offices) Registrants telephone number, including area code (630) 848-3000 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 þ NO o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). YES þ NO o APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. YES þ NO o As of June 30, 2005, there were 100,218,580 shares of common stock, par value $0.01 per share,
outstanding.




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##### Table of Contents



LAIDLAW INTERNATIONAL, INC.  
 Page No.PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Consolidated Balance Sheets as of May 31, 2005 and August 31, 2004 (Unaudited)
    
    
    2Consolidated Statements of Operations for the Three and Nine Months Ended May 31, 2005 and 2004 (Unaudited)
    
    
    4Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended May 31, 2005 and 2004 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows for the Nine Months Ended May 31, 2005 and 2004 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4.
    
    Controls and Procedures
    
    
    30PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    31Item 6.
    
    Exhibits
    
    
    32SIGNATURES
    
    
    
    
    33Section 302 Certification of Principal Executive OfficerSection 302 Certification of Principal Financial OfficerSection 906 Certification
 1




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PART I.  FINANCIAL INFORMATION 
 Item 1. Financial Statements LAIDLAW INTERNATIONAL, INC. 
 CONSOLIDATED BALANCE SHEETS
 ($ in millions)
  (unaudited)
 May 31,
    
    
    August 31,2005
    
    
    2004ASSETSCurrent assetsCash and cash equivalents
    
    $
    427.5
    
    
    $
    154.2Accounts receivable, less allowance
for doubtful accounts of $6.8 ($4.9
- August 31, 2004)
    
    
    332.4
    
    
    
    194.1Insurance collateral
    
    
    95.3
    
    
    
    98.9Parts and supplies
    
    
    34.7
    
    
    
    32.0Deferred income tax assets
    
    
    42.2
    
    
    
    41.3Other current assets
    
    
    22.3
    
    
    
    22.7Discontinued operations
    
    
    
    
    
    
    488.8Total current assets
    
    
    954.4
    
    
    
    1,032.0Property and equipmentLand
    
    
    182.6
    
    
    
    184.1Buildings
    
    
    165.1
    
    
    
    157.7Vehicles
    
    
    1,366.9
    
    
    
    1,295.9Other
    
    
    107.8
    
    
    
    101.51,822.4
    
    
    
    1,739.2Less: Accumulated depreciation
    
    
    412.9
    
    
    
    246.81,409.5
    
    
    
    1,492.4Other assetsInsurance collateral
    
    
    383.7
    
    
    
    354.5Other long-term investments
    
    
    84.1
    
    
    
    155.2Goodwill
    
    
    
    
    
    
    139.1Contracts and customer relationships
    
    
    73.6
    
    
    
    118.6Deferred income tax assets
    
    
    290.2
    
    
    
    166.4Deferred charges and other assets
    
    
    21.1
    
    
    
    60.9Discontinued operations
    
    
    
    
    
    
    429.3852.7
    
    
    
    1,424.0Total assets
    
    $
    3,216.6
    
    
    $
    3,948.4
 The accompanying notes are an integral part of these statements. 2




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LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
($ in millions)
(unaudited) May 31,
    
    
    August 31,2005
    
    
    2004LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    69.9
    
    
    $
    76.9Accrued liabilities
    
    
    218.6
    
    
    
    192.9Current portion of insurance reserves
    
    
    177.4
    
    
    
    175.0Current portion of long-term debt
    
    
    3.2
    
    
    
    29.2Discontinued operations
    
    
    
    
    
    
    212.6Total current liabilities
    
    
    469.1
    
    
    
    686.6Long-term debt
    
    
    539.7
    
    
    
    1,105.9Insurance reserves
    
    
    318.4
    
    
    
    325.2Pension liability
    
    
    99.0
    
    
    
    188.3Other long-term liabilities
    
    
    94.7
    
    
    
    84.0Discontinued operations
    
    
    
    
    
    
    181.9Total liabilities
    
    
    1,520.9
    
    
    
    2,571.9SHAREHOLDERS EQUITYCommon shares; $0.01 par value per share;
issued and outstanding 100.2 million
(August 31, 2004  103.8 million)
    
    
    1.0
    
    
    
    1.0Additional paid in capital
    
    
    1,314.1
    
    
    
    1,360.9Common shares held in trust; (August 31,
2004 - 3.8 million shares issued and
outstanding)
    
    
    
    
    
    
    (50.0
    )Accumulated other comprehensive income
    
    
    32.8
    
    
    
    12.8Retained earnings
    
    
    347.8
    
    
    
    51.8Total shareholders equity
    
    
    1,695.7
    
    
    
    1,376.5Total liabilities and shareholders equity
    
    $
    3,216.6
    
    
    $
    3,948.4
 The accompanying notes are an integral part of these statements. 3




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LAIDLAW INTERNATIONAL, INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 ($ in millions except per share amounts)
 (unaudited)
 Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    836.1
    
    
    $
    838.1
    
    
    $
    2,413.5
    
    
    $
    2,414.6Compensation expense
    
    
    413.2
    
    
    
    424.3
    
    
    
    1,206.9
    
    
    
    1,234.1Insurance and accident claim costs
    
    
    47.6
    
    
    
    56.5
    
    
    
    137.8
    
    
    
    182.7Vehicle related costs
    
    
    64.5
    
    
    
    64.1
    
    
    
    191.6
    
    
    
    193.1Fuel
    
    
    54.8
    
    
    
    45.0
    
    
    
    153.7
    
    
    
    126.1Occupancy costs
    
    
    39.3
    
    
    
    38.6
    
    
    
    116.4
    
    
    
    116.9Depreciation and amortization
    
    
    70.6
    
    
    
    61.6
    
    
    
    203.8
    
    
    
    189.5Other operating expenses
    
    
    84.1
    
    
    
    74.2
    
    
    
    231.3
    
    
    
    226.7Operating income
    
    
    62.0
    
    
    
    73.8
    
    
    
    172.0
    
    
    
    145.5Interest expense
    
    
    (20.0
    )
    
    
    (19.6
    )
    
    
    (59.1
    )
    
    
    (57.6
    )Other income (expense), net
    
    
    4.5
    
    
    
    (0.2
    )
    
    
    9.5
    
    
    
    (3.9
    )Income from continuing operations
before income taxes
    
    
    46.5
    
    
    
    54.0
    
    
    
    122.4
    
    
    
    84.0Income tax expense
    
    
    (16.1
    )
    
    
    (22.0
    )
    
    
    (46.5
    )
    
    
    (27.2
    )Income from continuing operations
    
    
    30.4
    
    
    
    32.0
    
    
    
    75.9
    
    
    
    56.8Income
(loss) from discontinued
operations
    
    
    (1.0
    )
    
    
    2.6
    
    
    
    220.1
    
    
    
    7.6Net income
    
    $
    29.4
    
    
    $
    34.6
    
    
    $
    296.0
    
    
    $
    64.4Basic earnings (loss) per shareContinuing operations
    
    $
    0.30
    
    
    $
    0.32
    
    
    $
    0.76
    
    
    $
    0.57Discontinued operations
    
    
    (0.01
    )
    
    
    0.03
    
    
    
    2.20
    
    
    
    0.07Net income
    
    $
    0.29
    
    
    $
    0.35
    
    
    $
    2.96
    
    
    $
    0.64Diluted earnings (loss) per shareContinuing operations
    
    $
    0.30
    
    
    $
    0.31
    
    
    $
    0.74
    
    
    $
    0.55Discontinued operations
    
    
    (0.01
    )
    
    
    0.02
    
    
    
    2.14
    
    
    
    0.07Net income
    
    $
    0.29
    
    
    $
    0.33
    
    
    $
    2.88
    
    
    $
    0.62
 The accompanying notes are an integral part of these statements. 4




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LAIDLAW INTERNATIONAL, INC. 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 ($ in millions)
 (unaudited)
 Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    29.4
    
    
    $
    34.6
    
    
    $
    296.0
    
    
    $
    64.4Net unrealized gain (loss) on
securities and interest rate swap
    
    
    1.3
    
    
    
    (6.3
    )
    
    
    0.5
    
    
    
    (1.5
    )Foreign currency translation adjustments
    
    
    (7.0
    )
    
    
    (6.8
    )
    
    
    19.5
    
    
    
    4.1Comprehensive income
    
    $
    23.7
    
    
    $
    21.5
    
    
    $
    316.0
    
    
    $
    67.0
 The accompanying notes are an integral part of these statements. 5




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LAIDLAW INTERNATIONAL, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 ($ in millions)
 (unaudited)
 Nine Months Ended May 31,2005
    
    
    2004Operating activitiesNet income
    
    $
    296.0
    
    
    $
    64.4Less: income from discontinued operations
    
    
    (220.1
    )
    
    
    (7.6
    )Non-cash adjustments to net incomeDepreciation and amortization
    
    
    203.8
    
    
    
    189.5Deferred income taxes
    
    
    43.7
    
    
    
    24.9Other non-cash items
    
    
    21.9
    
    
    
    12.5Net change in certain operating assets and liabilitiesAccounts receivable
    
    
    (137.3
    )
    
    
    (129.6
    )Insurance collateral
    
    
    (24.5
    )
    
    
    (59.4
    )Accounts payable and accrued liabilities
    
    
    17.3
    
    
    
    29.7Insurance reserves
    
    
    (5.2
    )
    
    
    22.4Other assets and liabilities
    
    
    3.9
    
    
    
    46.7Net cash provided by operating activities
    
    $
    199.5
    
    
    $
    193.5Investing activitiesNet capital expenditures
    
    $
    (109.0
    )
    
    $
    (123.9
    )Expended on acquisitions
    
    
    (2.0
    )
    
    
    (1.3
    )Net decrease in investments
    
    
    13.1
    
    
    
    47.8Net proceeds received from sale of healthcare businesses
    
    
    798.0
    
    
    
    Net proceeds received from sale of other businesses
    
    
    10.6
    
    
    
    Net cash provided by (used in) investing activities
    
    $
    710.7
    
    
    $
    (77.4
    )Financing activitiesPay down Term B facility
    
    $
    (593.8
    )
    
    $
    (18.8
    )Net decrease in other long-term debt
    
    
    (5.6
    )
    
    
    (33.9
    )Decrease in credit facility cash collateral
    
    
    60.5
    
    
    
    PBGC Trust share repurchase
    
    
    (84.5
    )
    
    
    Net cash used in financing activities
    
    $
    (623.4
    )
    
    $
    (52.7
    )Net cash used by discontinued operations
    
    $
    (13.5
    )
    
    $
    (10.6
    )Net increase in cash and cash equivalents
    
    $
    273.3
    
    
    $
    52.8Cash and cash equivalents  beginning of period
    
    
    154.2
    
    
    
