##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended August 31, 2005
Commission File Number 000-13109
 LAIDLAW INTERNATIONAL, INC.
  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    98-0390488
(I.R.S. Employer
Identification No.)
 55 SHUMAN BOULEVARD, SUITE 400
NAPERVILLE, ILLINOIS 60563
 (630) 848-3000
  Title of each classCommon Stock, $0.01 par value
    
    Name of each exchange on which registeredNew York Stock Exchange
   þ o
 þ
  þ o
 o þ
  
  þ o
     1




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##### Table of Contents



NOTE REGARDING FORWARD-LOOKING STATEMENTS
  -
    
    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;-
    
    Costs and risks associated with litigation;-
    
    Changes in interpretations of existing, or the adoption of new, legislation,
regulations or other laws;-
    
    The potential for rising labor costs and actions taken by organized labor unions;-
    
    Continued increases in prices of fuel and potential shortages;-
    
    Control of costs related to accident and other risk management claims;-
    
    Terrorism and other acts of violence;-
    
    The ability to produce sufficient future taxable income to allow us to recover
our deferred tax assets;-
    
    Potential changes in the mix of businesses we operate; and-
    
    The inability to earn sufficient returns on pension plan assets thus requiring
increased funding.
  2




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LAIDLAW INTERNATIONAL, INC.
FORM 10-K INDEX
  
 Item No.
    
    
    
    Page No.PART IItem 1.
    
    BusinessBackground and parent company restructuring
    
    
    4Business segments:Education services
    
    
    5Greyhound
    
    
    8Public transit services
    
    
    11Available information
    
    
    13Item 2.
    
    Properties
    
    
    14Item 3.
    
    Legal Proceedings
    
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    15Item 4A.
    
    Executive Officers of the Registrant
    
    
    15PART IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder
Matters
    
    
    17Item 6.
    
    Selected Financial Data
    
    
    19Item 7.
    
    Managements Discussion and Analysis of Financial Condition
and Results of OperationsCorporate overview
    
    
    20Year in review
    
    
    20Results of operations
    
    
    22Liquidity and capital resources
    
    
    28Off-balance sheet arrangements
    
    
    29Critical accounting policies
    
    
    30Risk factors
    
    
    31Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 8.
    
    Financial Statements and Supplementary Data
    
    
    35Item 9.
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    35Item 9A.
    
    Controls and Procedures
    
    
    35PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    37Item 11.
    
    Executive Compensation
    
    
    37Item 12.
    
    Security Ownership of Certain Beneficial Owners and
Management
    
    
    37Item 13.
    
    Certain Relationships and Related Transactions
    
    
    37Item 14.
    
    Principal Accountant Fees and Services
    
    
    37PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    38Signatures
    
    
    41SubsidiariesConsentConsentConsentPowers of AttorneyCertificationCertificationCertification
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PART I
 
 ITEM 1. BUSINESS
  
    
    Our education services segment is the largest provider of school bus
transportation throughout the United States and Canada (50% of revenue);
    
    Our Greyhound segment is the largest provider of intercity bus
transportation in the United States and Canada. Greyhound also provides
charter bus services and package delivery services (40% of revenue); and
    
    Our public transit services segment is a leading operator of
out-sourced municipal and paratransit bus transportation within the United
States (10% of revenue).Financial information concerning the Companys geographical and business segments is provided in
Note 19  Segment information of the Notes to Consolidated Financial Statements.As discussed in Note 3, Discontinued operations of the Notes to Consolidated Financial
Statements, we sold our healthcare transportation and emergency management businesses in fiscal
2005. Those segments are now reported as discontinued operations.
 
 BACKGROUND AND PARENT COMPANY RESTRUCTURING
    4




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EDUCATION SERVICES SEGMENT
 Services Provided
  (i)
    
    Home-to-school:Regularly scheduled transportation of students to and from school, based on
the negotiated terms of contracts with school districts (87% of revenue);(ii)
    
    Extra-curricular:Non-regularly scheduled transportation of students on field trips, to
athletic events or for other extra-curricular activities (5% of revenue);(iii)
    
    Charter & transit:Transportation service provided to non-school customers (4% of revenue);
and(iv)
    
    Other:Leasing or sale of transportation equipment, logistical support, maintenance
agreements and other support services (4% of revenue).
 Competitive Environment
     Operations
 5
    Table of Contents      -
    
    Grow operating margins and return on assets  We are maintaining our focus of
improving the financial performance of underperforming contracts as they come up for
renewal and seeking to expand ancillary revenue, including charter services, in order
to improve the utilization of our fleet.-
    
    Lower structural costs  We have a project underway to consolidate operating
support functions, including payroll and accounts payable, in order to lower processing
costs. By increasing centralized purchasing and improving information technology
systems, we believe we will be able to further lower operating costs.-
    
    Build a platform for growth  By lowering our costs, we believe we will be able to
enhance our ability to grow our traditional transportation offerings. Additionally,
improved and scaleable information systems may give us an opportunity to market our
core competencies to school districts that do not contract out bus transportation.
  Seasonality
  Employees
  6




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Safety
  -
    
    Child awareness training consisting of programs and activities to
increase the awareness of school bus safety;-
    
    Daily pre-trip equipment inspection by our drivers; and-
    
    Use of equipment on certain of our vehicles that reinforces and
monitors behavior in route and at the completion of each run.
  Vehicle Fleet
  Fuel
  Regulation
   7




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##### Table of Contents



GREYHOUND SEGMENT
 Services Provided
  (i)
    
    Passenger service:Greyhound provides inter-city bus transportation to cities and towns in
urban and rural areas throughout the U.S. and Canada. Additionally, interline agreements and
alliances with other bus carriers provide access to smaller towns in the U.S. and Canada and
cross-border transportation to and from Mexico that are complementary to our existing service
schedules (78% of revenue);(ii)
    
    Package express:Our package express service targets commercial shippers and delivery
companies that require rapid delivery of small parcels, typically to locations within 100 to
300 miles. Our services include standard delivery, which is a value priced
terminal-to-terminal delivery service, as well as priority and same day delivery, which is a
premium priced product where parcels are typically delivered door-to-door (9% of revenue);(iii)
    
    Tour and charter:We offer charter services whereby a group of individuals can reserve a
bus and driver in certain cities for transportation to and from specific events, such as
concerts, sporting events, casinos and conventions (6% of revenue); and(iv)
    
    Food service and other:We offer food service and travel and logo items for purchase in many
of our terminal locations (7% of revenue).
 Trademarks
  Competitive Environment
 Passenger service
    8




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Package express
  Tour and charter
  Food service
  Operations
   Information Technology
  9




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Seasonality
  Employees
   Safety
  Vehicle Fleet
  Fuel
  10




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Regulation
    
 PUBLIC TRANSIT SERVICES SEGMENT
 Services Provided
  (i)
    
    Paratransit:We provide transportation for the mobility challenged which complies with the
ADA. The ADA guarantees persons with disabilities full and equal access to the same services
and accommodations that are available to people without disabilities. Public transit
operators provide paratransit services to persons with disabilities that are comparable to the
level of fixed-route service provided. Our service offerings include curb-to-curb and
door-to-door group and individual dial-a-ride services (74% of revenue);(ii)
    
    Fixed-route:This service is comprised of public municipal transit bus systems providing
scheduled fixed-route transportation. We operate municipal transit bus systems, including the
recruitment, training and management of drivers, mechanics and support staff needed to provide
such services (24% of revenue); and(iii)
    
    Other:We provide other transportation services such as shuttle services for corporate
campuses (2% of revenue).Competitive EnvironmentThe public transit market is estimated to be approximately $15 billion based on annual revenue.
The total municipal bus fleet in the United States is estimated at roughly 73,000 buses of which
73% are fixed-route vehicles and 27% are paratransit vehicles.
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Approximately 80% of transit services is self-operated by municipal transit authorities and the
remainder is out-sourced to private sector providers like ourselves. Most of the out-sourced
transit services are for paratransit transportation. Typically, transit authorities provide the
vehicles and facilities, but rely on private contractors to manage the operation. Transit
authorities are able to receive up to 80% of the capital costs associated with the fleet and the
facilities from the Federal Transit Administration. The barriers to entry for out-sourced transit
services are low as a result of the minimal capital required.In addition to ourselves, there are three large private operators that we believe provide over half
of the out-sourced transit services. Two of these other transit providers are subsidiaries of
large foreign-owned transportation companies. The other large operator is a privately held
transportation company based in the United States. We believe we provide approximately 10% of the
out-sourced transit services.Bidding for contracts has been very competitive as private contractors are seeking to increase
market share. We believe the competitive environment coupled with the tightening of state and
local transit authorities budgets have contributed to a general reduction in industry
profitability.OperationsOur public transit business operates dispatch centers, brokerage operations, management contracts
and total turnkey operations for both paratransit and fixed-route services from 80 locations in 26
states across the United States. We transport more than 51 million passengers per year under 136
different contracts.Public transits operations are largely conducted on a decentralized basis although our support
functions are more centralized and include marketing, information systems, and safety functions.We have developed proprietary software that assists with dispatching our fleet and provides route
modification of vehicles in service. This software matches reservations and new trip requests with
existing routes to maximize shared trips, improve vehicle productivity and enhance customer
service.All of public transits revenues are generated under contracts, generally with three-year
maturities and two-year extension options. The largest contract represented 10% of the public
transit segments revenue in fiscal year 2005.EmployeesAs of August 31, 2005, our public transit business had approximately 6,300 employees, 47% of
whom are unionized under 26 collective bargaining contracts. Approximately 40% of the collective
bargaining agreements, representing nearly 1,000 employees, are subject to renegotiation in fiscal
year 2006. Approximately 14% of our workforce consists of part-time employees.Driver compensation is market-driven and may be specified by the local Transit Authority during the
competitive bidding process. We believe that our relations with our employees in our public
transit business are good.SafetyPublic transit operates under very stringent safety standards. In addition to thorough
background checks and testing at the time of hire, we require a minimum of over 60 hours of
training both in the classroom and behind the wheel for new drivers. Additionally, our existing
 12




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drivers receive an average of 12 hours training annually. In recent years, we have seen an
improvement of our safety record; in particular, the frequency of incidents has declined.Vehicle FleetAs of August 31, 2005, public transit operated approximately 3,800 revenue-generating
vehicles, of which we own over 1,100, most of which are paratransit vehicles. The remaining units
were owned and provided by customers. Our fleet consists of vans, sedans, body-on-chassis small
buses and transit style buses configured to the individual requirements of each contract. Vehicle
life is usually tied to the contract for which the vehicle is providing services.FuelFuel price increases, whenever possible, are passed through to our customers or are subject to
escalation clauses. We further mitigate price increases by incorporating language in our contracts
requiring customers to provide the fuel. Of the 19 million gallons of fuel purchased annually,
over 70% is subject to escalation clauses or passed through to our customers. In 2005, fuel
expense represented 6% of public transits revenues.RegulationPublic transit is heavily regulated by federal, state and local agencies and undergoes both
internal and external compliance audits. These regulations set standards for fleet and safety
equipment, driver qualification and insurance with which we must comply.
 
 AVAILABLE INFORMATION
  13




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ITEM 2. PROPERTIES
     
 ITEM 3. LEGAL PROCEEDINGS
 General Litigation and Other Disputes
 Contingent Liabilities Relating to Sale of AMR
     14




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Other
  Environmental
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionKevin E. Benson
    
    
    58
    
    
    Director, President and Chief Executive OfficerDouglas A. Carty
    
    
    49
    
    
    Executive Vice President and Chief Financial OfficerBeth Byster Corvino
    
    
    48
    
    
    Executive Vice President, General Counsel and
Corporate SecretaryJeffrey W. Sanders
    
    
    43
    
    
    Vice President, Corporate Development and ControllerJeffery A. McDougle
    
    
    49
    
    
    Vice President, Treasurer
  Kevin E. Benson
 15




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Douglas A. Carty
 Beth Byster Corvino
 Jeffrey W. Sanders
 Jeffery A. McDougle
 16




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
   HIGH
    
    
    LOWYear ended August 31, 2005:First Quarter
    
    $
    19.00
    
    
    $
    15.37Second Quarter
    
    
    23.00
    
    
    
    18.85Third Quarter
    
    
    23.43
    
    
    
    20.41Fourth Quarter
    
    
    26.50
    
    
    
    22.47Year ended August 31, 2004:First Quarter
    
    $
    13.38
    
    
    $
    9.45Second Quarter
    
    
    15.30
    
    
    
    12.68Third Quarter
    
    
    15.14
    
    
    
    12.00Fourth Quarter
    
    
    15.74
    
    
    
    11.96
  th
 Summary of Equity Compensation Plans
   17




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Available for futureNumber of shares to be
    
    Weighted-average
    
    issuance under equityissued upon exercise of
    
    exercise price of
    
    compensation plansoutstanding options,
    
    outstanding options,
    
    (excluding shareswarrants and rights
    
    warrants and rights
    
    reflected in column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
shareholders
    
    
    1,762,217
    
    
    $
    15.75
    *
    
    
    3,013,109Equity compensation
plans not approved
by shareholders
    

    None
    

    
    None
    

    
    NoneTotal
    
    
    1,762,217
    
    
    $
    15.75
    *
    
    
    3,013,109
 *
    
    Weighted average exercise price of the 906,805 stock options outstanding on August 31, 2005. 18




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  Predecessor CompanyThree
    
    
    
    Nine($ in millions except per share
    
    
    
    
    
    
    
    
    
    Months
    
    
    
    Monthsamounts)
    
    Year Ended
    
    
    Ended
    
    
    
    Ended
    
    
    Year EndedAugust 31,
    
    
    August
    
    
    
    May 31,
    
    
    August 31,2005
    
    
    2004
    
    
    31, 2003
    
    
    
    2003
    
    
    2002
    
    
    2001Statements of Operations DataRevenue
    
    $
    3,026.5
    
    
    $
    3,026.8
    
    
    $
    612.6
    
    
    
    $
    2,374.4
    
    
    $
    3,012.9
    
    
    $
    3,029.0Depreciation and amortization
    
    
    249.1
    
    
    
    230.7
    
    
    
    39.5
    
    
    
    
    195.5
    
    
    
    259.8
    
    
    
    253.3Operating income
    
    
    164.9
    
    
    
    142.8
    
    
    
    7.9
    
    
    
    
    116.6
    
    
    
    64.8
    
    
    
    96.0Income (loss) from continuing
operations *
    
    $
    (5.6
    )
    
    $
    46.5
    
    
    $
    (0.4
    )
    
    
    $
    373.4
    
    
    $
    50.7
    
    
    $
    (153.2
    )Income (loss) from discontinued
operations **
    
    
    218.0
    
    
    
    15.2
    
    
    
    (9.5
    )
    
    
    
    (1,586.2
    )
    
    
    (35.8
    )
    
    
    1,579.1Net income (loss)
    
    $
    212.4
    
    
    $
    61.7
    
    
    $
    (9.9
    )
    
    
    
    (1,212.8
    )
    
    $
    14.9
    
    
    $
    1,425.9Basic earnings (loss) per shareContinuing operations
    
    $
    (0.06
    )
    
    $
    0.47
    
    
    $
    (0.01
    )
    
    
    $
    1.15
    
    
    $
    0.16
    
    
    $
    (0.47
    )Discontinued operations
    
    
    2.18
    
    
    
    0.15
    
    
    
    (0.09
    )
    
    
    
    (4.87
    )
    
    
    (0.11
    )
    
    
    4.84Net income (loss)
    
    $
    2.12
    
    
    $
    0.62
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )
    
    $
    0.05
    
    
    $
    4.37Diluted earnings (loss) per shareContinuing operations
    
    $
    (0.06
    )
    
    $
    0.45
    
    
    $
    (0.01
    )
    
    
    $
    1.15
    
    
    $
    0.16
    
    
    $
    (0.47
    )Discontinued operations
    
    
    2.18
    
    
    
    0.14
    
    
    
    (0.09
    )
    
    
    
    (4.87
    )
    
    
    (0.11
    )
    
    
    4.84Net income (loss)
    
    $
    2.12
    
    
    $
    0.59
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )
    
    $
    0.05
    
    
    $
    4.37Dividends per Common Share
    
    $
    0.15
    
    
    $
    
    
    
    $
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Balance Sheet Data ***
(at period end)Total assets  Continuing operations
    
    
    2,908.7
    
    
    
    3,030.3
    
    
    
    3,031.5
    
    
    
    
    3,064.3
    
    
    
    3,790.1
    
    
    
    3,757.9Total assets
    
    
    2,908.7
    
    
    
    3,948.4
    
    
    
    3,977.1
    
    
    
    
    3,954.1
    
    
    
    6,275.9
    
    
    
    6,219.8Total debt
    
    
    314.4
    
    
    
    1,135.1
    
    
    
    1,190.5
    
    
    
    
    1,213.2
    
    
    
    192.7
    
    
    
    266.7Liabilities subject to compromise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,977.1
    
    
    
    3,978.5Shareholders equity
    
    
    1,600.2
    
    
    
    1,376.5
    
    
    
    1,290.3
    
    
    
    
    1,309.3
    
    
    
    954.1
    
    
    
    1,029.5
 
 *
    
    The year ended August 31, 2005, includes $72.2 million of debt restructuring
costs. The nine months ended May 31, 2003, includes net gain on extinguishment of debt
of $1,482.8 million, charges to income of $547.4 million for fresh start accounting
adjustments and a goodwill impairment charge of $636.4 million.**
    
    The year ended August 31, 2005, includes a $238.6 million gain on sale. The nine
months ended May 31, 2003, includes charges to income of $1,569.0 million for goodwill
impairment and $62.2 million for fresh start accounting adjustments.***
    
    All balance sheet data on May 31, 2003 has been adjusted for fresh start accounting
adjustments. 19




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 CORPORATE OVERVIEW
  Education services.
 Greyhound.
 Public Transit services.
 
 YEAR IN REVIEW
   3 4 1 2 1 2
    20




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Education services
   Greyhound
 Public transit
  21




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RESULTS OF OPERATIONS
 Basis of Presentation
    Non-GAAP Measures
  22




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Year Ended2005
    
    
    2004
    
    
    2003EBITDA
    
    $
    414.0
    
    
    $
    373.5
    
    
    $
    359.5Depreciation and amortization
    
    
    (249.1
    )
    
    
    (230.7
    )
    
    
    (235.0
    )Interest expense
    
    
    (70.8
    )
    
    
    (78.6
    )
    
    
    (37.7
    )Debt restructuring costs
    
    
    (112.2
    )
    
    
    
    
    
    
    Other income (expense), net
    
    
    10.5
    
    
    
    2.1
    
    
    
    (20.4
    )Gain on discharge of debt
    
    
    
    
    
    
    
    
    
    
    1,482.8Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    (547.4
    )Income tax benefit (expense)
    
    
    2.0
    
    
    
    (19.8
    )
    
    
    7.6Income from continuing operations before
cumulative effect of change in accounting
principle
    
    
    (5.6
    )
    
    
    46.5
    
    
    
    1,009.4Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (636.4
    )Income (loss) from continuing operations
    
    $
    (5.6
    )
    
    $
    46.5
    
    
    $
    373.0
 Year
ended August 31, 2005, 2004 and 2003 results of operations ($ in
millions):
 Year Ended2005
    
    
    2004
    
    
    2003Revenue
    
    $
    3,026.5
    
    
    $
    3,026.8
    
    
    $
    2,987.0Compensation expenses
    
    
    1,519.0
    
    
    
    1,555.8
    
    
    
    1,562.2Vehicle related costs
    
    
    259.5
    
    
    
    260.5
    
    
    
    257.1Fuel expense
    
    
    199.7
    
    
    
    163.1
    
    
    
    152.9Insurance and accident claim costs
    
    
    163.2
    
    
    
    206.0
    
    
    
    199.6Occupancy costs
    
    
    156.7
    
    
    
    157.8
    
    
    
    157.7Other operating expense
    
    
    314.4
    
    
    
    310.1
    
    
    
    298.0EBITDA
    
    
    414.0
    
    
    
    373.5
    
    
    
    359.5Depreciation and amortization
    
    
    249.1
    
    
    
    230.7
    
    
    
    235.0Operating income
    
    
    164.9
    
    
    
    142.8
    
    
    
    124.5Interest expense
    
    
    (70.8
    )
    
    
    (78.6
    )
    
    
    (37.7
    )Debt restructuring costs
    
    
    (112.2
    )
    
    
    
    
    
    
    Other income (expenses), net
    
    
    10.5
    
    
    
    2.1
    
    
    
    (20.4
    )Gain on discharge of debt
    
    
    
    
    
    
    
    
    
    
    1,482.8Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    (547.4
    )Income (loss) before income taxes and effect of a
cumulative change in accounting principle
    
    
    (7.6
    )
    
    
    66.3
    
    
    
    1,001.8Income tax benefit (expense)
    
    
    2.0
    
    
    
    (19.8
    )
    
    
    7.6Income (loss) before effect of a cumulative change
in accounting principle
    
    
    (5.6
    )
    
    
    46.5
    
    
    
    1,009.4Cumulative effect of change in accounting principles
    
    
    
    
    
    
    
    
    
    
    (636.4
    )Income (loss) from continuing operations
    
    
    (5.6
    )
    
    
    46.5
    
    
    
    373.0Income (loss) from discontinued operations
    
    
    218.0
    
    
    
    15.2
    
    
    
    (1,595.7
    )Net income (loss)
    
    $
    212.4
    
    
    $
    61.7
    
    
    $
    (1,222.7
    )
 23




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##### Table of Contents



Results as a Percentage of Revenue
 Year Ended2005
    
    
    2004
    
    
    2003Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Compensation expenses
    
    
    50.2
    
    
    