    94.0Cash and cash equivalents  end of period
    
    $
    427.5
    
    
    $
    146.8
 The accompanying notes are an integral part of these statements. 6




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LAIDLAW INTERNATIONAL, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTH PERIODS ENDED MAY 31, 2005
 Note 1  Corporate overview and basis of presentation Corporate overview Laidlaw International, Inc. (the Company) operates in three reportable business segments:
education services, public transit services and Greyhound. The education services segment provides
school bus transportation, including scheduled home-to-school, extra-curricular and charter and
transit school bus services, throughout the United States and Canada. The public transit services
segment provides fixed-route municipal bus service and paratransit bus transportation for riders
with disabilities. Greyhound, a national provider of inter-city bus transportation in the United
States and Canada, provides scheduled passenger service, package delivery service, charter bus
service and, in certain terminals, food service. As discussed in Note 2  Discontinued
operations the healthcare transportation services and emergency management services segments were
sold and are presented as discontinued operations. Basis of presentation The accompanying interim consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States for interim reporting
and accordingly, do not include all of the disclosures required for annual financial statements.
In the opinion of management, all adjustments considered necessary for fair presentation have been
included. All such adjustments are of a normal, recurring nature. Operating results for the three
and nine months ended May 31, 2005 are not necessarily indicative of the results that may be
expected for the full year ending August 31, 2005. For further information, see the Companys
consolidated financial statements, including the accounting policies and notes thereto, included in
the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 2004. Prior period amounts have been reclassified to reflect the discontinuance of the healthcare
businesses and also to conform to the current period presentation. Note 2  Discontinued operations On February 10, 2005 the Company completed the sale of American Medical Response, Inc. (AMR) and
Emcare Holdings, Inc., its healthcare transportation services and emergency management services
segments, to an affiliate of Onex Corporation. After payment of transaction costs, net cash
proceeds received by the Company were $798.0 million. Proceeds from the transaction were used in
part to retire all outstanding borrowings under the Companys Term B senior secured term facility
aggregating $574.1 million. 7




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The following table details the components of income from discontinued operations: Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,($ in millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    (50.0
    )
    
    $
    401.5
    
    
    $
    646.2
    
    
    $
    1,197.8Pre-tax income (loss) from operations
    
    
    (50.8
    )
    
    
    4.0
    
    
    
    (32.3
    )
    
    
    14.0Provision for income taxes
    
    
    19.3
    
    
    
    (1.4
    )
    
    
    11.5
    
    
    
    (6.4
    )Income (loss) from operations
    
    
    (31.5
    )
    
    
    2.6
    
    
    
    (20.8
    )
    
    
    7.6Pre-tax gain on sale of businesses
    
    
    31.1
    
    
    
    
    
    
    
    232.1
    
    
    
    Income tax benefit (expense)
    
    
    (0.6
    )
    
    
    
    
    
    
    8.8
    
    
    
    Gain on sale after taxes
    
    
    30.5
    
    
    
    
    
    
    
    240.9
    
    
    
    Income (loss) from discontinued
operations
    
    $
    (1.0
    )
    
    $
    2.6
    
    
    $
    220.1
    
    
    $
    7.6
 For all periods presented, the Company has allocated interest expense under the Term B and
Revolver to discontinued operations since the Company was required by the creditors to pay off the
debt upon sale of the healthcare businesses. Additionally, $23.6 million of deferred financing
fees related to the Term B and Revolver were written off against the gain on sale in discontinued
operations. A tax benefit has been reflected for costs allocated against the gain, including the
write-off of the deferred financing fees, which will give rise to ordinary deductions. While the
remaining amount is a gain for book purposes, for tax purposes the sale generated a substantial
capital loss. As discussed in Note 7  Income Taxes, the Company has provided a full valuation
allowance against the capital loss carryforward. During the third quarter of 2005, AMR management advised the Company that they had recently
determined that their accounts receivable reserves have been understated for at least the last five
years, including the date of sale. This adjustment was recorded by the Company in the third
quarter of 2005 which resulted in a $50 million decrease in revenues, a $31 million loss from
operations, and a $31 million increase in the gain on sale from discontinued operations. The
adjustment had no impact on net income, income from continuing operations or total income (loss)
from discontinued operations. Note 3  Goodwill and other intangible assets On August 31, 2004, as a result of fresh start accounting, the Company had recorded goodwill of
$139.1 million and other intangibles including contract values of $118.6 million. The Company also
had established a valuation reserve against a portion of its deferred tax assets. As discussed in Note 7  Income taxes, during fiscal 2005 the Company reduced its deferred tax
valuation allowance and, as required under fresh start accounting, made a corresponding adjustment
to eliminate goodwill and to reduce other intangibles by $48.3 million. The contract values
remaining are net of $16.9 million of accumulated amortization at May 31, 2005 and $10.7 million at
August 31, 2004. 8




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Note 4  Long-term debt Components of long-term debt are as follows ($ in millions): May 31, 2005
    
    
    August 31, 2004Term B Facility
    
    $
    
    
    
    $
    593.710 3/4% Senior Notes
    
    
    399.1
    
    
    
    401.2Greyhound 11 1/2% Senior Notes
    
    
    128.6
    
    
    
    122.1Notes and other debt
    
    
    15.2
    
    
    
    18.1Total debt
    
    
    542.9
    
    
    
    1,135.1Less: current portion
    
    
    3.2
    
    
    
    29.2Long-term debt
    
    $
    539.7
    
    
    $
    1,105.9
 On June 30, 2005 the Company entered into a new $600 million senior credit facility consisting
of a $300 million term loan payable in installments through 2010 and a $300 million revolving
credit facility available through 2010. The new revolving credit facility replaced the Companys
previous $200 million revolver and allowed the Company to replace Greyhound Lines previous $125
million revolver. Proceeds from the new term loan, along with cash on hand, were used to
repurchase substantially all of the Companys 10.75% notes and will be used to redeem Greyhound
Lines 11.5% notes and 8.5% convertible debentures. On July 5, 2005, the tender offer and consent solicitation of the 10.75% senior notes was
completed. In conjunction with the offer and solicitation, the Company repurchased $399.2 million
of the outstanding $403.5 million principal amount of the notes, representing approximately 98.9%
of the outstanding notes. Total consideration paid, including tender premiums and consent fees,
was $467.3 million. As part of the tender offer, the Company received the requisite consents to
eliminate substantially all of the restrictive covenants under the 10.75% notes. Additionally, the
Company is in the process of redeeming at par Greyhound Lines $150 million principal amount of
11.5% notes and $5 million 8.5% convertible debentures. These redemptions are expected to be
completed before the end of the fiscal year and will give rise to one
time charges in the fourth quarter of approximately $112 million
for tender premiums, write-off of deferred financing fees and other
fees and costs. Note 5  Stock awards and options Pursuant to the Companys Amended and Restated 2003 Equity and Performance Incentive Plan, the
Company has issued stock based compensation to various employees and non-employee directors. These
grants to employees represent the long-term incentive portion of the Companys overall compensation
plan for management. The Company accounts for all stock-based compensation based on estimated fair
value at the date of issue and recorded an expense related to these plans of approximately $3.8
million and $1.4 million during the nine month periods ended May 31, 2005 and 2004, respectively.
A summary of stock based compensation issued during the current fiscal year is as follows: Stock options During the first nine months ended May 31, 2005, the Company issued
452,625 non-qualified stock options to employees and non-employee directors with a strike price of
$18.85 per share. The grant price was equal to the fair market value of the Companys stock at the
date of grant. The stock options have a ten-year life and vest ratably over three years. Restricted Shares During the first nine months ended May 31, 2005, the Company issued
25,313 shares of restricted common stock to non-employee directors. The restricted shares vest at
the end of a three-year period and during the vesting period the participant has the rights of a
shareholder with respect to voting and dividend rights but is restricted from transferring the
shares. Deferred Shares Deferred shares are granted to key employees and vest ratably over a
four-year period. On each vesting date the employee receives common stock of the Company equal 9




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in number to the deferred shares that have vested. Upon delivery of the Company common stock an
equal number of deferred shares are terminated. The participant has no voting rights with respect
to the deferred shares. During the first nine months ended May 31, 2005, the Company granted
360,000 deferred shares to key employees. Note 6  Pension plans The Company, collectively with all of its wholly-owned U.S. subsidiaries, is party to an agreement
with the Pension Benefit Guaranty Corporation regarding the funding levels of the Companys pension
plans (the PBGC Agreement). Under the PBGC Agreement, 3.8 million shares of the Companys common
stock were issued to a trust formed for the benefit of the pension plans (the Pension Plan
Trust). In February 2005, the Company purchased all of the shares held in the Pension Plan Trust for $22.37
per share, or aggregate consideration of $84.5 million. The purchase price per share was based
upon the closing price per share on the New York Stock Exchange on the date of purchase. All net
proceeds from the stock sale were contributed directly to the pension plans and the 3.8 million
shares were retired. The components of net periodic benefit cost for the Companys pension plans were as follows: Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,($ in millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Components of net pension
benefit costService cost
    
    $
    2.2
    
    
    $
    1.4
    
    
    $
    6.5
    
    
    $
    4.2Interest cost
    
    
    14.3
    
    
    
    13.6
    
    
    
    43.0
    
    
    
    40.8Expected return on plan assets
    
    
    (14.6
    )
    
    
    (12.8
    )
    
    
    (43.1
    )
    
    
    (38.3
    )Net pension benefit cost
    
    $
    1.9
    
    
    $
    2.2
    
    
    $
    6.4
    
    
    $
    6.7
 Note 7  Income taxes At August 31, 2004, the Company had recorded a valuation allowance against its deferred tax assets
of $305 million. During the second quarter of fiscal 2005 the Company wrote-off $127 million of
deferred tax assets against the valuation allowance for carryforwards that will be used as part of
a recent settlement with the IRS and for carryforwards which management believes will not likely be
available for use against future income. The remaining $178 million of valuation allowance was
reversed in its entirety as recent historical, and current projected, results reflect a level of
income that supports a conclusion that it is more likely than not that the Company will fully
recover the remaining surviving carryforwards. The results of the Company incorporated the sale of
the healthcare segments and the retirement of the Term B debt and reduction in related interest
costs. As required under fresh start accounting rules, the reversal first eliminated all remaining
goodwill established at fresh start, with the balance reducing other intangibles established in
conjunction with fresh start accounting. As discussed in Note 2  Discontinued operations, in the second quarter of fiscal 2005 the
Company sold its healthcare segments generating a pre-tax book gain while for tax purposes the sale
generated a substantial capital loss. As capital losses may only be applied against capital gains,
and the Company does not generate capital gains in the ordinary course, a valuation allowance has
been established for this deferred tax asset since the Company believes it is more likely than not
that the capital loss carryforward will not be realized. 10