    51.4
    
    
    
    52.3Vehicle related costs
    
    
    8.5
    
    
    
    8.6
    
    
    
    8.6Fuel expense
    
    
    6.6
    
    
    
    5.4
    
    
    
    5.1Insurance and accident claim costs
    
    
    5.4
    
    
    
    6.8
    
    
    
    6.7Occupancy costs
    
    
    5.2
    
    
    
    5.2
    
    
    
    5.3Other operating expense
    
    
    10.4
    
    
    
    10.3
    
    
    
    10.0EBITDA
    
    
    13.7
    
    
    
    12.3
    
    
    
    12.0Depreciation and amortization
    
    
    8.3
    
    
    
    7.6
    
    
    
    7.8Operating income
    
    
    5.4
    %
    
    
    4.7
    %
    
    
    4.2
    %
  RevenuePercentageYear Ended
    
    
    Increase (Decrease)Year 2005
    
    
    Year 20042005
    
    
    2004
    
    
    2003
    
    
    Over 2004
    
    
    Over 2003Education services
    
    $
    1,518.2
    
    
    $
    1,495.8
    
    
    $
    1,499.7
    
    
    
    1.5
    %
    
    
    (0.3
    )%Greyhound
    
    
    1,201.6
    
    
    
    1,230.5
    
    
    
    1,204.2
    
    
    
    (2.3
    )
    
    
    2.2Public transit services
    
    
    306.7
    
    
    
    300.5
    
    
    
    283.1
    
    
    
    2.1
    
    
    
    6.1Total
    
    $
    3,026.5
    
    
    $
    3,026.8
    
    
    $
    2,987.0
    
    
    
    
    
    
    
    1.3
  EBITDAPercentageYear Ended
    
    
    Increase (Decrease)Year 2005
    
    
    Year 20042005
    
    
    2004
    
    
    2003
    
    
    Over 2004
    
    
    Over 2003Education services
    
    $
    296.0
    
    
    $
    279.3
    
    
    $
    276.5
    
    
    
    6.0
    %
    
    
    1.0
    %Greyhound
    
    
    101.9
    
    
    
    86.2
    
    
    
    66.7
    
    
    
    18.2
    
    
    
    29.2Public transit services
    
    
    16.1
    
    
    
    8.0
    
    
    
    16.3
    
    
    
    101.3
    
    
    
    (50.9
    )Total
    
    $
    414.0
    
    
    $
    373.5
    
    
    $
    359.5
    
    
    
    10.8
    
    
    
    3.9
 24




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##### Table of Contents



Results by business segment
 Education services
     Greyhound
    25




---



##### Table of Contents



Public Transit services
    Depreciation and amortization
  Year Ended August 31,2005
    
    
    2004
    
    
    2003Education services
    
    $
    168.2
    
    
    $
    164.6
    
    
    $
    165.0Greyhound
    
    
    70.3
    
    
    
    54.6
    
    
    
    58.9Public transit
    
    
    10.6
    
    
    
    11.5
    
    
    
    11.1Consolidated
    
    $
    249.1
    
    
    $
    230.7
    
    
    $
    235.0
  26




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##### Table of Contents



Interest expense
  Other income (expenses), net
   Debt restructuring costs
 3 4 3 4
 Gain on discharge of debt
  Fresh Start accounting adjustments
  Cumulative effect of change in accounting principle
  Income taxes
  27




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##### Table of Contents



Discontinued operations
  
 LIQUIDITY AND CAPITAL RESOURCES
    Senior Credit Facility
 3 4 1 2 1 2
 28




---



##### Table of Contents



OFF-BALANCE SHEET ARRANGEMENTS
  Contractual obligations
  Scheduled payments in fiscal yearsTotal
    
    
    2006
    
    
    2007-2008
    
    
    2009-2010
    
    
    ThereafterLong-term debt*
    
    $
    309.1
    
    
    $
    23.4
    
    
    $
    76.2
    
    
    $
    204.3
    
    
    $
    5.2Interest on long-term debt**
    
    
    60.5
    
    
    
    16.8
    
    
    
    28.1
    
    
    
    15.1
    
    
    
    0.5Capital lease obligation
    
    
    4.9
    
    
    
    4.3
    
    
    
    0.5
    
    
    
    
    
    
    
    0.1Operating lease obligation
    
    
    272.5
    
    
    
    80.9
    
    
    
    101.3
    
    
    
    44.4
    
    
    
    45.9Purchase orders
    
    
    92.8
    
    
    
    92.8
    
    
    
    
    
    
    
    
    
    
    
    Pension obligation ***
    
    
    10.7
    
    
    
    10.7
    
    
    
    
    
    
    
    
    
    
    
    AMR security deposits
    
    
    52.5
    
    
    
    26.9
    
    
    
    12.5
    
    
    
    5.3
    
    
    
    7.8Total
    
    $
    803.0
    
    
    $
    255.8
    
    
    $
    218.6
    
    
    $
    269.1
    
    
    $
    59.5
 
 *
    
    Excluding capital lease obligations.**
    
    For variable rate debt we used the interest rate in effect at September 30, 2005 for all
periods presented. Amounts include the effects of interest rate swaps.***
    
    The Company is unable to determine required funding, if any, beyond 2006. 29




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  Claims Liability and Professional Liability Reserves
  Income Tax Valuation Allowance
   30




---



##### Table of Contents



Pension
    Contingencies
  
 RISK FACTORS
  Economic and other market factors, including competitive pressures and changes in pricing policies,
may adversely affect our future financial performance.
   31




---



##### Table of Contents



The ability of management to implement initiatives designed to increase operating efficiencies or
improve results.
    Costs and risks associated with litigation could materially affect our financial results.
   Changes in interpretations of existing, or the adoption of new, legislation, regulations or other
laws could adversely affect our operations.
  Rising labor costs and actions taken by organized labor unions could have a material adverse effect
on our financial condition and results of operations.
 32




---



##### Table of Contents



Rising fuel costs or potential shortages could have a material adverse affect on our business.
  Changes in estimated insurance reserves could have a material adverse effect on our financial
condition or results of operations.
  Terrorism and other acts of violence may have a material adverse effect on our business.
  33




---



##### Table of Contents



Our Greyhound business is dependent on peak travel periods.
  Pension funding requirements could have a material adverse effect on our financial condition and
results of operations.
  Other
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Commodity Prices
  Investment Prices
 34




---



##### Table of Contents



Foreign Exchange
 Interest Rate Sensitivity
   
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation Of Disclosure Controls And Procedures
  Changes in Internal Control Over Financial Reporting
  35




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##### Table of Contents



Managements Report On Internal Control Over Financial Reporting
   Internal Control  Integrated Framework
 36




---



##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
     
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  37




---



##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    
    See Index to Financial Statements on page F-1 and (c) below.(b)
    
    Exhibits
 2.1
    
    Third Amended Joint Plan of
Reorganization of Laidlaw USA, Inc.
and its Debtor Affiliates dated
January 23, 2003 (filed as Exhibit
2.1 to the Form 8-K filed on July 7,
2003 and incorporated herein by
reference).2.2
    
    Modifications to the Third Amended
Joint Plan of Reorganization (filed
as Exhibit 2.2 to the Form 8-K filed
on July 7, 2003 and incorporated
herein by reference).2.3
    
    Second modifications to the Third
Amended Joint Plan of Reorganization
(filed as Exhibit 2.3 to the Form
8-K filed on July 7, 2003 and
incorporated herein by reference).3.1
    
    Certificate of Incorporation of
Laidlaw International, Inc. (filed
as Exhibit 4.1 to the Form 8-K filed
on July 9, 2003 and incorporated
herein by reference).3.2
    
    By-laws of Laidlaw International,
Inc. (filed as Exhibit 4.2 to the
Form 8-K filed on July 9, 2003 and
incorporated herein by reference).4.1
    
    Rights agreement, dated as of June
23, 2003, by and between Laidlaw
International, Inc. and Wells Fargo
Bank Minnesota, National
Association, as rights agent (filed
as Exhibit 4.3 to the Form 8-K filed
on July 9, 2003 and incorporated
herein by reference).10.1
    
    Laidlaw International, Inc. Amended
and Restated 2003 Equity and
Performance Incentive Plan (filed as
Exhibit A to the Laidlaw
International, Inc. Proxy Statement
filed on Form DEF 14A on December
28, 2004 and incorporated herein by
reference).*10.2
    
    Laidlaw International, Inc.
Supplemental Executive Retirement
Plans (filed as Exhibit 10.2 to the
Form 10-K for the year ended August
31, 2003 and incorporated herein by
reference).*10.3
    
    Credit Agreement dated as of June
30, 2005 among Laidlaw
International, Inc., and others, as
Borrowers, Citicorp North Americas,
Inc., as the administration agent
and the other financial institutions
named therein (filed as Exhibit 1.1
to the Form 8-K dated July 1, 2005
and incorporated herein by
reference).10.4
    
    Agreement made as of June 18, 2003
between Laidlaw Inc. and others and
the Pension Benefit Guaranty
Corporation (filed as Exhibit 10.5
to the Form 10-Q for the quarter
ended May 31, 2003 and incorporated
herein by reference).
 38




---



##### Table of Contents



10.5
    
    Tax sharing agreement among Laidlaw
International, Inc. and its U.S.
subsidiaries entered into as of June
23, 2003 (filed as Exhibit 10.6 to
the Form 10-K for the year ended
August 31, 2003 and incorporated
herein by reference).10.6
    
    Employment agreement between Kevin
E. Benson and Laidlaw Inc. effective
the 16th day of
September, 2002 (filed as Exhibit
10.7 to the Form 10-K for the year
ended August 31, 2003 and
incorporated herein by reference).*10.7
    
    Amendment to Employment Agreement
between Kevin E. Benson and Laidlaw
International, Inc. 2002 (filed as
Exhibit 10.8 to the Form 10-K for
the year ended August 31, 2004 and
incorporated herein by reference).*10.8
    
    Change in Control Severance
Agreement between Kevin E. Benson
and Laidlaw Inc (filed as Exhibit
10.8 to the Form 10-K for the year
ended August 31, 2003 and
incorporated herein by reference).*10.9
    
    Employment agreement between Douglas
A. Carty and Laidlaw Inc. effective
the 9th day of December,
2002 (filed as Exhibit 10.9 to the
Form 10-K for the year ended August
31, 2003 and incorporated herein by
reference).*10.10
    
    Amendment to Employment Agreement
between Douglas A. Carty and Laidlaw
International, Inc. (filed as
Exhibit 10.11 to the Form 10-K for
the year ended August 31, 2004 and
incorporated herein by reference).*10.11
    
    Change in Control Severance
Agreement between Douglas A. Carty
and Laidlaw Inc. (filed as Exhibit
10.10 to the Form 10-K for the year
ended August 31, 2003 and
incorporated herein by reference).*10.12
    
    Employment Agreement between Beth
Byster Corvino and Laidlaw
International, Inc. (filed as
Exhibit 10.13 to the Form 10-K for
the year ended August 31, 2004 and
incorporated herein by reference).*10.13
    
    Change in Control Severance
Agreement between Beth Byster
Corvino and Laidlaw International,
Inc. (filed as Exhibit 10.14 to the
Form 10-K for the year ended August
31, 2004 and incorporated herein by
reference).*10.14
    
    Employment Agreement between Jeffrey
W. Sanders and Laidlaw
International, Inc. (filed as
Exhibit 10.15 to the Form 10-K for
the year ended August 31, 2004 and
incorporated herein by reference).*10.15
    
    Change of Control Severance
Agreement between Jeffrey W. Sanders
and Laidlaw International, Inc.
(filed as Exhibit 10.16 to the Form
10-K for the year ended August 31,
2004 and incorporated herein by
reference).*10.16
    
    Employment Agreement between Jeffery
A. McDougle and Laidlaw
International, Inc. (filed as
Exhibit 10.17 to the Form 10-K for
the year ended August 31, 2004 and
incorporated herein by reference).*10.17
    
    Change of Control Severance
Agreement between Jeffery A.
McDougle and Laidlaw International,
Inc. (filed as Exhibit 10.18 to the
Form 10-K for the year ended August
31, 2004 and incorporated herein by
reference).*10.18
    
    Indemnification agreement between
Laidlaw International, Inc. and its
Directors and Officers (filed as
Exhibit 10.1 to the Form 10-Q for
the quarter ended May 31, 2004 and
incorporated herein by reference).10.19
    
    Stock purchase Agreement, dated
December 6, 2004, by and among
Laidlaw International, Inc., Laidlaw
Medical Holdings, Inc. and EMSC,
Inc. (filed as Exhibit 99.1 to the
Form 8-K filed on December 13, 2004
and incorporated herein by
reference).
 39




---



##### Table of Contents



10.20
    
    Stock purchase Agreement, dated
December 6, 2004, by and among
Laidlaw International, Inc., Laidlaw
Medical Holdings, Inc. and EMSC,
Inc. (filed as Exhibit 99.2 to the
Form 8-K filed on December 13, 2004
and incorporated herein by
reference).21.1
    
    Subsidiaries of the registrant.23.1
    
    Consent of PricewaterhouseCoopers LLP23.2
    
    Consent of PricewaterhouseCoopers LLP23.3
    
    Consent of PricewaterhouseCoopers LLP24.1
    
    Powers of Attorney.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).
 
 *
    
    Management contract or compensatory plan. 40




---



##### Table of Contents



SIGNATURES
  LAIDLAW INTERNATIONAL, INC.By: /s/ Kevin E. BensonKevin E. BensonPresident, Chief Executive Officer and Director
  Signature
    
    Title/s/ Kevin E. Benson
    
    President, Chief Executive Officer and DirectorKevin E. Benson
    
    (Principal Executive Officer)/s/ Douglas A. Carty
    
    Executive Vice President and Chief
Financial OfficerDouglas A. Carty
    
    (Principal Financial Officer)/s/ Jeffrey W. Sanders
    
    Vice President, Corporate
Development and ControllerJeffrey W. Sanders
    
    (Principal Accounting Officer)John F. Chlebowski*
    
    DirectorJames H. Dickerson, Jr. *
    
    DirectorLawrence M. Nagin*
    
    DirectorRichard R. Randazzo*
    
    DirectorMaria A. Sastre*
    
    DirectorPeter E. Stangl*
    
    DirectorCarroll R. Wetzel, Jr.*
    
    Director*By /s/ Douglas A. CartyDouglas A. CartyAs Attorney-in-Fact
 41




---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
LAIDLAW INTERNATIONAL, INC.
 Reports of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of August 31, 2005 and 2004
    
    
    F-5Consolidated Statements of Operations for the years ended August 31,
2005 and 2004, and the periods June 1, 2003 through August 31, 2003
and September 1, 2002 through May 31, 2003
    
    
    F-7Consolidated Statements of Shareholders Equity for the years ended
August 31, 2005 and 2004, and the periods June 1, 2003 through August
31, 2003 and September 1, 2002 through May 31, 2003
    
    
    F-8Consolidated Statements of Cash Flows for the years ended August 31,
2005 and 2004, and the periods June 1, 2003 through August 31, 2003
and September 1, 2002 through May 31, 2003
    
    
    F-9Notes to Consolidated Financial Statements
    
    
    F-10
 F1




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
  Consolidated financial statements
  Internal control over financial reporting
 Internal Control  Integrated Framework Internal Control  Integrated Framework
 F-2




---



##### Table of Contents



PricewaterhouseCoopers LLP  Chicago, Illinois  November 14, 2005
 F-3




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
    PricewaterhouseCoopers LLP  Chartered Accountants  Mississauga, Ontario  November 18, 2003
 Report of Independent Registered Public Accounting Firm
    PricewaterhouseCoopers LLP  Chartered Accountants  Mississauga, Ontario  November 18, 2003
 F-4




---



##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
 
 CONSOLIDATED BALANCE SHEETS
 ($ in millions)
 August 31,
    
    
    August 31,2005
    
    
    2004ASSETSCurrent assetsCash and cash equivalents
    
    $
    217.3
    
    
    $
    154.2Accounts receivable
    
    
    202.6
    
    
    
    194.1Insurance collateral
    
    
    81.9
    
    
    
    98.9Parts and supplies
    
    
    32.5
    
    
    
    32.0Deferred income tax assets
    
    
    42.4
    
    
    
    41.3Other current assets
    
    
    29.2
    
    
    
    22.7Discontinued operations
    
    
    
    
    
    
    488.8Total current assets
    
    
    605.9
    
    
    
    1,032.0Property and equipmentLand
    
    
    166.9
    
    
    
    184.1Buildings
    
    
    176.1
    
    
    
    157.7Vehicles
    
    
    1,447.2
    
    
    
    1,295.9Other
    
    
    116.4
    
    
    
    101.51,906.6
    
    
    
    1,739.2Less: Accumulated depreciation
    
    
    (471.5
    )
    
    
    (246.8
    )1,435.1
    
    
    
    1,492.4Other assetsInsurance collateral
    
    
    392.2
    
    
    
    354.5Other long-term investments
    
    
    40.3
    
    
    
    155.2Goodwill
    
    
    
    
    
    
    139.1Contracts and customer relationships
    
    
    73.4
    
    
    
    118.6Deferred income tax assets
    
    
    350.3
    
    
    
    166.4Deferred charges and other assets
    
    
    11.5
    
    
    
    60.9Discontinued operations
    
    
    
    
    
    
    429.3867.7
    
    
    
    1,424.0Total assets
    
    $
    2,908.7
    
    
    $
    3,948.4
  F-5




---



##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
 CONSOLIDATED BALANCE SHEETS
 ($ in millions)
 August 31,
    
    
    August 31,2005
    
    
    2004LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    86.4
    
    
    $
    76.9Accrued employee compensation
    
    
    105.7
    
    
    
    102.6Other accrued liabilities
    
    
    86.9
    
    
    
    90.3Current portion of insurance reserves
    
    
    141.6
    
    
    
    175.0Current portion of long-term debt
    
    
    27.8
    
    
    
    29.2Discontinued operations
    
    
    
    
    
    
    212.6Total current liabilities
    
    
    448.4
    
    
    
    686.6Long-term debt
    
    
    286.6
    
    
    
    1,105.9Insurance reserves
    
    
    344.4
    
    
    
    325.2Pension liability
    
    
    128.4
    
    
    
    188.3Other long-term liabilities
    
    
    100.7
    
    
    
    84.0Discontinued operations
    
    
    
    
    
    
    181.9Total liabilities
    
    
    1,308.5
    
    
    
    2,571.9Commitments and contingencies (Notes 17 and 18)SHAREHOLDERS 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
    
    
    1,315.9
    
    
    
    1,360.9Common shares held in trust (August 31, 2004  3.8 million)
    
    
    
    
    
    
    (50.0
    )Accumulated other comprehensive income
    
    
    34.1
    
    
    
    12.8Retained earnings
    
    
    249.2
    
    
    
    51.8Total shareholders equity
    
    
    1,600.2
    
    
    
    1,376.5Total liabilities and shareholders equity
    
    $
    2,908.7
    
    
    $
    3,948.4
  F-6




---



##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 ($ in millions except per share amounts)
 PredecessorCompanyThree
    
    
    NineMonths
    
    
    MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,2005
    
    2004
    
    2003
    
    
    2003Revenue
    
    $
    3,026.5
    
    
    $
    3,026.8
    
    
    $
    612.6
    
    
    
    $
    2,374.4Compensation expense
    
    
    1,519.0
    
    
    
    1,555.8
    
    
    
    318.2
    
    
    
    
    1,244.0Vehicle related costs
    
    
    259.5
    
    
    
    260.5
    
    
    
    69.7
    
    
    
    
    187.4Fuel expense
    
    
    199.7
    
    
    
    163.1
    
    
    
    31.9
    
    
    
    
    121.0Insurance and accident claim costs
    
    
    163.2
    
    
    
    206.0
    
    
    
    27.7
    
    
    
    
    171.9Occupancy costs
    
    
    156.7
    
    
    
    157.8
    
    
    
    40.6
    
    
    
    
    117.1Depreciation and amortization
    
    
    249.1
    
    
    
    230.7
    
    
    
    39.5
    
    
    
    
    195.5Other operating expenses
    
    
    314.4
    
    
    
    310.1
    
    
    
    77.1
    
    
    
    
    220.9Operating income
    
    
    164.9
    
    
    
    142.8
    
    
    
    7.9
    
    
    
    
    116.6Interest expense
    
    
    (70.8
    )
    
    
    (78.6
    )
    
    
    (19.6
    )
    
    
    
    (18.1
    )Other income (expenses), net
    
    
    10.5
    
    
    
    2.1
    
    
    
    0.2
    
    
    
    
    (20.6
    )Debt restructuring costs
    
    
    (112.2
    )
    
    
    
    
    
    
    
    
    
    
    
    Gain on discharge of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,482.8Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (547.4
    )Income (loss) from continuing operations
before income taxes and cumulative effect
of a change in accounting principle
    
    
    (7.6
    )
    
    
    66.3
    
    
    
    (11.5
    )
    
    
    
    1,013.3Income tax benefit (expense)
    
    
    2.0
    
    
    
    (19.8
    )
    
    
    11.1
    
    
    
    
    (3.5
    )Income (loss) from continuing operations
before cumulative effect of a change in
accounting principle
    
    
    (5.6
    )
    
    
    46.5
    
    
    
    (0.4
    )
    
    
    
    1,009.8Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (636.4
    )Income (loss) from continuing operations
    
    
    (5.6
    )
    
    
    46.5
    
    
    
    (0.4
    )
    
    
    