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##### Table of Contents



Note 8  Material contingencies Legal proceedings Contingent Liabilities Relating to Sale of AMR On February 10, 2005 the Company completed the sale of AMR to an affiliate of Onex Corporation
(Onex) in accordance with the Stock Purchase Agreement dated December 6, 2004, as amended (the
Stock Purchase Agreement). Pursuant to the terms of the Stock Purchase Agreement, the Company
may be subject to indemnification obligations related to certain investigations and matters
previously disclosed relating to AMR, including potentially those set forth below. On May 9, 2002, AMR received a subpoena duces tecum from the Office of Inspector General for the
United States Department of Health and Human Services (HHS). The subpoena requested copies of
documents for the period from January 1993 through May 2002. The subpoena required AMR to produce
a broad range of documents, including those relating to Regional Emergency Services contracts in
Georgia and Colorado. The government investigations in Georgia and Colorado are continuing. During the first quarter of fiscal 2004, AMR was advised by the U.S. Department of Justice (DOJ),
that it was investigating certain business practices at AMR. The specific practices at issue were
(1) whether ambulance transports involving Medicare eligible patients complied with the medically
necessary requirement imposed by Medicare regulations, (2) whether patient signatures, when
required, were properly obtained from Medicare eligible patients; and (3) whether discounts in
violation of the Federal Anti-Kickback Act were provided by AMR in exchange for referrals involving
Medicare eligible patients. At this juncture, it is not possible to predict the ultimate
conclusion of the investigations described in this and the preceding paragraph, nor is it possible
to calculate any possible financial exposure, if any, to the Company, pursuant to the terms of the
Stock Purchase Agreement. As discussed in note 2  Discontinued operations, AMR management advised the Company that they
had recently determined that their accounts receivable reserves have been understated for at least
the last five years, including the date of sale. As a result of this matter, it is possible that
Onex could assert a claim against the Company under the Stock Purchase Agreement, although no such
claim has currently been asserted. Other The Company is also a defendant in various lawsuits arising in the ordinary course of business,
primarily cases involving personal injury, property damage or employment related claims. Some of
these actions are covered to varying degrees by insurance policies. Based on an assessment of
known claims and our historical claims payout pattern, management believes that there is no
proceeding either threatened or pending against us relating to personal injury and/or property
damage claims and/or employment related claims that would have a material adverse effect on the
Company. Environmental matters The Companys operations are subject to various federal, state, local and foreign laws and
regulations relating to environmental matters, including those concerning emissions to the air;
waste water discharges; storage, treatment and disposal of waste and remediation of soil and ground
water contamination. We have incurred, and expect to incur, costs for our operations to comply
with these legal requirements, and these costs could increase in the future. In particular, the
Company has been named as a potentially responsible party under the United States Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, at various third-party
sites at which the Companys waste was allegedly disposed. In addition, the 11




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##### Table of Contents



Company is investigating or engaged in remediation of past contamination at other sites used in its
businesses. The Company records liabilities when environmental liabilities are either known or
considered probable and can be reasonably estimated. On an ongoing basis, management assesses and
evaluates environmental risk and, when necessary, conducts appropriate corrective measures. As of
the date of this report, management believes that adequate accruals have been made related to all
known environmental matters, however actual environmental liabilities could differ significantly
from these estimates. Income tax matters The respective tax authorities, in the normal course, audit previous tax filings. It is not
possible at this time to predict the final outcome of these audits or to establish a reasonable
estimate of possible additional taxes owing, if any. Note 9  Earnings per share The basic earnings per share figures are calculated using the weighted average number of shares
outstanding during the respective periods. The diluted earnings per share for the three and nine
month periods ended May 31, 2005 and 2004 include the dilutive effect of the Companys stock based
compensation and the weighted average shares outstanding of the Companys common shares held in
trust up until February 17, 2005, the date they were re-purchased and retired by the Company. Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,(in millions except per share amounts)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Earnings (loss) available to common
shareholdersFrom continuing operations
    
    $
    30.4
    
    
    $
    32.0
    
    
    $
    75.9
    
    
    $
    56.8From discontinued operations
    
    
    (1.0
    )
    
    
    2.6
    
    
    
    220.1
    
    
    
    7.6Net income
    
    $
    29.4
    
    
    $
    34.6
    
    
    $
    296.0
    
    
    $
    64.4Weighted average number of common
shares outstandingBasic
    
    
    100.2
    
    
    
    100.0
    
    
    
    100.1
    
    
    
    100.0Shares held in pension plan trust
    
    
    
    
    
    
    3.8
    
    
    
    2.4
    
    
    
    3.8Stock based compensation
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.1Diluted
    
    
    100.5
    
    
    
    103.9
    
    
    
    102.8
    
    
    
    103.9Basic earnings (loss) per common shareContinuing operations
    
    $
    0.30
    
    
    $
    0.32
    
    
    $
    0.76
    
    
    $
    0.57Discontinued operations
    
    
    (0.01
    )
    
    
    0.03
    
    
    
    2.20
    
    
    
    0.07Net income
    
    $
    0.29
    
    
    $
    0.35
    
    
    $
    2.96
    
    
    $
    0.64Diluted earnings (loss) per common shareContinuing operations
    
    $
    0.30
    
    
    $
    0.31
    
    
    $
    0.74
    
    
    $
    0.55Discontinued operations
    
    
    (0.01
    )
    
    
    0.02
    
    
    
    2.14
    
    
    
    0.07Net income
    
    $
    0.29
    
    
    $
    0.33
    
    
    $
    2.88
    
    
    $
    0.62
 12




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##### Table of Contents



Note 10  Segment information The Company has three reportable segments: education services, Greyhound and public transit.
Revenues and EBITDA (operating income before depreciation and amortization) of the segments for the
three and nine months ended May 31, 2005 and 2004 are as follows: Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,($ in millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Education servicesRevenue
    
    $
    464.0
    
    
    $
    459.7
    
    
    $
    1,321.0
    
    
    $
    1,310.2EBITDA
    
    
    119.0
    
    
    
    118.4
    
    
    
    317.1
    
    

    
    300.4GreyhoundRevenue
    
    $
    294.5
    
    
    $
    299.7
    
    
    $
    864.0
    
    
    $
    881.1EBITDA
    
    
    9.6
    
    
    
    15.6
    
    
    
    46.5
    
    
    
    37.6Public transitRevenue
    
    $
    77.6
    
    
    $
    78.7
    
    
    $
    228.5
    
    
    $
    223.3EBITDA
    
    
    4.0
    
    
    
    1.4
    
    
    
    12.2
    
    
    
    (3.0
    )Consolidated TotalRevenue
    
    $
    836.1
    
    
    $
    838.1
    
    
    $
    2,413.5
    
    
    $
    2,414.6EBITDA
    
    
    132.6
    
    
    
    135.4
    
    
    
    375.8
    
    
    
    335.0Depreciation and amortization expense
    
    
    (70.6
    )
    
    
    (61.6
    )
    
    
    (203.8
    )
    
    
    (189.5
    )Operating income
    
    
    62.0
    
    
    
    73.8
    
    
    
    172.0
    
    
    
    145.5Interest expense
    
    
    (20.0
    )
    
    
    (19.6
    )
    
    
    (59.1
    )
    
    
    (57.6
    )Other income (expense), net
    
    
    4.5
    
    
    
    (0.2
    )
    
    
    9.5
    
    
    
    (3.9
    )Income tax expense
    
    
    (16.1
    )
    
    
    (22.0
    )
    
    
    (46.5
    )
    
    
    (27.2
    )Income (loss) from discontinued
operations
    
    
    (1.0
    )
    
    
    2.6
    
    
    
    220.1
    
    
    
    7.6Net income
    
    $
    29.4
    
    
    $
    34.6
    
    
    $
    296.0
    
    
    $
    64.4
 Corporate expenses previously allocated to the healthcare transportation services and
emergency management services segments exceeded the amount of direct charges incurred and allocated
to discontinued operations. The previously allocated corporate costs in excess of the direct
charges related to the discontinued segments have been re-allocated to the remaining segments
above. Because of this change in allocation, EBITDA as now reported for the continuing segments
may not agree to amounts previously reported. Total identifiable assets by segment on May 31, 2005 and August 31, 2004 are as follows: ($ in millions)
    
    May 31,
    
    
    August 31,2005
    
    
    2004Education services
    
    $
    1,151.3
    
    
    $
    1,222.8Greyhound
    
    
    901.5
    
    
    
    898.0Public transit
    
    
    98.9
    
    
    
    104.5Total identifiable assets of segments
    
    
    2,151.7
    
    
    
    2,225.3Corporate assets
    
    
    1,064.9
    
    
    
    805.0Discontinued operations
    
    
    
    
    
    
    918.1Total assets
    
    $
    3,216.6
    
    
    $
    3,948.4
 13




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##### Table of Contents



Note 11  Condensed financial statements of restricted subsidiaries Pursuant to the terms of the
Companys 10 3/4% million Senior Notes, the Company is required to
segregate the consolidated results of operations between the subsidiaries of the Company that are
not a party to the agreement, which are comprised of the U.S. based businesses in the Greyhound
segment (the Unrestricted Subsidiaries), and the Company and its remaining subsidiaries (the
Restricted Subsidiaries). Condensed Consolidated Statement of Operations
Three Months Ended May 31, 2005 Restricted
    
    
    Unrestricted
    
    
    Consolidated($ millions)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    TotalsRevenue
    
    $
    602.3
    
    
    $
    233.8
    
    
    $
    836.1Compensation expense
    
    
    321.6
    
    
    
    91.6
    
    
    
    413.2Insurance and accident claim costs
    

    
    27.6
    
    
    
    20.0
    
    
    
    47.6Vehicle related costs
    
    
    33.6
    
    
    
    30.9
    
    
    
    64.5Fuel
    
    
    34.9
    
    
    
    19.9
    
    
    
    54.8Occupancy costs
    
    
    18.9
    
    
    
    20.4
    
    
    
    39.3Depreciation and amortization
    
    
    55.3
    
    
    
    15.3
    
    
    
    70.6Other operating expenses
    
    
    45.5
    
    
    
    38.6
    
    
    
    84.1Operating income (loss)
    
    
    64.9
    
    
    
    (2.9
    )
    
    
    62.0Interest expense
    
    
    (11.0
    )
    
    
    (9.0
    )
    
    
    (20.0
    )Other income, net
    
    
    4.4
    
    
    
    0.1
    
    
    
    4.5Income (loss) from continuing operations
before income taxes
    
    
    58.3
    
    
    
    (11.8
    )
    
    
    46.5Income tax benefit (expense)
    
    
    (20.3
    )
    
    
    4.2
    
    
    
    (16.1
    )Net income (loss) from continuing operations
    
    
    38.0
    
    
    
    (7.6
    )
    
    
    30.4Net loss from discontinued operations
    
    
    (1.0
    )
    
    
    
    
    
    
    (1.0
    )Net income (loss)
    
    $
    37.0
    
    
    $
    (7.6
    )
    
    $
    29.4
 Condensed Consolidated Statement of Operations
Nine Months Ended May 31, 2005 Restricted
    
    
    Unrestricted
    
    
    Consolidated($ millions)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    TotalsRevenue
    
    $
    1,739.2
    
    
    $
    674.3
    
    
    $
    2,413.5Compensation expense
    
    
    930.5
    
    
    
    276.4
    
    
    
    1,206.9Insurance and accident claim costs
    
    
    89.6
    
    
    
    48.2
    
    
    
    137.8Vehicle related costs
    
    
    99.5
    
    
    
    92.1
    
    
    
    191.6Fuel
    
    
    98.1
    
    
    
    55.6
    
    
    
    153.7Occupancy costs
    
    
    56.7
    
    
    
    59.7
    
    
    
    116.4Depreciation and amortization
    
    
    161.4
    
    
    
    42.4
    
    
    
    203.8Other operating expenses
    
    
    126.4
    
    
    
    104.9
    
    
    
    231.3Operating income (loss)
    
    
    177.0
    
    
    
    (5.0
    )
    
    
    172.0Interest expense
    
    
    (32.6
    )
    
    
    (26.5
    )
    
    
    (59.1
    )Other income, net
    
    
    7.3
    
    
    