    373.4Income (loss) from discontinued operations
    
    
    218.0
    
    
    
    15.2
    
    
    
    (9.5
    )
    
    
    
    (1,586.2
    )Net income (loss)
    
    $
    212.4
    
    
    $
    61.7
    
    
    $
    (9.9
    )
    
    
    $
    (1,212.8
    )Basic earnings (loss) per shareContinuing operations before cumulative
effect of a change in accounting
principle
    
    $
    (0.06
    )
    
    $
    0.47
    
    
    $
    (0.01
    )
    
    
    $
    3.10Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.95
    )Continuing operations
    
    
    (0.06
    )
    
    
    0.47
    
    
    
    (0.01
    )
    
    
    
    1.15Discontinued operations
    
    
    2.18
    
    
    
    0.15
    
    
    
    (0.09
    )
    
    
    
    (4.87
    )Net income (loss)
    
    $
    2.12
    
    
    $
    0.62
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )Diluted earnings (loss) per shareContinuing operations before cumulative
effect of a change in accounting
principle
    
    $
    (0.06
    )
    
    $
    0.45
    
    
    $
    (0.01
    )
    
    
    $
    3.10Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.95
    )Continuing operations
    
    
    (0.06
    )
    
    
    0.45
    
    
    
    (0.01
    )
    
    
    
    1.15Discontinued operations
    
    
    2.18
    
    
    
    0.14
    
    
    
    (0.09
    )
    
    
    
    (4.87
    )Net income (loss)
    
    $
    2.12
    
    
    $
    0.59
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )
  F-7




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##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 ($ in millions)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    Retained
    
    Other
    
    TotalCommon Shares
    
    Paid in
    
    Preference Shares
    
    Earnings
    
    Comprehensive
    
    ComprehensivePredecessor Company
    
    # of shares
    
    Amount
    
    Capital
    
    # of shares
    
    Amount
    
    (Deficit)
    
    Income (Loss)
    
    Income (Loss)Balance at August 31,
2002
    
    
    325,927,870
    
    
    $
    2,222.6
    
    
    $
    
    
    
    
    528,770
    
    
    $
    7.9
    
    
    $
    (1,017.7
    )
    
    $
    (258.7
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,212.8
    )**
    
    
    
    
    
    $
    (1,212.8)
    **Other comprehensive
income (loss):Net unrealized gain
on security holdings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.2
    
    
    
    9.2Foreign currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46.2
    
    
    
    46.2Minimum pension
liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (176.4
    )
    
    
    (176.4
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,333.8)
    **Balance at May 31, 2003
    
    
    325,927,870
    
    
    $
    2,222.6
    
    
    $
    
    
    
    
    528,770
    
    
    $
    7.9
    
    
    $
    (2,230.5
    )
    
    $
    (379.7
    )Fresh Start adjustments
    
    
    (325,927,870
    )
    
    
    (2,222.6
    )
    
    
    
    
    
    
    (528,770
    )
    
    
    (7.9
    )
    
    
    2,230.5
    
    
    
    379.7Distribution of new
common shares
    
    
    100,000,003
    *
    
    
    1.0
    
    
    
    1,308.3
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Laidlaw International,
Inc.:Balance, Fresh
start June 1, 2003
    
    
    100,000,003
    *
    
    
    1.0
    
    
    
    1,308.3
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.9
    )
    
    
    
    
    
    $
    (9.9
    )Other comprehensive
income (loss):Net unrealized loss
on financial
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.5
    )
    
    
    (6.5
    )Foreign currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.6
    )
    
    
    (2.6
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (19.0
    )Balance at August 31,
2003
    
    
    100,000,003
    *
    
    $
    1.0
    
    
    $
    1,308.3
    *
    
    
    
    
    
    $
    
    
    
    $
    (9.9
    )
    
    $
    (9.1
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61.7
    
    
    
    
    
    
    $
    61.7Stock based compensation
    
    
    28,688
    
    
    
    
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive
income (loss):Net unrealized gain
on financial
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.5
    
    
    
    4.5Foreign currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17.4
    
    
    
    17.4Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    83.6Balance at August 31,
2004
    
    
    100,028,691
    *
    
    $
    1.0
    
    
    $
    1,310.9
    *
    
    
    
    
    
    $
    
    
    
    $
    51.8
    
    
    $
    12.8Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212.4
    
    
    
    
    
    
    $
    212.4Stock based compensation
    
    
    195,986
    
    
    
    
    
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.0
    )
    
    
    
    
    
    
    Other comprehensive
income (loss):Net unrealized gain
on financial
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    1.2Foreign currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39.5
    
    
    
    39.5Minimum pension
liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19.4
    )
    
    
    (19.4
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    233.7Balance at August 31,
2005
    
    
    100,224,677
    
    
    $
    1.0
    
    
    $
    1,315.9
    
    
    
    
    
    
    $
    
    
    
    $
    249.2
    
    
    $
    34.1
 
 *
    
    Net of 3,777,419 common shares held in trust. The common shares held in trust were cancelled in fiscal 2005.**
    
    Adjusted to include Fresh Start accounting adjustments and gain on discharge of debt
  F-8




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##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
 PredecessorCompanyThree
    
    
    NineMonths
    
    
    MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,2005
    
    2004
    
    2003
    
    
    2003*Operating activitiesNet income (loss)
    
    $
    212.4
    
    
    $
    61.7
    
    
    $
    (9.9
    )
    
    
    $
    (1,212.8
    )Less: (income) loss from discontinued operations
    
    
    (218.0
    )
    
    
    (15.2
    )
    
    
    9.5
    
    
    
    
    1,586.2Non-cash adjustments to net incomeDepreciation and amortization
    
    
    249.1
    
    
    
    230.7
    
    
    
    39.5
    
    
    
    
    195.5Deferred income taxes
    
    
    (3.0
    )
    
    
    17.5
    
    
    
    (11.1
    )
    
    
    
    Write-off of deferred financing fees
    
    
    41.5
    
    
    
    
    
    
    
    
    
    
    
    
    Other non-cash items
    
    
    28.6
    
    
    
    25.7
    
    
    
    1.9
    
    
    
    
    (1.3
    )Gain on discharge of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,482.8
    )Loss from fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    547.4Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    636.4Net change in certain assets and liabilitiesAccounts receivable
    
    
    (6.4
    )
    
    
    8.7
    
    
    
    132.8
    
    
    
    
    (108.7
    )Insurance collateral
    
    
    (15.9
    )
    
    
    (89.7
    )
    
    
    5.7
    
    
    
    
    (3.4
    )Accounts payable and accrued liabilities
    
    
    (4.2
    )
    
    
    (6.4
    )
    
    
    (12.6
    )
    
    
    
    (23.9
    )Insurance reserves
    
    
    (18.3
    )
    
    
    11.0
    
    
    
    (6.7
    )
    
    
    
    35.8Other assets and liabilities
    
    
    1.1
    
    
    
    3.0
    
    
    
    10.7
    
    
    
    
    (37.7
    )Net cash provided by operating activities
    
    $
    266.9
    
    
    $
    247.0
    
    
    $
    159.8
    
    
    
    $
    130.7Investing activitiesPurchase of property and equipment
    
    $
    (186.6
    )
    
    $
    (183.6
    )
    
    $
    (76.0
    )
    
    
    $
    (202.9
    )Proceeds from sale of property and equipment
    
    
    34.2
    
    
    
    14.9
    
    
    
    4.1
    
    
    
    
    23.9Expended on acquisitions
    
    
    (6.4
    )
    
    
    (3.4
    )
    
    
    (0.1
    )
    
    
    
    (3.3
    )Net decrease in performance bond collateral
    
    
    20.5
    
    
    
    48.6
    
    
    
    0.1
    
    
    
    
    11.9Net decrease (increase) in other investments
    
    
    4.0
    
    
    
    (2.5
    )
    
    
    1.3
    
    
    
    
    2.9Net proceeds from sale of healthcare businesses
    
    
    797.8
    
    
    
    
    
    
    
    
    
    
    
    
    Net proceeds from sale of other businesses
    
    
    10.6
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    $
    674.1
    
    
    $
    (126.0
    )
    
    $
    (70.6
    )
    
    
    $
    (167.5
    )Financing activitiesProceeds from issue of long-term debt
    
    $
    300.5
    
    
    $
    3.6
    
    
    $
    1.0
    
    
    
    $
    1,073.7Repayments of long-term debt
    
    
    (1,155.3
    )
    
    
    (65.8
    )
    
    
    (23.3
    )
    
    
    
    (8.9
    )Payment of financing fees
    
    
    (4.4
    )
    
    
    (5.3
    )
    
    
    (3.8
    )
    
    
    
    (37.5
    )Dividend payment
    
    
    (15.0
    )
    
    
    
    
    
    
    
    
    
    
    
    Decrease (increase) in credit facility cash collateral
    
    
    100.0
    
    
    
    
    
    
    
    
    
    
    
    
    (100.0
    )PBGC trust share repurchase
    
    
    (84.5
    )
    
    
    
    
    
    
    
    
    
    
    
    Repayment of liabilities subject to compromise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,185.0
    )Net cash used in financing activities
    
    $
    (858.7
    )
    
    $
    (67.5
    )
    
    $
    (26.1
    )
    
    
    $
    (257.7
    )Net cash provided (used) by discontinued operations
    
    
    (19.2
    )
    
    $
    6.7
    
    
    
    13.5
    
    
    
    
    46.9Net increase (decrease) in cash and cash equivalents
    
    
    63.1
    
    
    $
    60.2
    
    
    
    76.6
    
    
    
    
    (247.6
    )Cash and
cash equivalents  beginning of period
    
    
    154.2
    
    
    
    94.0
    
    
    
    17.4
    
    
    
    
    265.0Cash and
cash equivalents  end of period
    
    $
    217.3
    
    
    $
    154.2
    
    
    $
    94.0
    
    
    
    $
    17.4
 
 *
    
    Adjusted to include fresh start accounting adjustments and gain on discharge of debt
  F-9




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##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Corporate overview and basis of presentation
 Corporate overview
  Basis of presentation
  Note 2  Voluntary petition for reorganization and emergence from chapter 11 and fresh start
accounting
 Voluntary petition for reorganization and emergence from chapter 11
    F-10




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##### Table of Contents



Fresh start accounting
   Note 3
 Discontinued operations
   PredecessorCompanyThreeMonths
    
    
    Nine MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,2005
    
    2004
    
    2003
    
    
    2003Revenue
    
    $
    646.2
    
    
    $
    1,604.6
    
    
    $
    384.5
    
    
    
    $
    1,111.3Pre-tax income (loss) before cumulative effect of
change in accounting principle
    
    
    (30.6
    )
    
    
    27.7
    
    
    
    (8.4
    )
    
    
    
    (16.2
    )Income tax benefit (expense)
    
    
    10.0
    
    
    
    (12.5
    )
    
    
    (1.1
    )
    
    
    
    (1.0
    )Income (loss) before cumulative effect of change
in accounting principle
    
    
    (20.6
    )
    
    
    15.2
    
    
    
    (9.5
    )
    
    
    
    (17.2
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,569.0
    )Income (loss) from operations
    
    
    (20.6
    )
    
    
    15.2
    
    
    
    (9.5
    )
    
    
    
    (1,586.2
    )Pre-tax gain on sale of businesses
    
    
    236.8
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax benefit
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale
    
    
    238.6
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from discontinued operations
    
    $
    218.0
    
    
    $
    15.2
    
    
    $
    (9.5
    )
    
    
    $
    (1,586.2
    )
 F-11




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##### Table of Contents



Note 4  Summary of significant accounting policies
  Cash and cash equivalents
  Accounts receivables
  Parts and supplies
  Property and equipment
  F-12




---



##### Table of Contents



Insurance collateral
   Other long-term investments
  Contracts and customer relationships
   Income taxes
  F-13




---



##### Table of Contents



Impairment of long-lived assets
  Insurance reserves
    Defined benefit pension plans
  Foreign currency translation
  F-14




---



##### Table of Contents



Financial instruments
   Revenue recognition
  Stock options
  Use of estimates
   Recent accounting pronouncements
   F-15




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##### Table of Contents



Note 5  Other long-term investments
  August 31,
    
    August 31,2005
    
    2004Letter of credit facility cash collateral
    
    $
    
    
    
    $
    100.0Equity investments in other companies
    
    
    18.1
    
    
    
    23.0Other
    
    
    22.2
    
    
    
    32.2$
    40.3
    
    
    $
    155.2
 Note 6  Goodwill
   Note 7  Contracts and customer relationships
  F-16




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##### Table of Contents



Note 8  Long-term debt
  Weighted AverageDebt Balance
    
    Interest RateAugust 31,
    
    August 31,
    
    August 31,
    
    August 31,2005
    
    2004
    
    2005
    
    2004Term A Facility
    
    $
    300.0
    
    
    $
    
    
    
    
    4.9
    %
    
    
    103/4% Senior Notes
    
    
    4.4
    
    
    
    401.2
    
    
    
    10.8
    %
    
    
    11.0
    %Term B Facility
    
    
    
    
    
    
    593.7
    
    
    
    
    
    
    
    6.2
    %Greyhound 111/2% Senior Notes
    
    
    
    
    
    
    122.1
    
    
    
    
    
    
    
    20.8
    %Notes and other debt
    
    
    10.0
    
    
    
    18.1
    
    
    
    9.5
    %
    
    
    10.8
    %Total debt
    
    
    314.4
    
    
    
    1,135.1Less: current portion
    
    
    27.8
    
    
    
    29.2Long-term debt
    
    $
    286.6
    
    
    $
    1,105.9
  Year ending August 31,2006
    
    $
    27.82007
    
    
    30.92008
    
    
    45.82009
    
    
    45.92010
    
    
    158.7Thereafter
    
    
    5.0Total maturities
    
    
    314.1Unamortized premium
    
    
    0.3Total debt
    
    $
    314.4
 Senior Credit Facility
 3 4 1 2 1 2
   F-17




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##### Table of Contents



(a) (b) (c)
   103/4% Senior Notes
 3 4
 Notes and other debt
  Note 9  Benefit plans
  F-18




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##### Table of Contents



Year ended August 31,2005
    
    
    2004Change in benefit obligation:Benefit obligation at beginning of period
    
    $
    934.9
    
    
    $
    957.7Service cost
    
    
    8.2
    
    
    
    7.2Interest cost
    
    
    57.3
    
    
    
    55.0Plan participants contributions
    
    
    2.5
    
    
    
    0.2Plan amendments
    
    
    
    
    
    
    0.5Actuarial loss (gain)
    
    
    95.6
    
    
    
    (4.1
    )Benefits paid
    
    
    (86.2
    )
    
    
    (83.3
    )Foreign exchange
    
    
    17.9
    
    
    
    1.7Benefit obligation at end of period
    
    $
    1,030.2
    
    
    $
    934.9Change in plan assets:Fair value of plan assets at beginning of period
    
    $
    734.4
    
    
    $
    734.0Actual return on plan assets
    
    
    73.3
    
    
    
    72.6Employer contributions
    
    
    150.1
    
    
    
    6.9Plan participants contributions
    
    
    2.7
    
    
    
    2.5Benefits paid
    
    
    (86.2
    )
    
    
    (83.3
    )Foreign exchange
    
    
    17.1
    
    
    
    1.7Fair value of plan assets at end of period
    
    $
    891.4
    
    
    $
    734.4Funded status
    
    $
    (138.8
    )
    
    $
    (200.5
    )Unrecognized net loss (gain)
    
    
    41.2
    
    
    
    (39.9
    )Unrecognized prior service cost
    
    
    0.5
    
    
    
    0.5Funding after measurement date
    
    
    
    
    
    
    51.6Accrued benefit cost
    
    $
    (97.1
    )
    
    $
    (188.3
    )Amounts recognized in the consolidated balance sheets:Accrued benefit liability
    
    $
    (128.4
    )
    
    $
    (188.3
    )Accumulated other comprehensive loss
    
    
    31.3
    
    
    
    Accrued benefit cost
    
    $
    (97.1
    )
    
    $
    (188.3
    )Increase in minimum pension liability reflected in other
comprehensive income
    
    $
    31.3
    
    
    $
    
 F-19




---



##### Table of Contents



PredecessorCompanyThreeMonths
    
    
    Nine MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,2005
    
    2004
    
    2003
    
    
    2003Service cost
    
    $
    8.2
    
    
    $
    7.2
    
    
    $
    1.4
    
    
    
    $
    4.8Interest cost
    
    
    57.3
    
    
    
    55.0
    
    
    
    14.2
    
    
    
    
    41.5Expected return on plan assets
    
    
    (57.5
    )
    
    
    (51.3
    )
    
    
    (12.7
    )
    
    
    
    (37.5
    )Amortization
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    
    0.7Net pension expense
    
    $
    8.0
    
    
    $
    10.9
    
    
    $
    1.9
    
    
    
    $
    9.5
  PredecessorCompanyThreeMonths
    
    
    Nine MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,2005
    
    2004
    
    2003
    
    
    2003Benefit obligationsDiscount rate
    
    
    5.2
    %
    
    
    6.3
    %
    
    
    5.9
    %
    
    
    
    5.9
    %Rate of salary progression
    
    
    3.6
    %
    
    
    3.6
    %
    
    
    3.5
    %
    
    
    
    3.5
    %Net periodic costsDiscount rate
    
    
    6.3
    %
    
    
    5.9
    %
    
    
    5.9
    %
    
    
    
    7.2
    %Rate of salary progression
    
    
    3.6
    %
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    
    3.9
    %Expected long-term rate of return on plan assets
    
    
    7.4
    %
    
    
    7.5
    %
    
    
    7.0
    %
    
    
    
    7.0
    %
   August 31,
    
    August 31,2005
    
    2004Accumulated obligation in excess of plan assets:Projected benefit obligation
    
    $
    809.3
    
    
    $
    766.6Accumulated benefit obligation
    
    
    805.0
    
    
    
    763.0Fair value of assets
    
    
    673.5
    
    
    
    559.8Projected benefit obligation in excess of plan
assets:Projected benefit obligation
    
    $
    1,020.6
    
    
    $
    806.8Accumulated benefit obligation
    
    
    991.7
    
    
    
    797.7Fair value of assets
    
    
    878.2
    
    
    
    598.5Total accumulated benefit obligation
    
    $
    1,001.8
    
    
    $
    913.4
 F-20




---



##### Table of Contents



Plan Assets
    Target
    
    Percentage of Plan AssetsAllocation
    
    August 31,August 31, 2005
    
    2005
    
    2004Equity securities
    
    
    56
    %
    
    
    57
    %
    
    
    55
    %Debt securities
    
    
    44
    %
    
    
    43
    %
    
    
    45
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Plan Contributions and Potential Funding Requirements
   F-21




---



##### Table of Contents



Expected future Payments
  Year ending August 31,2006
    
    $
    82.62007
    
    
    81.32008
    
    
    80.32009
    
    
    79.42010
    
    
    78.3Fiscal years 2011 through 2015
    
    
    379.1
 Defined Contribution Retirement plans
  Note
10  Other long term liabilities
  August 31,
    
    
    August 31,2005
    
    
    2004Security deposits related to the sale of healthcare
businesses
    
    $
    52.5
    
    
    $
    43.2Other
    
    
    48.2
    
    
    
    40.8$
    100.7
    
    
    $
    84.0
  Note
11  Stock based compensation
  F-22




---



##### Table of Contents



Stock
options
  Years ended August 31,2005
    
    2004Expected volatility
    
    
    32.1
    %
    
    
    31.8
    %Expected term (in years)
    
    
    6.0
    
    
    
    6.0Expected dividends
    
    
    
    
    
    
    Risk-free rate of return (weighted average)
    
    
    3.7
    %
    
    
    3.6
    %Weighted average grant-date fair value
    
    $
    7.23
    
    
    $
    4.89
   Weighted-Weighted-
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicNumber of
    
    Exercise
    
    Contractual
    
    ValueOptions
    
    Price
    
    Term (years)
    
    ($ in millions)Outstanding at September 1, 2004
    
    
    498,375
    
    
    $
    12.89Granted
    
    
    452,625
    
    
    
    18.85Exercised
    
    
    (6,333
    )
    
    
    13.00Forfeited
    
    
    (37,862
    )
    
    
    15.53Outstanding at August 31, 2005
    
    
    906,805
    
    
    $
    15.75
    
    
    
    8.8
    
    
    $
    8.2Exercisable at August 31, 2005
    
    
    159,792
    
    
    $
    12.88
    
    
    
    8.3
    
    
    $
    1.9
  F-23




---



##### Table of Contents



Restricted shares
  Weighted-AverageNumber of
    
    
    Grant-DateShares
    
    
    Fair ValueOutstanding at September 1, 2004
    
    
    28,688
    
    
    $
    10.33Granted
    
    
    25,313
    
    
    
    18.85Forfeited
    
    
    (3,375
    )
    
    
    10.33Outstanding at August 31, 2005
    
    
    50,626
    
    
    
    14.59
  Deferred shares
  Weighted-AverageNumber of
    
    
    Grant-DateShares
    
    
    Fair ValueNon-vested at September 1, 2004
    
    
    825,550
    
    
    $
    13.09Granted
    
    
    362,000
    
    
    
    19.57Vested
    
    
    (167,715
    )
    
    
    13.09Forfeited
    
    
    (164,423
    )
    
    
    13.70Non-vested at August 31, 2005
    
    
    855,412
    
    
    
    15.71
  F-24




---



##### Table of Contents



Note
12  Shareholders equity
 (1) Capital stock
 (a)
    
    Authorized
  (b)
    