    2.2
    
    
    
    9.5Income (loss) from continuing operations
before income taxes
    
    
    151.7
    
    
    
    (29.3
    )
    
    
    122.4Income tax benefit (expense)
    
    
    (57.7
    )
    
    
    11.2
    
    
    
    (46.5
    )Net income (loss) from continuing operations
    
    
    94.0
    
    
    
    (18.1
    )
    
    
    75.9Net income from discontinued operations
    
    
    220.1
    
    
    
    
    
    
    
    220.1Net income (loss)
    
    $
    314.1
    
    
    $
    (18.1
    )
    
    $
    296.0
 14




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##### Table of Contents



Condensed Consolidated Statement of Operations
Three Months Ended May 31, 2004 Restricted
    
    
    Unrestricted
    
    
    Consolidated($ millions)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    TotalsRevenue
    
    $
    595.8
    
    
    $
    242.3
    
    
    $
    838.1Compensation expense
    
    
    319.1
    
    
    
    105.2
    
    
    
    424.3Insurance and accident claim costs
    
    
    37.7
    
    
    
    18.8
    
    
    
    56.5Vehicle related costs
    
    
    30.9
    
    
    
    33.2
    
    
    
    64.1Fuel
    
    
    28.4
    
    
    
    16.6
    
    
    
    45.0Occupancy costs
    
    
    19.0
    
    
    
    19.6
    
    
    
    38.6Depreciation and amortization
    
    
    50.8
    
    
    
    10.8
    
    
    
    61.6Other operating expenses
    
    
    37.3
    
    
    
    36.9
    
    
    
    74.2Operating income
    
    
    72.6
    
    
    
    1.2
    
    
    
    73.8Interest expense
    
    
    (11.1
    )
    
    
    (8.5
    )
    
    
    (19.6
    )Other income (expense), net
    
    
    (0.3
    )
    
    
    0.1
    
    
    
    (0.2
    )Income (loss) from continuing operations
before income taxes
    
    
    61.2
    
    
    
    (7.2
    )
    
    
    54.0Income tax (expense) benefit
    
    
    (22.4
    )
    
    
    0.4
    
    
    
    (22.0
    )Net income (loss) from continuing operations
    
    
    38.8
    
    
    
    (6.8
    )
    
    
    32.0Net income from discontinued operations
    
    
    2.6
    
    
    
    
    
    
    
    2.6Net income (loss)
    
    $
    41.4
    
    
    $
    (6.8
    )
    
    $
    34.6
 Condensed Consolidated Statement of Operations
Nine Months Ended May 31, 2004 Restricted
    
    
    Unrestricted
    
    
    Consolidated($ millions)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    TotalsRevenue
    
    $
    1,709.1
    
    
    $
    705.5
    
    
    $
    2,414.6Compensation expense
    
    
    924.4
    
    
    
    309.7
    
    
    
    1,234.1Insurance and accident claim costs
    
    
    128.2
    
    
    
    54.5
    
    
    
    182.7Vehicle related costs
    
    
    92.3
    
    
    
    100.8
    
    
    
    193.1Fuel
    
    
    81.4
    
    
    
    44.7
    
    
    
    126.1Occupancy costs
    
    
    57.7
    
    
    
    59.2
    
    
    
    116.9Depreciation and amortization
    
    
    157.6
    
    
    
    31.9
    
    
    
    189.5Other operating expenses
    
    
    118.0
    
    
    
    108.7
    
    
    
    226.7Operating income (loss)
    
    
    149.5
    
    
    
    (4.0
    )
    
    
    145.5Interest expense
    
    
    (33.5
    )
    
    
    (24.1
    )
    
    
    (57.6
    )Other expense, net
    
    
    (3.8

    )
    
    
    (0.1
    )
    
    
    (3.9
    )Income (loss) from continuing operations
before income taxes
    
    
    112.2
    
    
    
    (28.2
    )
    
    
    84.0Income tax benefit (expense)
    
    
    (36.3
    )
    
    
    9.1
    
    
    
    (27.2
    )Net income (loss) from continuing operations
    
    
    75.9
    
    
    
    (19.1
    )
    
    
    56.8Net income from discontinued operations
    
    
    7.6
    
    
    
    
    
    
    
    7.6Net income (loss)
    
    $
    83.5
    
    
    $
    (19.1
    )
    
    $
    64.4
 15




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##### Table of Contents



Condensed Consolidated Statement of Cash Flows
Nine Months Ended May 31, 2005 Restricted
    
    
    Unrestricted
    
    
    Consolidated($ millions)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    TotalsNet cash provided by (used in) operating
activities
    
    $
    206.4
    
    
    $
    (6.9
    )
    
    $
    199.5Cash flows from investing activitiesPurchase of property and equipment, net
    
    $
    (88.3
    )
    
    $
    (20.7
    )
    
    $
    (109.0
    )Expended on acquisitions
    
    
    (2.0
    )
    
    
    
    
    
    
    (2.0
    )Net increase in investments
    
    
    12.9
    
    
    
    0.2
    
    
    
    13.1Net proceeds received from sale of
healthcare business
    
    
    798.0
    
    
    
    
    
    
    
    798.0Net proceeds received from sale of other
business
    
    
    10.6
    
    
    
    
    
    
    
    10.6Net cash provided by (used in) investing
activities
    
    $
    731.2
    
    
    $
    (20.5
    )
    
    $
    710.7Cash flows from financing activitiesPay down Term B facility
    
    $
    (593.8
    )
    
    $
    
    
    
    $
    (593.8
    )Net decrease in other long-term debt
    
    
    (3.8
    )
    
    
    (1.8
    )
    
    
    (5.6
    )Decrease in credit facility cash collateral
    
    
    60.5
    
    
    
    
    
    
    
    60.5PBGC trust share repurchase
    
    
    (84.5
    )
    
    
    
    
    
    
    (84.5
    )Net cash used in financing activities
    
    $
    (621.6
    )
    
    $
    (1.8
    )
    
    $
    (623.4
    )Net cash used by discontinued operations
    
    $
    (13.5
    )
    
    $
    
    
    
    $
    (13.5
    )Net increase (decrease) in cash and cash
equivalents
    
    $
    302.5
    
    
    $
    (29.2
    )
    
    $
    273.3Cash and cash equivalents at:Beginning of period
    
    
    94.2
    
    
    
    60.0
    
    
    
    154.2End of period
    
    $
    396.7
    
    
    $
    30.8
    
    
    $
    427.5
 Condensed Consolidated Statement of Cash Flows
Nine Months Ended May 31, 2004 Restricted
    
    
    Unrestricted
    
    
    Consolidated($ millions)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    TotalsNet cash provided by operating activities
    
    $
    160.1
    
    
    $
    33.4
    
    
    $
    193.5Cash flows from investing activitiesPurchase of property and equipment, net
    
    $
    (104.2
    )
    
    $
    (19.7
    )
    
    $
    (123.9
    )Expended on acquisitions
    
    
    (1.3
    )
    
    
    
    
    
    
    (1.3
    )Net (increase) decrease in investments
    
    
    48.7
    
    
    
    (0.9
    )
    
    
    47.8Net cash used in investing activities
    
    $
    (56.8
    )
    
    $
    (20.6
    )
    
    $
    (77.4
    )Cash flows from financing activitiesPay down Term B facility
    
    $
    (18.8
    )
    
    $
    
    
    
    $
    (18.8
    )Net increase (decrease) in long-term debt
    
    
    (1.7
    )
    
    
    (32.2
    )
    
    
    (33.9
    )Net cash used in financing activities
    
    $
    (20.5
    )
    
    $
    (32.2
    )
    
    $
    (52.7
    )Net cash used by discontinued operations
    
    $
    (10.6
    )
    
    $
    
    
    
    $
    (10.6
    )Net increase (decrease) in cash and cash
equivalents
    
    $
    72.2
    
    
    $
    (19.4
    )
    
    $
    52.8Cash and cash equivalents at:Beginning of period
    
    
    48.8
    
    
    
    45.2
    
    
    
    94.0End of period
    
    $
    121.0
    
    
    $
    25.8
    
    
    $
    146.8
 16




---



##### Table of Contents



Condensed Consolidated Balance Sheet
May 31, 2005 Restricted
    
    
    Unrestricted
    
    
    Consolidated($ millions)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    TotalsCurrent assetsCash and cash equivalents
    
    $
    396.7
    
    
    $
    30.8
    
    
    $
    427.5Accounts receivable
    
    
    300.1
    
    
    
    32.3
    
    
    
    332.4Insurance collateral
    
    
    95.3
    
    
    
    
    
    
    
    95.3Parts and supplies
    
    
    24.6
    
    
    
    10.1
    
    
    
    34.7Deferred income tax assets
    
    
    21.1
    
    
    
    21.1
    
    
    
    42.2Other current assets
    
    
    9.6
    
    
    
    12.7
    
    
    
    22.3Total current assets
    
    
    847.4
    
    
    
    107.0
    
    
    
    954.4Property and equipment
    
    
    1,083.1
    
    
    
    326.4
    
    
    
    1,409.5Insurance collateral
    
    
    322.4
    
    
    
    61.3
    
    
    
    383.7Other long-term investments
    
    
    70.0
    
    
    
    14.1
    
    
    
    84.1Contracts and customer relationships
    
    
    73.6
    
    
    
    
    
    
    
    73.6Deferred income tax assets
    
    
    114.1
    
    
    
    176.1
    
    
    
    290.2Deferred charges and other assets
    
    
    16.2
    
    
    
    4.9
    
    
    
    21.1Total assets
    
    $
    2,526.8
    
    
    $
    689.8
    
    
    $
    3,216.6Current liabilitiesAccounts payable
    
    $
    46.1
    
    
    $
    23.8
    
    
    $
    69.9Accrued liabilities
    
    
    134.1
    
    
    
    84.5
    
    
    
    218.6Insurance reserves
    
    
    137.7
    
    
    
    39.7
    
    
    
    177.4Current portion of long-term debt
    
    
    0.9
    
    
    
    2.3
    
    
    
    3.2Total current liabilities
    
    
    318.8
    
    
    
    150.3
    
    
    
    469.1Long-term debt
    
    
    399.3
    
    
    
    140.4
    
    
    
    539.7Insurance reserves
    
    
    253.5
    
    
    
    64.9
    
    
    
    318.4Pension liability
    
    
    10.9
    
    
    
    88.1
    
    
    
    99.0Other long-term liabilities
    
    
    67.3
    
    
    
    27.4
    
    
    
    94.7Intercompany payable (receivable)
    
    
    (197.1
    )
    
    
    197.1
    
    
    
    Total liabilities
    
    
    852.7
    
    
    
    668.2
    
    
    
    1,520.9Shareholders equity
    
    
    1,674.1
    
    
    
    21.6
    
    
    
    1,695.7Total liabilities and shareholders equity
    
    $
    2,526.8
    
    
    $
    689.8
    
    
    $
    3,216.6
 17




---



##### Table of Contents



Condensed Consolidated Balance Sheet
August 31, 2004 Restricted
    
    
    Unrestricted
    
    
    Consolidated($ millions)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    TotalsCurrent assetsCash and cash equivalents
    
    $
    94.2
    
    
    $
    60.0
    
    
    $
    154.2Accounts receivable
    
    
    164.2
    
    
    