    Shareholder Rights PlanThe Company has a shareholder rights plan pursuant to which each outstanding share of the
Companys common shares is accompanied by one preferred share purchase right. The rights
expire on July 3, 2013 unless they are earlier redeemed, exchanged, extended or amended by
the Companys board of directors.The rights are not exercisable or transferable apart from the common shares until ten days
after a public announcement by the Company that a person or group has acquired beneficial
ownership of 15% or more of the Companys common shares or ten business days (or a later
date as determined by the Companys board of directors) after a person or group begins a
tender or exchange offer that, if completed, would result in that person or group acquiring
beneficial ownership of 15% or more of the Companys common shares. Once exercisable, each
right would separate from the common shares and be separately tradeable, and, subject to
adjustment would entitle its holder to purchase, at the exercise price of $75.00 per right,
a number of common shares, or a number of the surviving companys shares if the Company is
not the surviving company, having a market value equal to $150.00.The Company may redeem all (but not less than all) of the rights for a redemption price of
$0.01 per right until the rights become exercisable. The Company may also exchange each
right for one common share or an equivalent security until an acquiring person or group owns
50% or more of the outstanding common shares.(c)
    
    DividendsThe Companys Board of Directors declared a dividend of $0.15 per share, which was paid on
August 25, 2005, to stockholders of record as of August 4, 2005. While, the Company intends
to pay regular quarterly dividends for the foreseeable future, all subsequent dividends will
be reviewed quarterly and declared by the Board, or a committee to which it delegates such
authority, at its discretion.
 (2) Accumulated other comprehensive income
  August 31,
    
    
    August 31,2005
    
    
    2004Foreign currency translation
    
    $
    54.3
    
    
    $
    14.8Unrealized loss on financial
instruments
    
    
    (1.2
    )
    
    
    (3.0
    )Minimum pension liability
    
    
    (31.3
    )
    
    
    Deferred income tax
    
    
    12.3
    
    
    
    1.0Total
    
    $
    34.1
    
    
    $
    12.8
 F-25




---



##### Table of Contents



Note 13  Investments in securities and fair value of financial instruments
 Accounting for Certain Investments in Debt and Equity Securities
  Gross
    
    GrossAmortized
    
    Unrealized
    
    UnrealizedCost
    
    Gains
    
    Losses
    
    Fair Market ValueAugust 31, 2005Debt securities
    
    $
    301.1
    
    
    $
    0.6
    
    
    $
    (5.0
    )
    
    $
    296.7Equity securities
    
    
    43.6
    
    
    
    3.9
    
    
    
    (1.4
    )
    
    
    46.1Total
    
    $
    344.7
    
    
    $
    4.5
    
    
    $
    (6.4
    )
    
    $
    342.8August 31, 2004Debt securities
    
    $
    261.9
    
    
    $
    0.4
    
    
    $
    (3.9
    )
    
    $
    258.4Equity securities
    
    
    45.2
    
    
    
    2.7
    
    
    
    (1.5
    )
    
    
    46.4Total
    
    $
    307.1
    
    
    $
    3.1
    
    
    $
    (5.4
    )
    
    $
    304.8
   2005
    
    
    2004Due within one year
    
    $
    37.5
    
    
    $
    10.8Due between one year and five years
    
    
    148.3
    
    
    
    154.8Due between five years and ten years
    
    
    110.9
    
    
    
    92.8Total fair market value of debt securities
    
    $
    296.7
    
    
    $
    258.4
  Fair value of financial instruments
   F-26




---



##### Table of Contents



Note 14  Income taxes
  PredecessorCompanyThreeMonths
    
    
    Nine MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,2005
    
    2004
    
    2003
    
    
    2003United States
    
    $
    (24.1
    )
    
    $
    37.3
    
    
    $
    (36.5
    )
    
    
    $
    2,624.4Canada
    
    
    16.5
    
    
    
    29.0
    
    
    
    2.2
    
    
    
    
    1,414.3Other
    
    
    
    
    
    
    
    
    
    
    22.8
    
    
    
    
    (3,025.4
    )$
    (7.6
    )
    
    $
    66.3
    
    
    $
    (11.5
    )
    
    
    $
    1,013.3
  PredecessorCompanyThree
    
    
    NineMonths
    
    
    MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,2005
    
    2004
    
    2003
    
    
    2003Current income tax expenseU.S.  State
    
    $
    0.5
    
    
    $
    1.7
    
    
    $
    
    
    
    
    $
    2.1Canada
    
    
    0.5
    
    
    
    0.6
    
    
    
    
    
    
    
    
    1.4$
    1.0
    
    
    $
    2.3
    
    
    $
    
    
    
    
    $
    3.5Deferred income tax expense (benefit)U.S.  Federal
    
    $
    (10.2
    )
    
    $
    12.6
    
    
    $
    (12.3
    )
    
    
    $
    U.S.  State
    
    
    0.9
    
    
    
    0.6
    
    
    
    0.2Canada
    
    
    6.3
    
    
    
    4.3
    
    
    
    1.0
    
    
    
    
    $
    (3.0
    )
    
    $
    17.5
    
    
    $
    (11.1
    )
    
    
    $
    Total income tax expense (benefit)U.S.  Federal
    
    $
    (10.2
    )
    
    $
    12.6
    
    
    $
    (12.3
    )
    
    
    $
    U.S.  State
    
    
    1.4
    
    
    
    2.3
    
    
    
    0.2
    
    
    
    
    2.1Canada
    
    
    6.8
    
    
    
    4.9
    
    
    
    1.0
    
    
    
    
    1.4$
    (2.0
    )
    
    $
    19.8
    
    
    $
    (11.1
    )
    
    
    $
    3.5
 F-27




---



##### Table of Contents



PredecessorCompanyThree
    
    
    NineMonths
    
    
    MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,2005
    
    2004
    
    2003
    
    
    2003Income tax expense (benefit) at the statutory rate
    
    $
    (2.7
    )
    
    $
    23.2
    
    
    $
    (4.0
    )
    
    
    $
    365.3Decrease (increase) resulting from:Tax rate differentials in other jurisdictions
    
    
    0.7
    
    
    
    0.9
    
    
    
    (7.9
    )
    
    
    
    (7.3
    )State taxes
    
    
    0.9
    
    
    
    1.5
    
    
    
    0.1
    
    
    
    
    1.4Canadian tax rate change
    
    
    
    
    
    
    (6.6
    )
    
    
    
    
    
    
    
    Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (338.8
    )Change in valuation allowance
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    (32.5
    )Non-deductible restructuring expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.4Other
    
    
    (1.2
    )
    
    
    0.8
    
    
    
    0.7
    
    
    
    
    10.0Income tax expense (benefit)
    
    $
    (2.0
    )
    
    $
    19.8
    
    
    $
    (11.1
    )
    
    
    $
    3.5
 
 August 31,
    
    August 31,2005
    
    2004Deferred income tax assets:Net operating loss and credit carryforwards
    
    $
    180.3
    
    
    $
    191.2Interest deduction carryforwards
    
    
    163.1
    
    
    
    167.9Claims liabilities
    
    
    65.0
    
    
    
    71.9Pension liability
    
    
    49.2
    
    
    
    71.6Capital loss carryforwards
    
    
    487.1
    
    
    
    Other accrued liabilities
    
    
    47.9
    
    
    
    29.9Total deferred income tax assets
    
    $
    992.6
    
    
    $
    532.5Deferred income tax liabilities:Book over tax depreciation/amortization
    
    $
    104.1
    
    
    $
    132.8Other
    
    
    8.4
    
    
    
    12.6Total deferred income tax liabilities
    
    $
    112.5
    
    
    $
    145.4Net deferred income tax asset:Net deferred income tax assets before valuation allowance
    
    $
    880.1
    
    
    $
    387.1Valuation allowance
    
    
    (487.4
    )
    
    
    (179.4
    )Net deferred income tax assets
    
    $
    392.7
    
    
    $
    207.7
 Valuation allowance
  F-28




---



##### Table of Contents



Availability and Amount of NOLs and Capital Losses
     F-29




---



##### Table of Contents



Note 15  Income (loss) per share
  PredecessorCompanyThree
    
    
    NineMonths
    
    
    MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,($ in millions except per share amounts)
    
    2005
    
    2004
    
    2003
    
    
    2003Income (loss) available to common shareholdersIncome (loss) from continuing operations
before cumulative effect of a change in
accounting principle
    
    $
    (5.6
    )
    
    $
    46.5
    
    
    $
    (0.4
    )
    
    
    $
    1,009.8Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (636.4
    )Income (loss) from continuing operations
    
    
    (5.6
    )
    
    
    46.5
    
    
    
    (0.4
    )
    
    
    
    373.4Income (loss) from discontinued operations
    
    
    218.0
    
    
    
    15.2
    
    
    
    (9.5
    )
    
    
    
    (1,586.2
    )Net income (loss)
    
    $
    212.4
    
    
    $
    61.7
    
    
    $
    (9.9
    )
    
    
    $
    (1,212.8
    )Weighted average number of common shares
outstandingBasic
    
    
    100.1
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    
    325.9Shares held in pension plan trust *
    
    
    
    
    
    
    3.8
    
    
    
    3.8
    
    
    
    
    Stock based compensation *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    
    100.1
    
    
    
    103.8
    
    
    
    103.8
    
    
    
    
    325.9Earnings (loss) per common shareBasicIncome (loss) before cumulative effect of
a change in accounting principle
    
    $
    (0.06
    )
    
    $
    0.47
    
    
    $
    (0.01
    )
    
    
    $
    3.10Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.95
    )Continuing operations
    
    
    (0.06
    )
    
    
    0.47
    
    
    
    (0.01
    )
    
    
    
    1.15Discontinued operations
    
    
    2.18
    
    
    
    0.15
    
    
    
    (0.09
    )
    
    
    
    (4.87
    )Net income (loss)
    
    $
    2.12
    
    
    $
    0.62
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )DilutedIncome (loss) before cumulative effect of
a change in accounting principle
    
    $
    (0.06
    )
    
    $
    0.45
    
    
    $
    (0.01
    )
    
    
    $
    3.10Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.95
    )Continuing operations
    
    
    (0.06
    )
    
    
    0.45
    
    
    
    (0.01
    )
    
    
    
    1.15Discontinued operations
    
    
    2.18
    
    
    
    0.14
    
    
    
    (0.09
    )
    
    
    
    (4.87
    )Net income (loss)
    
    $
    2.12
    
    
    $
    0.59
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )
 *
    
    Potential common shares are considered non-dilutive for the year ended August 31, 2005 due
to the loss from continuing operations.
 F-30




---



##### Table of Contents



Note 16  Statement of cash flows
  Note 17  Legal proceedings
 Contingent Liabilities Relating to Sale of AMR
     Other
  F-31




---



##### Table of Contents



Note 18  Commitments and contingencies
 Lease commitments
    Year ending August 31,2006
    