    29.9
    
    
    
    194.1Insurance collateral
    
    
    98.9
    
    
    
    
    
    
    
    98.9Parts and supplies
    
    
    22.2
    
    
    
    9.8
    
    
    
    32.0Deferred income tax assets
    
    
    18.4
    
    
    
    22.9
    
    
    
    41.3Other current assets
    
    
    13.0
    
    
    
    9.7
    
    
    
    22.7Discontinued operations
    
    
    488.8
    
    
    
    
    
    
    
    488.8Total current assets
    
    
    899.7
    
    
    
    132.3
    
    
    
    1,032.0Property and equipment
    
    
    1,144.4
    
    
    
    348.0
    
    
    
    1,492.4Insurance collateral
    
    
    303.3
    
    
    
    51.2
    
    
    
    354.5Other long-term investments
    
    
    140.9
    
    
    
    14.3
    
    
    
    155.2Goodwill
    
    
    139.1
    
    
    
    
    
    
    
    139.1Contracts and customer relationships
    
    
    118.6
    
    
    
    
    
    
    
    118.6Deferred income tax assets
    
    
    36.3
    
    
    
    130.1
    
    
    
    166.4Deferred charges and other assets
    
    
    51.9
    
    
    
    9.0
    
    
    
    60.9Discontinued operations
    
    
    429.3
    
    
    
    
    
    
    
    429.3Total assets
    
    $
    3,263.5
    
    
    $
    684.9
    
    
    $
    3,948.4Current liabilitiesAccounts payable
    
    $
    50.4
    
    
    $
    26.5
    
    
    $
    76.9Accrued liabilities
    
    
    103.4
    
    
    
    89.5
    
    
    
    192.9Insurance reserves
    
    
    138.7
    
    
    
    36.3
    
    
    
    175.0Current portion of long-term debt
    
    
    26.8
    
    
    
    2.4
    
    
    
    29.2Current liabilities of discontinued operations
    
    
    212.6
    
    
    
    
    
    
    
    212.6Total current liabilities
    
    
    531.9
    
    
    
    154.7
    
    
    
    686.6Long-term debt
    
    
    970.5
    
    
    
    135.4
    
    
    
    1,105.9Insurance reserves
    
    
    247.3
    
    
    
    77.9
    
    
    
    325.2Pension liability
    
    
    13.8
    
    
    
    174.5
    
    
    
    188.3Other long-term liabilities
    
    
    55.8
    
    
    
    28.2
    
    
    
    84.0Intercompany payable (receivable)
    
    
    (74.5
    )
    
    
    74.5
    
    
    
    Long-term
liabilities of discontinued operations
    
    
    181.9
    
    
    
    
    
    
    
    181.9Total liabilities
    
    
    1,926.7
    
    
    
    645.2
    
    
    
    2,571.9Shareholders equity
    
    
    1,336.8
    
    
    
    39.7
    
    
    
    1,376.5Total liabilities and shareholders equity
    
    $
    3,263.5
    
    
    $
    684.9
    
    
    $
    3,948.4
 18




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##### Table of Contents



Note 12  Guarantors of Senior Notes The Companys 10 3/4% Senior Notes are guaranteed by the Companys subsidiaries, except for the
Unrestricted Subsidiaries, the Companys Canadian subsidiaries and any of the Companys insurance
subsidiaries. The condensed consolidated financial statements for the guarantors, the
non-guarantors and the parent company (Laidlaw International, Inc.) are as follows: Condensed Consolidated Statement of Operations
Three months ended May 31, 2005 Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    
    
    
    $
    484.9
    
    
    $
    351.2
    
    
    $
    
    
    
    $
    836.1Operating, selling, general and
administrative expenses
    
    
    0.1
    
    
    
    395.8
    
    
    
    307.6
    
    
    
    
    
    
    
    703.5Depreciation and amortization expense
    
    
    
    
    
    
    44.4
    
    
    
    26.2
    
    
    
    
    
    
    
    70.6Intercompany management fees (income)
    
    
    
    
    
    
    (4.7
    )
    
    
    4.7
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    (0.1
    )
    
    
    49.4
    
    
    
    12.7
    
    
    
    
    
    
    
    62.0Interest expense
    
    
    (11.9
    )
    
    
    (0.1
    )
    
    
    (8.0
    )
    
    
    
    
    
    
    (20.0
    )Intercompany interest income (expense)
    
    
    1.9
    
    
    
    (0.8
    )
    
    
    (1.1
    )
    
    
    
    
    
    
    Other income, net
    
    
    2.5
    
    
    
    1.8
    
    
    
    0.2
    
    
    
    
    
    
    
    4.5Equity in earnings (loss) of
intercompany investments
    
    
    34.6
    
    
    
    (7.6
    )
    
    
    
    
    
    
    (27.0
    )
    
    
    Income (loss) from continuing
operations before income taxes
    
    
    27.0
    
    
    
    42.7
    
    
    
    3.8
    
    
    
    (27.0
    )
    
    
    46.5Income tax benefit (expense)
    
    
    2.4
    
    
    
    (17.3
    )
    
    
    (1.2
    )
    
    
    
    
    
    
    (16.1
    )Income (loss) from continuing operations
    
    
    29.4
    
    
    
    25.4
    
    
    
    2.6
    
    
    
    (27.0
    )
    
    
    30.4Income (loss) from discontinued
operations
    
    
    
    
    
    
    (0.4
    )
    
    
    (0.6
    )
    
    
    
    
    
    
    (1.0
    )Net income (loss)
    
    $
    29.4
    
    
    $
    25.0
    
    
    $
    2.0
    
    
    $
    (27.0
    )
    
    $
    29.4
 Condensed Consolidated Statement of Operations
Nine months ended May 31, 2005 Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    
    
    
    $
    1,386.6
    
    
    $
    1,026.9
    
    
    $
    
    
    
    $
    2,413.5Operating, selling, general and
administrative expenses
    
    
    0.3
    
    
    
    1,132.6
    
    
    
    904.8
    
    
    
    
    
    
    
    2,037.7Depreciation and amortization expense
    
    
    
    
    
    
    129.3
    
    
    
    74.5
    
    
    
    
    
    
    
    203.8Intercompany management fees (income)
    
    
    
    
    
    
    (10.9
    )
    
    
    10.9
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    (0.3
    )
    
    
    135.6
    
    
    
    36.7
    
    
    
    
    
    
    
    172.0Interest expense
    
    
    (35.2
    )
    
    
    (0.3
    )
    
    
    (23.6
    )
    
    
    
    
    
    
    (59.1
    )Intercompany interest income (expense)
    
    
    0.8
    
    
    
    2.4
    
    
    
    (3.2
    )
    
    
    
    
    
    
    Other income, net
    
    
    4.3
    
    
    
    2.4
    
    
    
    2.8
    
    
    
    
    
    
    
    9.5Equity in earnings (loss) of
intercompany investments
    
    
    314.9
    
    
    
    (18.1
    )
    
    
    
    
    
    
    (296.8
    )
    
    
    Income (loss) from continuing
operations before income taxes
    
    
    284.5
    
    
    
    122.0
    
    
    
    12.7
    
    
    
    (296.8
    )
    
    
    122.4Income tax benefit (expense)
    
    
    11.5
    
    
    
    (53.2
    )
    
    
    (4.8
    )
    
    
    
    
    
    
    (46.5
    )Income (loss) from continuing operations
    
    
    296.0
    
    
    
    68.8
    
    
    
    7.9
    
    
    
    (296.8
    )
    
    
    75.9Income from discontinued operations
    
    
    
    
    
    
    218.4
    
    
    
    1.7
    
    
    
    
    
    
    
    220.1Net income (loss)
    
    $
    296.0
    
    
    $
    287.2
    
    
    $
    9.6
    
    
    $
    (296.8
    )
    
    $
    296.0
 19




---



##### Table of Contents



Condensed Consolidated Statement of Operations
Three months ended May 31, 2004 Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    
    
    
    $
    490.2
    
    
    $
    347.9
    
    
    $
    
    
    
    $
    838.1Operating, selling, general and
administrative expenses
    
    
    0.4
    
    
    
    387.5
    
    
    
    314.8
    
    
    
    
    
    
    
    702.7Depreciation and amortization expense
    
    
    
    
    
    
    41.9
    
    
    
    19.7
    
    
    
    
    
    
    
    61.6Intercompany management fees (income)
    
    
    
    
    
    
    (2.3
    )
    
    
    2.3
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    (0.4
    )
    
    
    63.1
    
    
    
    11.1
    
    
    
    
    
    
    
    73.8Interest expense
    
    
    (11.7
    )
    
    
    
    
    
    
    (7.9
    )
    
    
    
    
    
    
    (19.6
    )Intercompany interest income (expense)
    
    
    4.1
    
    
    
    (3.6
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    Other income (expense), net
    
    
    (0.4
    )
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    (0.2
    )Equity in earnings (loss) of
intercompany investments
    
    
    38.4
    
    
    
    (4.0
    )
    
    
    
    
    
    
    (34.4
    )
    
    
    Income (loss) from continuing
operations before income taxes
    
    
    30.0
    
    
    
    55.6
    
    
    
    2.8
    
    
    
    (34.4
    )
    
    
    54.0Income tax benefit (expense)
    
    
    4.6
    
    
    
    (18.1
    )
    
    
    (8.5
    )
    
    
    
    
    
    
    (22.0
    )Income (loss) from continuing operations
    
    
    34.6
    
    
    
    37.5
    
    
    
    (5.7
    )
    
    
    (34.4
    )
    
    
    32.0Income from discontinued operations
    
    
    
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    2.6Net income (loss)
    
    $
    34.6
    
    
    $
    40.1
    
    
    $
    (5.7
    )
    
    $
    (34.4
    )
    
    $
    34.6
 Condensed Consolidated Statement of Operations
Nine months ended May 31, 2004 Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    
    
    
    $
    1,389.3
    
    
    $
    1,025.3
    
    
    $
    
    
    
    $
    2,414.6Operating, selling, general and
administrative expenses
    
    
    0.9
    
    
    
    1,126.2
    
    
    
    952.5
    
    
    
    
    
    
    
    2,079.6Depreciation and amortization expense
    
    
    
    
    
    
    130.8
    
    
    
    58.7
    
    
    
    
    
    
    
    189.5Intercompany management fees (income)
    
    
    
    
    
    
    (6.3
    )
    
    
    6.3
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    (0.9
    )
    
    
    138.6
    
    
    
    7.8
    
    
    
    
    
    
    
    145.5Interest expense
    
    
    (34.9
    )
    
    
    (0.2
    )
    
    
    (22.5
    )
    
    
    
    
    
    
    (57.6
    )Intercompany interest income (expense)
    
    
    2.4
    
    
    
    (0.7
    )
    
    
    (1.7
    )
    
    
    
    
    
    
    Other income (expense), net
    
    
    (4.3
    )
    
    
    0.6
    
    
    
    (0.2
    )
    
    
    
    
    
    
    (3.9
    )Equity in earnings (loss) of
intercompany investments
    
    
    84.6
    
    
    
    (16.3
    )
    
    
    
    
    
    
    (68.3
    )
    
    
    Income (loss) from continuing
operations before income taxes
    
    
    46.9
    
    
    
    122.0
    
    
    
    (16.6
    )
    
    
    (68.3
    )
    
    
    84.0Income tax benefit (expense)
    
    
    17.5
    
    
    
    (48.7
    )
    
    
    4.0
    
    
    
    
    
    
    
    (27.2
    )Income (loss) from continuing operations
    
    
    64.4
    
    
    
    73.3
    
    
    
    (12.6
    )
    
    
    (68.3
    )
    
    
    56.8Income from discontinued operations
    
    
    
    
    
    
    7.6
    
    
    
    
    
    
    
    
    
    
    
    7.6Net income (loss)
    
    $
    64.4
    
    
    $
    80.9
    
    
    $
    (12.6
    )
    
    $
    (68.3
    )
    
    $
    64.4
 20




---



##### Table of Contents



Condensed Consolidated Statement of Cash Flows
Nine months ended May 31, 2005 Parent
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    TotalsNet cash provided by (used in) operating activities
    
    $
    (32.5
    )
    
    $
    193.4
    
    
    $
    38.6
    
    
    $
    199.5Cash flows from investing activitiesPurchase of property and equipment, net
    
    $
    
    
    
    $
    (81.5
    )
    
    $
    (27.5
    )
    
    $
    (109.0
    )Expended on acquisitions
    
    
    
    
    
    
    
    
    
    
    (2.0
    )
    
    
    (2.0
    )Net (increase) decrease in investments
    
    
    3.4
    
    
    
    10.0
    
    
    
    (0.3
    )
    
    
    13.1Net proceeds from sale of healthcare businesses
    
    
    
    
    
    
    798.0
    
    
    
    
    
    
    
    798.0Net proceeds from sale of other businesses
    
    
    
    
    
    
    1.4
    
    
    
    9.2
    
    
    
    10.6Net cash provided by (used in) investing activities
    
    $
    3.4
    
    
    $
    727.9
    
    
    $
    (20.6
    )
    
    $
    710.7Cash flows from financing activitiesPay down Term B facility
    
    $
    (593.8
    )
    
    $
    
    
    
    $
    
    
    
    $
    (593.8
    )Net decrease in long-term debt
    
    
    (2.5
    )
    
    
    (0.2
    )
    
    
    (2.9
    )
    
    
    (5.6
    )Decrease in credit facility cash collateral
    
    
    60.5
    
    
    
    
    
    
    
    
    
    
    
    60.5PBGC Trust share repurchase
    
    
    
    
    
    
    
    
    
    
    (84.5
    )
    
    
    (84.5
    )Increase (decrease) in intercompany advances
    
    
    541.9
    
    
    
    (634.4
    )
    
    
    92.5
    
    
    
    Net cash provided by (used in) financing activities
    
    $
    6.1
    
    
    $
    (634.6
    )
    
    $
    5.1
    
    
    $
    (623.4
    )Net cash used by discontinued operations
    
    $
    
    
    
    $
    (6.7
    )
    
    $
    (6.8
    )
    
    $
    (13.5
    )Net increase (decrease) in cash and cash equivalents
    
    $
    (23.0
    )
    
    $
    280.0
    
    
    $
    16.3
    
    
    $
    273.3Cash and cash equivalents at:Beginning of period
    
    
    71.4
    
    
    
    4.6
    
    
    
    78.2
    
    
    
    154.2End of period
    
    $
    48.4
    
    
    $
    284.6
    
    
    $
    94.5
    
    
    $
    427.5
 Condensed Consolidated Statement of Cash Flows
Nine months ended May 31, 2004 Parent
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    TotalsNet cash provided by (used in) operating activities
    
    $
    (62.8
    )
    
    $
    158.9
    
    
    $
    97.4
    
    
    $
    193.5Cash flows from investing activitiesPurchase of property and equipment, net
    
    $
    
    
    
    $
    (64.1
    )
    
    $
    (59.8
    )
    
    $
    (123.9
    )Expended on acquisitions
    
    
    
    
    
    
    
    
    
    
    (1.3
    )
    
    
    (1.3
    )Net (increase) decrease in investments
    
    
    0.7
    
    
    
    47.6
    
    
    
    (0.5
    )
    
    
    47.8Net cash provided by (used in) investing activities
    
    $
    0.7
    
    
    $
    (16.5
    )
    
    $
    (61.6
    )
    
    $
    (77.4
    )Cash flows from financing activitiesPay down Term B facility
    
    $
    (18.8
    )
    
    $
    
    
    
    $
    
    
    
    $
    (18.8
    )Net increase (decrease) in long-term debt
    
    
    0.4
    
    
    
    (0.7
    )
    
    
    (33.6
    )
    
    
    (33.9
    )Increase (decrease) in intercompany advances
    
    
    127.8
    
    
    
    (121.1
    )
    
    
    (6.7
    )
    
    
    Net cash provided by (used in) financing activities
    
    $
    109.4
    
    
    $
    (121.8
    )
    
    $
    (40.3
    )
    
    $
    (52.7
    )Net cash provided (used) by discontinued operations
    
    $
    
    
    
    $
    (11.2
    )
    
    $
    0.6
    
    
    $
    (10.6
    )Net increase (decrease) in cash and cash equivalents
    
    $
    47.3
    
    
    $
    9.4
    
    
    $
    (3.9
    )
    
    $
    52.8Cash and cash equivalents at:Beginning of period
    
    
    40.7
    
    
    
    (2.4
    )
    
    
    55.7
    
    
    
    94.0End of period
    
    $
    88.0
    
    
    $
    7.0
    
    
    $
    51.8
    
    
    $
    146.8
 21




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##### Table of Contents



Condensed Consolidated Balance Sheet
As of May 31, 2005 Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    TotalsCurrent assets
    
    $
    51.5
    
    
    $
    583.1
    
    
    $
    319.8
    
    
    $
    
    
    
    $
    954.4Intercompany receivables (payables)
and investments
    
    
    1,970.2
    
    
    
    851.0
    
    
    
    (238.9
    )
    
    
    (2,582.3
    )
    
    
    Property and equipment
    
    
    
    
    
    
    794.0
    
    
    
    615.5
    
    
    
    
    
    
    
    1,409.5Insurance collateral
    
    
    
    
    
    
    8.9
    
    
    
    374.8
    
    
    
    
    
    
    
    383.7Other long-term investments
    
    
    50.8
    
    
    
    15.4
    
    
    
    17.9
    
    
    
    
    
    
    
    84.1Contracts and customer relationships
    
    
    
    
    
    
    70.9
    
    
    
    2.7
    
    
    
    
    
    
    
    73.6Long-term deferred income tax assets
    
    
    27.5
    
    
    
    14.5
    
    
    
    248.2
    
    
    
    
    
    
    
    290.2Deferred charges and other assets
    
    
    15.4
    
    
    
    0.8
    
    
    
    4.9
    
    
    
    
    
    
    
    21.1$
    2,115.4
    
    
    $
    2,338.6
    
    
    $
    1,344.9
    
    
    $
    (2,582.3
    )
    
    $
    3,216.6Current liabilities
    
    $
    20.7
    
    
    $
    121.2
    
    
    $
    327.2
    
    
    $
    
    
    
    $
    469.1Non-current liabilities
    
    
    399.1
    
    
    
    58.7
    
    
    
    594.0
    
    
    
    
    
    
    
    1,051.8Shareholders equity
    
    
    1,695.6
    
    
    
    2,158.7
    
    
    
    423.7
    
    
    
    (2,582.3
    )
    
    
    1,695.7$
    2,115.4
    
    
    $
    2,338.6
    
    
    $
    1,344.9
    
    
    $
    (2,582.3
    )
    
    $
    3,216.6
 Condensed Consolidated Balance Sheet
As of August 31, 2004 Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    TotalsCurrent assets
    
    $
    75.1
    
    
    $
    644.4
    
    
    $
    312.5
    
    
    $
    
    
    
    $
    1,032.0Intercompany receivables (payables)
and investments
    
    
    2,144.2
    
    
    
    241.9
    
    
    
    (120.2
    )
    
    
    (2,265.9
    )
    
    
    Property and equipment
    
    
    
    
    
    
    835.7
    
    
    
    656.7
    
    
    
    
    
    
    
    1,492.4Insurance collateral
    
    
    
    
    
    
    
    
    
    
    354.5
    
    
    
    
    
    
    
    354.5Other long-term investments
    
    
    114.7
    
    
    
    25.6
    
    
    
    14.9
    
    
    
    
    
    
    
    155.2Goodwill
    
    
    
    
    
    
    139.1
    
    
    
    
    
    
    
    
    
    
    
    139.1Contracts and customer relationships
    
    
    
    
    
    
    116.4
    
    
    
    2.2
    
    
    
    
    
    
    
    118.6Long-term deferred income tax assets
    
    
    5.9
    
    
    
    
    
    
    
    196.5
    
    
    
    (36.0
    )
    
    
    166.4Deferred charges and other assets
    
    
    42.8
    
    
    
    9.1
    
    
    
    9.0
    
    
    
    
    
    
    
    60.9Long term assets of discontinued
operations
    
    
    
    
    
    
    377.9
    
    
    
    51.4
    
    
    
    
    
    
    
    429.3$
    2,382.7
    
    
    $
    2,390.1
    
    
    $
    1,477.5
    
    
    $
    (2,301.9
    )
    
    $
    3,948.4Current liabilities
    
    $
    35.7
    
    
    $
    315.5
    
    
    $
    335.4
    
    
    $
    
    
    
    $
    686.6Non-current liabilities
    
    
    970.5
    
    
    
    203.1
    
    
    
    747.7
    
    
    
    (36.0
    )
    
    
    1,885.3Shareholders equity
    
    
    1,376.5
    
    
    
    1,871.5
    
    
    
    394.4
    
    
    
    (2,265.9
    )
    
    
    1,376.5$
    2,382.7
    
    
    $
    2,390.1
    
    
    $
    1,477.5
    
    
    $
    (2,301.9
    )
    
    $
    3,948.4
 22




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   General Corporate overview The following discussion and analysis presents factors which affected the Companys consolidated
results of operations for the three and nine month periods ended May 31, 2005 compared to the three
and nine month periods ended May 31, 2004 and the Companys consolidated financial position at May
31, 2005. The following information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included in this Form 10-Q and in the Companys Form 10-K for the year
ended August 31, 2004. As used in this Report, all references to the Company, we, us, our and
similar references are to Laidlaw International, Inc. Our continuing operations consist of three reportable segments: education services, public transit
services and Greyhound. See Note 10  Segment information of the Notes to Consolidated Financial
Statements in this Report. As a result of the sale of our healthcare transportation services and
emergency management services segments, prior period amounts have been reclassified to reflect the
discontinuance of these segments. Pursuant to the terms of the
Companys 10 3/4% million Senior Notes, the Company is required to
segregate the consolidated results of operations between the Restricted and Unrestricted
Subsidiaries as defined in Note 11  Condensed financial statements of restricted subsidiaries of
the Notes to the Consolidated Financial Statements included in this Report. Non-GAAP Measure EBITDA is presented solely as a supplemental disclosure with respect to liquidity because
management believes it provides useful information regarding our ability to service or incur debt.
EBITDA is not calculated the same way by all companies. We define EBITDA as operating income plus
depreciation and amortization. EBITDA, as reported here, is the same as reported for each of our
segments in Note 10  Segment information of the Notes to Consolidated Financial Statements
included in this Report. EBITDA is not intended to represent cash flow for the period, is not
presented as an alternative to operating income as an indicator of operating performance, should
not be considered in isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles (GAAP) and is not indicative of
operating income or cash flow from operations as determined under GAAP. The following is a reconciliation of our EBITDA to income from continuing operations: Three Months Ended
    