    $
    80.92007
    
    
    58.92008
    
    
    42.42009
    
    
    26.12010
    
    
    18.3Thereafter
    
    
    45.9Total rentals payable
    
    $
    272.5
 Environmental matters
  F-32




---



##### Table of Contents



Income tax matters
  Fuel purchase commitments
  Director and Officer Claim Treatment Letter
  Note 19  Segment information
   F-33




---



##### Table of Contents



Business Segments
 PredecessorCompanyThree
    
    
    NineMonths
    
    
    MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,($ in millions)
    
    2005
    
    2004
    
    2003
    
    
    2003Education servicesRevenue
    
    $
    1,518.2
    
    
    $
    1,495.8
    
    
    $
    184.9
    
    
    
    $
    1,314.8EBITDA
    
    
    296.0
    
    
    
    279.3
    
    
    
    (22.7
    )
    
    
    
    299.2Total identifiable assets
    
    
    1,088.3
    
    
    
    1,222.7
    
    
    
    1,314.6
    
    
    
    
    1,439.9
    *Capital expenditures
    
    
    137.4
    
    
    
    134.9
    
    
    
    60.4
    
    
    
    
    118.0GreyhoundRevenue
    
    $
    1,201.6
    
    
    $
    1,230.5
    
    
    $
    356.7
    
    
    
    $
    847.5EBITDA
    
    
    101.9
    
    
    
    86.2
    
    
    
    61.0
    
    
    
    
    5.7Total identifiable assets
    
    
    857.0
    
    
    
    898.0
    
    
    
    880.2
    
    
    
    
    853.9
    *Capital expenditures
    
    
    41.9
    
    
    
    35.5
    
    
    
    9.6
    
    
    
    
    81.1Public transitRevenue
    
    $
    306.7
    
    
    $
    300.5
    
    
    $
    71.0
    
    
    
    $
    212.1EBITDA
    
    
    16.1
    
    
    
    8.0
    
    
    
    9.1
    
    
    
    
    7.2Total identifiable assets
    
    
    102.1
    
    
    
    104.5
    
    
    
    97.8
    
    
    
    
    99.5
    *Capital expenditures
    
    
    7.3
    
    
    
    13.2
    
    
    
    6.0
    
    
    
    
    3.8
 *
    
    Total identifiable assets of the Company on June 1, 2003
 Geographic
 PredecessorCompanyThree
    
    
    NineMonths
    
    
    MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,($ in millions)
    
    2005
    
    2004
    
    2003
    
    
    2003United StatesRevenue
    
    $
    2,576.0
    
    
    $
    2,614.4
    
    
    $
    527.4
    
    
    
    $
    2,104.5EBITDA
    
    
    360.0
    
    
    
    313.3
    
    
    
    39.6
    
    
    
    
    259.9Total long-lived assets
    
    
    1,533.2
    
    
    
    1,586.8
    
    
    
    1,708.9
    
    
    
    
    1,659.5CanadaRevenue
    
    $
    450.5
    
    
    $
    412.4
    
    
    $
    85.2
    
    
    
    $
    269.9EBITDA
    
    
    54.1
    
    
    
    60.2
    
    
    
    7.8
    
    
    
    
    52.2Total long-lived assets
    
    
    368.0
    
    
    
    379.0
    
    
    
    345.1
    
    
    
    
    342.2
 
 *
    
    Total long-lived assets of the Company on June 1, 2003
 F-34




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##### Table of Contents



Consolidated
 PredecessorCompanyThree
    
    
    NineMonths
    
    
    MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,($ in millions)
    
    2005
    
    2004
    
    2003
    
    
    2003Revenue
    
    $
    3,026.5
    
    
    $
    3,026.8
    
    
    $
    612.6
    
    
    
    $
    2,374.4EBITDA
    
    
    414.0
    
    
    
    373.5
    
    
    
    47.4
    
    
    
    
    312.1Depreciation and amortization
    
    
    (249.1
    )
    
    
    (230.7
    )
    
    
    (39.5
    )
    
    
    
    (195.5
    )Operating income
    
    
    164.9
    
    
    
    142.8
    
    
    
    7.9
    
    
    
    
    116.6Interest expense, net
    
    
    (70.8
    )
    
    
    (78.6
    )
    
    
    (19.6
    )
    
    
    
    (18.1
    )Debt restructuring costs
    
    
    (112.2
    )
    
    
    
    
    
    
    
    
    
    
    
    Gain on discharge of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,482.8Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (547.4
    )Other income (expense), net
    
    
    10.5
    
    
    
    2.1
    
    
    
    0.2
    
    
    
    
    (20.6
    )Income tax benefit (expense)
    
    
    2.0
    
    
    
    (19.8
    )
    
    
    11.1
    
    
    
    
    (3.5
    )Income (loss) from continuing
operations before cumulative effect of
a change in accounting principle
    
    $
    (5.6
    )
    
    $
    46.5
    
    
    $
    (0.4
    )
    
    
    $
    1,009.8AssetsTotal identifiable assets of segments
    
    $
    2,047.4
    
    
    $
    2,225.2
    
    
    $
    2,292.6
    
    
    
    $
    2,393.3Corporate assets
    
    
    861.3
    
    
    
    805.1
    
    
    
    739.0
    
    
    
    
    671.0Discontinued operations
    
    
    
    
    
    
    918.1
    
    
    
    945.5
    
    
    
    
    889.8Total assets
    
    $
    2,908.7
    
    
    $
    3,948.4
    
    
    $
    3,977.1
    
    
    
    $
    3,954.1
    *Capital expenditures
    
    $
    186.6
    
    
    $
    183.6
    
    
    $
    76.0
    
    
    
    $
    202.9
 
 *
    
    Total identifiable assets of the segments, corporate and discontinued operations on June 1,
2003
 F-35




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##### Table of Contents



Note 20  Quarterly financial information
  20054thQtr. *
    
    3rd Qtr.
    
    2nd Qtr.
    
    1st Qtr.Revenue
    
    $
    613.0
    
    
    $
    836.1
    
    
    $
    763.7
    
    
    $
    813.7Operating income (loss)
    
    
    (7.1
    )
    
    
    62.0
    
    
    
    50.9
    
    
    
    59.1Income (loss) from continuing operations
    
    
    (81.5
    )
    
    
    30.4
    
    
    
    20.7
    
    
    
    24.8Income (loss) from discontinued operations
    
    
    (2.1
    )
    
    
    (1.0
    )
    
    
    215.5
    
    
    
    5.6Net income (loss)
    
    $
    (83.6
    )
    
    $
    29.4
    
    
    $
    236.2
    
    
    $
    30.4Basic earnings (loss) per shareContinuing operations **
    
    $
    (0.81
    )
    
    $
    0.30
    
    
    $
    0.21
    
    
    $
    0.25Discontinued operations **
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    2.15
    
    
    
    0.05Net income
    
    $
    (0.83
    )
    
    $
    0.29
    
    
    $
    2.36
    
    
    $
    0.30Diluted earnings (loss) per shareContinuing operations **
    
    $
    (0.81
    )
    
    $
    0.30
    
    
    $
    0.20
    
    
    $
    0.24Discontinued operations **
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    2.08
    
    
    
    0.05Net income **
    
    $
    (0.83
    )
    
    $
    0.29
    
    
    $
    2.28
    
    
    $
    0.29
 
 *
    
    Loss from continuing operations includes a $72.2 million ($0.72 per share) charge for debt
restructuring costs and a $2.1 million ($0.02 per share) charge for a correction of the
accounting for post-retirement benefits.**
    
    The sum of the quarterly earnings per share amounts do not equal the total annual earnings
per share due to the uneven timing of earnings through out the year compared to the weighted
average shares outstanding.
 20044thQtr.
    
    3rd Qtr.
    
    2nd Qtr.
    
    1st Qtr.Revenue
    
    $
    612.2
    
    
    $
    838.1
    
    
    $
    761.6
    
    
    $
    814.9Operating income
    
    
    (2.7
    )
    
    
    73.8
    
    
    
    19.5
    
    
    
    52.2Income (loss) from continuing operations
    
    
    (10.3
    )
    
    
    32.0
    
    
    
    3.8
    
    
    
    21.0Income from discontinued operations
    
    
    7.6
    
    
    
    2.6
    
    
    
    3.4
    
    
    
    1.6Net income (loss)
    
    $
    (2.7
    )
    
    $
    34.6
    
    
    $
    7.2
    
    
    $
    22.6Basic earnings (loss) per shareContinuing operations
    
    $
    (0.10
    )
    
    $
    0.32
    
    
    $
    0.04
    
    
    $
    0.21Discontinued operations
    
    
    0.07
    
    
    
    0.03
    
    
    
    0.03
    
    
    
    0.02Net income
    
    $
    (0.03
    )
    
    $
    0.35
    
    
    $
    0.07
    
    
    $
    0.23Diluted earnings (loss) per shareContinuing operations
    
    $
    (0.10
    )
    
    $
    0.31
    
    
    $
    0.04
    
    
    $
    0.20Discontinued operations
    
    
    0.07
    
    
    
    0.02
    
    
    
    0.03
    
    
    
    0.02Net income
    
    $
    (0.03
    )
    
    $
    0.33
    
    
    $
    0.07
    
    
    $
    0.22
 F-36




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##### Table of Contents



Note
21  Valuation and qualifying accounts
 
 PredecessorCompanyThree
    
    
    NineMonths
    
    
    MonthsYear Ended
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    August 31,
    
    
    May 31,2005
    
    2004
    
    2003
    
    
    2003Allowance for doubtful accountsBalance at beginning of Period
    
    $
    4.9
    
    
    $
    5.7
    
    
    $
    5.4
    
    
    
    $
    4.6Charged to costs and expenses
    
    
    2.7
    
    
    
    1.2
    
    
    
    0.7
    
    
    
    
    2.3Amounts written off net of recoveries
    
    
    (1.4
    )
    
    
    (1.7
    )
    
    
    (0.4
    )
    
    
    
    (1.8
    )Other
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    0.3Balance at end of period
    
    $
    6.2
    
    
    $
    4.9
    
    
    $
    5.7
    
    
    
    $
    5.4Deferred income tax asset valuation reserveBalance at beginning of Period
    
    $
    179.4
    
    
    $
    178.6
    
    
    $
    178.6
    
    
    
    $
    583.6Charged to costs and expenses
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    (32.5
    )Reserve established for capital losses
    
    
    487.1
    
    
    
    
    
    
    
    
    
    
    
    
    Reduction applied to intangibles
    
    
    (113.3
    )
    
    
    (34.9
    )
    
    
    
    
    
    
    
    Amounts written off net of recoveries
    
    
    (66.8
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    
    (410.0
    )Increase in attributes subject to reserve
    
    
    
    
    
    
    35.9
    
    
    
    
    
    
    
    
    Exchange rate differences
    
    
    0.7
    
    
    
    0.3
    
    
    
    
    
    
    
    
    37.5Balance at end of period
    
    $
    487.4
    
    
    $
    179.4
    
    
    $
    178.6
    
    
    
    $
    178.6
 F-37