    
    Nine Months Ended($ in millions)
    
    May 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004EBITDA
    
    $
    132.6
    
    
    $
    135.4
    
    
    $
    375.8
    
    
    $
    335.0Depreciation and amortization
    
    
    (70.6
    )
    
    
    (61.6
    )
    
    
    (203.8
    )
    
    
    (189.5
    )Interest expense
    
    
    (20.0
    )
    
    
    (19.6
    )
    
    
    (59.1
    )
    
    
    (57.6
    )Other income (expense), net
    
    
    4.5
    
    
    
    (0.2
    )
    
    
    9.5
    
    
    
    (3.9
    )Income tax expense
    
    
    (16.1
    )
    
    
    (22.0
    )
    
    
    (46.5
    )
    
    
    (27.2
    )Income from continuing operations
    
    $
    30.4
    
    
    $
    32.0
    
    
    $
    75.9
    
    
    $
    56.8
 23




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##### Table of Contents



Results of Operations Three and nine months ended May 31, 2005, and 2004 Percentage of revenueThree Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Compensation expense
    
    
    49.3
    
    
    
    50.6
    
    
    
    50.0
    
    
    
    51.1Insurance and accident claim costs
    
    
    5.7
    
    
    
    6.7
    
    
    
    5.7
    
    
    
    7.6Vehicle related costs
    
    
    7.7
    
    
    
    7.6
    
    
    
    7.9
    
    
    
    8.0Fuel
    
    
    6.6
    
    
    
    5.4
    
    
    
    6.4
    
    
    
    5.2Occupancy costs
    
    
    4.7
    
    
    
    4.6
    
    
    
    4.8
    
    
    
    4.8Depreciation and amortization
    
    
    8.5
    
    
    
    7.4
    
    
    
    8.5
    
    
    
    7.9Other operating expenses
    
    
    10.1
    
    
    
    8.9
    
    
    
    9.6
    
    
    
    9.4Operating income
    
    
    7.4
    
    
    
    8.8
    
    
    
    7.1
    
    
    
    6.0Interest expense
    
    
    (2.3
    )
    
    
    (2.4
    )
    
    
    (2.4
    )
    
    
    (2.3
    )Other income (expense), net
    
    
    0.5
    
    
    
    
    
    
    
    0.4
    
    
    
    (0.2
    )Income from continuing operations
before income taxes
    
    
    5.6
    
    
    
    6.4
    
    
    
    5.1
    
    
    
    3.5Income tax expense
    
    
    (2.0
    )
    
    
    (2.6
    )
    
    
    (2.0
    )
    
    
    (1.1
    )Income from continuing operations
    
    
    3.6
    
    
    
    3.8
    
    
    
    3.1
    
    
    
    2.4Income (loss) from discontinued
operations
    
    
    (0.1
    )
    
    
    0.3
    
    
    
    9.2
    
    
    
    0.3Net income
    
    
    3.5
    %
    
    
    4.1
    %
    
    
    12.3
    %
    
    
    2.7
    %
 Revenue by business segment and Restricted and Unrestricted subsidiaries are as follows: Three Months Ended
    
    
    Nine Months Ended($ in millions)
    
    May 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004RevenueEducation services
    
    $
    464.0
    
    
    $
    459.7
    
    
    $
    1,321.0
    
    
    $
    1,310.2Greyhound
    
    
    294.5
    
    
    
    299.7
    
    
    
    864.0
    
    
    
    881.1Public transit
    
    
    77.6
    
    
    
    78.7
    
    
    
    228.5
    
    
    
    223.3Total
    
    $
    836.1
    
    
    $
    838.1
    
    
    $
    2,413.5
    
    
    $
    2,414.6Restricted Subsidiaries
    
    
    602.3
    
    
    
    595.8
    
    
    
    1,739.2
    
    
    
    1,709.1Unrestricted Subsidiaries
    
    
    233.8
    
    
    
    242.3
    
    
    
    674.3
    
    
    
    705.5Total
    
    $
    836.1
    
    
    $
    838.1
    
    
    $
    2,413.5
    
    
    $
    2,414.6
 24




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##### Table of Contents



EBITDA by business segment and Restricted and Unrestricted subsidiaries are as follows: Three Months Ended
    
    
    Nine Months Ended($ in millions)
    
    May 31,
    
    
    May 31,2005
    
    
    2004
    
    
    2005
    
    
    2004EBITDAEducation services
    
    $
    119.0
    
    
    $
    118.4
    
    
    $
    317.1
    
    
    $
    300.4Greyhound
    
    
    9.6
    
    
    
    15.6
    
    
    
    46.5
    
    
    
    37.6Public transit
    
    
    4.0
    
    
    
    1.4
    
    
    
    12.2
    
    
    
    (3.0
    )Total
    
    $
    132.6
    
    
    $
    135.4
    
    
    $
    375.8
    
    
    $
    335.0Restricted Subsidiaries
    
    
    120.2
    
    
    
    123.4
    
    
    
    338.4
    
    
    
    307.1Unrestricted Subsidiaries
    
    
    12.4
    
    
    
    12.0
    
    
    
    37.4
    
    
    
    27.9Total
    
    $
    132.6
    
    
    $
    135.4
    
    
    $
    375.8
    
    
    $
    335.0
 Education services Revenue in the education services segment increased by $4.3 million and $10.8 million for the three
and nine months ended May 31, 2005 compared to the same periods in fiscal 2004. The increases in
revenue are principally due to a strengthening of the Canadian dollar relative to the U.S. dollar
that had the effect of increasing revenue compared to the corresponding periods last year by $4.6
million and $12.0 million for the three and nine months ended May 31, 2005, respectively. Revenue
from new contracts and rate increases on existing contracts were largely offset by decreased
revenue from lost contracts. In the three and nine months ended May 31, 2005, EBITDA in the education services segment improved
$0.6 million and $16.7 million over the three and nine months ended May 31, 2005 primarily due to
lower accident claim costs somewhat offset by increased fuel prices and vehicle maintenance costs.
Accident claims costs during the three and nine months ended May 31, 2005 were $7.8 million and
$23.0 million, respectively, lower than the comparable periods in the prior year. Favorable trends
in accident frequency along with improvements in development of insurance losses from previous
years have led to the reduction in accident claims costs year over year. Although we believe our
full year 2005 results will continue to reflect a significant year-over-year reduction in accident
claims costs, we anticipate that these costs will be higher during the fourth quarter of fiscal
2005 than the amounts recorded during the fourth quarter of fiscal 2004. Greyhound Revenue in the Greyhound segment during the three and nine months ended May 31, 2005 declined $5.2
million and $17.1 million, respectively, from the three and nine months ended May 31, 2004,
principally due to a decrease in passenger revenue somewhat offset by an increase in the Canadian
exchange rate. Passenger revenue and miles driven are down due to managements focus on improving
profitability by reducing lower yielding long-distance trips and eliminating low-performing routes
or frequencies. Had there been no change in the exchange rate, revenue would have decreased by
$10.2 million and $31.1 million for the three and nine months ended May 31, 2005, respectively,
compared to the prior year periods. EBITDA in the Greyhound segment in the three months ended May 31, 2005, declined by $6.0 million
compared to the three months ended May 31, 2004 due to a $5.8 million loss recorded upon
disposition of several tour and charter businesses in western Canada. During the quarter, higher
fuel prices, advertising and insurance costs were mostly offset by gains made in improving revenue
per bus mile. EBITDA in the nine months ended May 31, 2005 improved $8.9 million compared to the
nine months ended May 31, 2004 due to gains made in improving revenue per bus mile and lower
accident claims costs somewhat offset by higher fuel costs and the loss on sale of the western
Canada businesses. 25




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##### Table of Contents



Public transit Revenue in the public transit services segment decreased $1.1 million for the three months ended
May 31, 2005 compared to the same period in fiscal 2004 while revenue increased $5.2 million for
the nine months ended May 31, 2005 compared to the same period in fiscal 2004. The decline in the
current quarter is primarily due to lost revenue as a result of the sale of a small charter
operation in the second quarter of 2005. The increase during the nine month period is primarily
due to route additions on current contracts. EBITDA in the public transit services segment in the three and nine months ended May 31, 2005
improved $2.6 million and $15.2 million, respectively, over the same period in 2004 primarily due
to lower accident claims costs. Accident claims costs during the three and nine months ended May
31, 2005 were $3.6 million and $13.9 million, respectively, lower than the comparable periods in
the prior year. Favorable trends in accident frequency along with improvements in development of
insurance losses from previous years have led to the reduction in accident claims costs year over
year. Although we believe our full year 2005 results will continue to reflect a significant
year-over-year reduction in accident claims costs, we anticipate that these costs will be higher
during the fourth quarter of fiscal 2005 than the amounts recorded during the fourth quarter of
fiscal 2004. Restricted Subsidiaries The $6.5 million and $30.1 million increase in the Restricted Subsidiaries revenue during the three
and nine months ended May 31, 2005 compared to the prior year is primarily a result of the
increases in revenue in education services and Greyhound Lines of Canada. A large portion of the
increase was due to the increased strength of the Canadian dollar compared to the U.S dollar. Had
there been no change in the exchange rate, revenue would have decreased by $3.1 million and would
have increased $4.1 million for the three and nine months ended May 31, 2005, respectively,
compared to the prior year periods. In the three months ended May 31, 2005, EBITDA for the Restricted Subsidiaries declined $3.2
million over the three months ended May 31, 2004, while EBITDA for the nine months ended May 31,
2005 improved $31.3 million over the nine months ended May 31, 2004. The decline during the
current quarter is primarily due to the loss on sale of the western Canada businesses. During the
nine month period the increase is primarily due to a $38.6 million reduction in accident claims
costs somewhat offset by the loss on sale of the western Canada businesses. Unrestricted Subsidiaries The Unrestricted Subsidiaries revenue decreased $8.5 million and $31.2 million during the three and
nine months ended May 31, 2005, primarily due to reduced passenger revenue and miles driven as
discussed in the Greyhound segment above. In the three and nine months ended May 31, 2005, EBITDA in the Unrestricted Subsidiaries increased
$0.4 million and $9.5 million, respectively, compared to the three and nine months ended May 31,
2004 due to increased revenue per mile and reduced operating costs as discussed in the Greyhound
segment above, somewhat offset by fuel cost increases. Depreciation and amortization expense Depreciation expense for the three and nine months ended May 31, 2005 increased $9.6 million and
$14.9 million over the three and nine months ended May 31, 2004. The increase is mostly
attributable to the Unrestricted Subsidiaries and is principally due to a decrease in the estimated
useful life and salvage value of certain older Greyhound buses. 26




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##### Table of Contents



Amortization expense for the three and nine months ended May 31, 2005 decreased slightly compared
to the same periods in fiscal 2004. Amortization is primarily related to customer contracts
capitalized under fresh start accounting. Virtually all of the amortization expense was recorded
by the Restricted Subsidiaries. Interest expense In the three and nine months ended May 31, 2005, interest expense was $20.0 million and $59.1
million, respectively, compared to $19.6 million and $57.6 million for the three and nine months
ended May 31, 2004. The increase is attributable to a slightly higher average debt balance at
Greyhound. Other income (expense), net Other income (expense), net was $4.5 million and $9.5 million, respectively, for the three and nine
months ended May 31, 2005. The income for the quarter ended May 31, 2005 primarily relates to
income on investments and a refund of $2.5 million related to legal fees, previously expensed, to
defend former directors and officers of the Predecessor Company from shareholder and creditor
lawsuits that originated prior to the Companys emergence from bankruptcy. Income for the nine
months ended May 31, 2005 also includes proceeds received by the Company from the finalization of
Greyhounds 1990 bankruptcy proceedings, offset somewhat by certain other non-operating expenses. Other income (expense), net was ($0.2) million and ($3.9) million in the three and nine months
ended May 31, 2004, respectively, and primarily related to legal fees to defend former directors
and officers of the Predecessor Company from shareholder and creditor lawsuits that originated
prior to the Companys emergence from bankruptcy offset somewhat by income on investments. Discontinued operations Income from discontinued operations includes the operating results of our healthcare transportation
services and emergency management services segments through the date of their sale on February 10,
2005. For the three months ended May 31, 2005, the $1.0 million loss from discontinued operations
was principally due to charges related to retained insurance claims. Income from discontinued
operations was $220.1 million for the nine months ended May 31, 2005, and is principally related to
the gain on sale of the businesses. Income from discontinued operations was $2.6 million and $7.6
million for the three and nine months ended May 31, 2004. Income tax expense Income tax expense for continuing operations for the three and nine months ended May 31, 2005 was
$16.1 million and $46.5 million, respectively, compared to $22.0 million and $27.2 million in the
three and nine months ended May 31, 2004. During the nine month period ended May 31, 2004, the
Company recorded a one-time benefit of $6.6 million due to a change in a Canadian tax rate. The
effective tax rate was 35% and 38% for the three and nine months of fiscal 2005, respectively,
compared to 41% and 40% in the three and nine months of fiscal 2004, excluding the effect of the
one-time rate change. Of the $16.1 million and $46.5 million provided in the three and nine months ended May 31, 2005,
$1.2 million and $2.8 million, respectively, represents cash taxes payable and the balance reflects
the utilization of deferred tax assets. 27




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##### Table of Contents



Liquidity and capital resources For the nine months ended May 31, 2005, cash provided by operating activities was $199.5 million
compared to $193.5 million for the nine months ended May 31, 2004. Net expenditures for the
purchase of capital assets was $109.0 million for the nine months ended May 31, 2005 compared to
$123.9 million for the nine months ended May 31, 2004. Net cash proceeds received by the Company from the sale of the healthcare businesses during the
nine months ended May 31, 2005, totalled $798.0 million of which $574.1 million was used to retire
all outstanding borrowings under the Companys Term B senior secured term facility. Additionally,
following the pay down of the Term B facility, the Company was able to reduce $60.5 million of the
cash collateral under its cash collateralized letter of credit facility. Management expects to
recover the remaining $39.5 million of cash collateral under this facility before the end of the
fiscal year. During the nine months ended May 31, 2005, the Company also purchased, and retired,
all of the shares held in the Pension Plan Trust (as discussed in
Note 6 - Pension Plans) for $84.5
million. On June 30, 2005 the Company entered into a new $600 million senior credit facility consisting of a
$300 million term loan payable in installments through 2010 and a $300 million revolving credit
facility available through 2010. The new revolving credit facility replaced the Companys previous
$200 million revolver and allowed the Company to replace Greyhound Lines previous $125 million
revolver. Proceeds from the new term loan, along with cash on hand, were used to repurchase
substantially all of the Companys 10.75% notes and will be used to redeem Greyhound Lines 11.5%
notes and 8.5% convertible debentures. On July 5, 2005, the tender offer and consent solicitation of the 10.75% senior notes was
completed. In conjunction with the offer and solicitation, the Company repurchased $399.2 million
of the outstanding $403.5 million principal amount of the notes, representing approximately 98.9%
of the outstanding notes. Total consideration paid, including tender premiums and consent fees,
was $467.3 million. As part of the tender offer, the Company received the requisite consents to
eliminate substantially all of the restrictive covenants under the 10.75% notes. Additionally, the
Company is in the process of redeeming at par Greyhound Lines $150 million principal amount of
11.5% notes and $5 million 8.5% convertible debentures. These redemptions are expected to be
completed before the end of the fiscal year and will give rise to one
time charges in the fourth quarter of approximately $112 million
for tender premiums, write-off of deferred financing fees, and other
fees and costs. The Company requires significant cash flows to finance capital expenditures and to meet its debt
service and other continuing obligations. We believe that existing cash and cash flow from
operations, together with borrowings under our Revolver as necessary, will be sufficient to fund
our anticipated capital expenditures and working capital requirements for the foreseeable future,
including payment obligations under our debt agreements and other commitments. Commitments and Contingencies Reference is made to Note 21
 Commitments and contingencies of Notes to the Consolidated
Financial Statements in the Companys Form 10-K for the year ended August 31, 2004 for a
description of the Companys material commitments. Reference is
made to Note 8  Material
contingencies of Notes to Consolidated Financial Statements in this Report for a description of
the Companys material contingencies. 28




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Forward-looking statements Certain statements contained in this report on Form 10-Q, including statements regarding the status
of future operating results and market opportunities and other statements that are not historical
facts, are forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements can be identified by the use of terminology
such as: believe, hope, may, anticipate, should, intend, plan, will, expect, estimate, continue,
project, positioned, strategy and similar expressions. Such statements involve certain risks,
uncertainties and assumptions that include, but are not limited to:  -
    
    Economic and other market factors, including competitive pressures and changes
in pricing policies;-
    
    The ability to implement initiatives designed to increase operating
efficiencies or improve results;-
    
    Control of costs related to accident and other risk management claims;-
    
    Costs and risks associated with litigation;-
    
    Changes in interpretations of existing, or the adoption of new legislation,
regulations or other laws;-
    
    Changes in homeland security or terrorist activity;-
    
    Potential changes in the mix of businesses we operate; and-
    
    Increases in prices of fuel and shortages. Should one or more of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual outcomes may vary materially from those indicated. In the light of these
risks and uncertainties you are cautioned not to place undue reliance on these forward-looking
statements. The Company undertakes no obligation to publicly update forward-looking statements,
whether as a result of new information, future events or otherwise. You are advised, however, to
consult any further disclosures the Company makes on related subjects as may be detailed in the
Companys other filings made from time to time with the Securities and Exchange Commission. 29




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LAIDLAW INTERNATIONAL, INC. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in market risk from the disclosures provided in Item 7A.
Quantitative and Qualitative Disclosures About Market Risk as set forth in the Companys Form 10-K
for the year ended August 31, 2004. 
 Item 4. Controls and Procedures The Company maintains a set of disclosure controls and procedures designed to ensure that
information required to be disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms. As of the end of the
period covered by this quarterly report, an evaluation was carried out under the supervision and
with the participation of the Companys management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that
the Companys disclosure controls and procedures are effective. During the most recent fiscal quarter, there have not been any changes in the Companys internal
controls over financial reporting or in other factors that have materially affected, or are
reasonably likely to materially affect, the Companys internal controls over financial reporting. 30




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LAIDLAW INTERNATIONAL, INC. 
 PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings Contingent Liabilities Relating to Sale of AMR On February 10, 2005 the Company completed the sale of American Medical Response, Inc. (AMR) to
an affiliate of Onex Corporation (Onex) in accordance with the Stock Purchase Agreement, dated
December 6, 2004, as amended (the Stock Purchase Agreement). Pursuant to the terms of the Stock
Purchase Agreement, the Company may be subject to indemnification obligations related to certain
investigations and matters previously disclosed relating to AMR, including potentially those set
forth below. On May 9, 2002, AMR received a subpoena duces tecum from the Office of Inspector General for the
United States Department of Health and Human Services (HHS). The subpoena requested copies of
documents for the period from January 1993 through May 2002. The subpoena required AMR to produce
a broad range of documents including those relating to Regional Emergency Services contracts in
Georgia and Colorado. The government investigations in Georgia and Colorado are continuing. During the first quarter of fiscal 2004, AMR was advised by the U.S. Department of Justice (DOJ),
that it was investigating certain business practices at AMR. The specific practices at issue were
(1) whether ambulance transports involving Medicare eligible patients complied with the medically
necessary requirement imposed by Medicare regulations, (2) whether patient signatures, when
required, were properly obtained from Medicare eligible patients; and (3) whether discounts in
violation of the Federal Anti-Kickback Act were provided by AMR in exchange for referrals involving
Medicare eligible patients. At this juncture, it is not possible to predict the ultimate
conclusion of the investigations described in this and the preceding paragraph, nor is it possible
to calculate any possible financial exposure, if any, to the Company, pursuant to the terms of the
Stock Purchase Agreement. As discussed in note 2  Discontinued operations, AMR management advised the Company that they
had recently determined that their accounts receivable reserves have been understated for at least
the last five years, including the date of sale. As a result of this matter, it is possible that
Onex could assert a claim against the Company under the Stock Purchase Agreement, although no such
claim has currently been asserted. Other The Company is also a defendant in various lawsuits arising in the ordinary course of business,
primarily cases involving personal injury, property damage or employment related claims. Some of
these actions are covered to varying degrees by insurance policies. Based on an assessment of
known claims and our historical claims payout pattern, management believes that there is no
proceeding either threatened or pending against us relating to personal injury and/or property
damage claims and/or employment related claims that would have a material adverse effect on the
Company. Environmental The Companys operations are subject to various federal, state, local and foreign laws and
regulations relating to environmental matters, including those concerning emissions to the air;
waste water discharges; storage, treatment and disposal of waste and remediation of soil and 31




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ground water contamination. We have incurred, and expect to incur, costs for our operations to
comply with these legal requirements, and these costs could increase in the future. In particular,
the Company has been named as a potentially responsible party under the United States
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, at
various third-party sites at which the Companys waste was allegedly disposed. In addition, the
Company is investigating or engaged in remediation of past contamination at other sites used in its
businesses. The Company records liabilities when environmental liabilities are either known or
considered probable and can be reasonably estimated. On an ongoing basis, management assesses and
evaluates environmental risk and, when necessary, conducts appropriate corrective measures. As of
the date of this report, management believes that adequate accruals have been made related to all
known environmental matters, however actual environmental liabilities could differ significantly
from these estimates. 
 Item 6. Exhibits  31.1
    
    Principal Executive Officers Certifications Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Principal Financial Officers Certifications Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of Sarbanes-Oxley Act
of 2002) 32




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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. LAIDLAW INTERNATIONAL, INC.By: /s/ Douglas A. CartyDate:  July 8, 2005
    Douglas A. CartySenior Vice President and Chief Financial Officer
Duly Authorized Officer and Principal Financial
Officer 33