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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, 2004
Commission File Number 000-13109 LAIDLAW INTERNATIONAL, INC.  DELAWARE
    
    98-0390488(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 55 SHUMAN BOULEVARD, SUITE 400
NAPERVILLE, ILLINOIS 60563
(Address of principal executive offices, including zip code) (630) 848-3000
Registrants telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.01 par value
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act: Preferred Stock Purchase Rights 10 3/4% Senior Notes due 2011 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [  ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [  ] The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at February 29, 2004 was $1,504.7 million. At
November 1, 2004 there were 103,806,110 shares of the registrants Common Stock
issued and outstanding. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution under a plan confirmed by a
court. Yes [X] No [  ] DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrants definitive proxy statement for its 2005 annual
meeting of stockholders are incorporated by reference into Part III of this
report on Form 10-K.




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NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this annual report on Form 10-K, including
statements regarding the status of future operating results and market
opportunities and other statements that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements can be
identified by the use of terminology such as believe, hope, may,
anticipate, should, intend, plan, will, expect, estimate,
continue, project, positioned, strategy and similar expressions. Such
statements involve certain risks, uncertainties and assumptions that include,
but are not limited to,  
    
    Economic and other market factors, including competitive
pressures and changes in pricing policies;  
    
    The ability to implement initiatives designed to increase
operating efficiencies or improve results;  
    
    Greyhound Lines ability to continue operating as a going concern;
    
    Control of costs related to accident and other risk management claims;
    
    Costs and risks associated with litigation;  
    
    Changes in interpretations of existing, or the adoption of
new, legislation, regulations or other laws;
    
    Changes in homeland security or terrorist activity;  
    
    Significant restrictive covenants in the Companys and its
subsidiaries various credit facilities;  
    
    Matters relating to the companys amendments to its
Quarterly Reports on Form 10-Q for the quarterly periods ended
February 29, 2004 and May 31, 2004;  
    
    Potential changes in the mix of businesses we operate; and
    
    Increases in prices of fuel and shortages. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual outcomes may vary materially
from those indicated. In the light of these risks and uncertainties you are
cautioned not to place undue reliance on these forward-looking statements. The
Company undertakes no obligation to publicly update forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures the Company makes on
related subjects as may be detailed in the Companys other filings made from
time to time with the Securities and Exchange Commission. 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
    
    
    5Public transit services
    
    
    8Greyhound
    
    
    10Healthcare transportation services
    
    
    14Emergency management services
    
    
    18Available information
    
    
    20Item 2. Properties
    
    
    20Item 3. Legal Proceedings
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 4A. Executive Officers of the Registrant
    
    
    23PART IIItem 5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    25Item 6. Selected Financial Data
    
    
    27Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsCorporate overview
    
    
    28Year in review
    
    
    28Results of operations
    
    
    30Liquidity and capital resources
    
    
    38Off-balance sheet arrangements
    
    
    41Critical accounting policies
    
    
    42Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    44Item 8. Financial Statements and Supplementary Data
    
    
    45Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    45Item 9A. Controls and Procedures
    
    
    45PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    47Item 11. Executive Compensation
    
    
    47Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    47Item 13. Certain Relationships and Related Transactions
    
    
    47Item 14. Principal Accountant Fees and Services
    
    
    47PART IVItem 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    48Signatures
    
    
    52Amendment to Employment AgreementAmendment to Employment AgreementEmployment Agreement with Beth Byster CorvinoChange In Control Severance AgreementEmployment Agreement with Jeffrey W. SandersChange In Control Severance AgreementEmployment Agreement with Jeffrey A. McDougleChange In Control Severance AgreementSubsidiaries of the RegistrantConsent of PricewaterhouseCoppers LLPConsent of PricewaterhouseCoopers LLPConsent of PricewaterhouseCoopers LLPPowers of AttorneyPrincipal Executive Officer's CertificationPrincipal Financial Officer's CertificationCertification
  3




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PART I 
 ITEM 1. BUSINESS Laidlaw International, Inc. is a holding company with operations conducted by
its subsidiaries. Unless the context otherwise requires, references to the
Company, Laidlaw International, we, our or us mean Laidlaw
International, Inc. and our subsidiaries. We participate in five reportable
business segments that provide transportation and healthcare services in the
United States (91% of revenue) and Canada (9% of revenue):  
    
    Our education services segment is the largest provider
of school bus transportation throughout the United States and
Canada (32% of revenue);  
    
    Our public transit services segment is a leading
operator of out-sourced municipal and paratransit bus
transportation within the United States (6% 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 (27% of revenue);  
    
    Our healthcare transportation services segment is the
largest provider of ambulance and other healthcare related
transportation services in the United States (23% of
revenue); and  
    
    Our emergency management services segment is the
largest provider of emergency department physician services
throughout the United States (12% of revenue). Financial information concerning the Companys geographical and business
segments is provided in Note 22 of the Notes to Consolidated Financial
Statements included in this report. 
 BACKGROUND AND PARENT COMPANY RESTRUCTURING On June 28, 2001, we, along with Laidlaw Inc., an Ontario corporation and our
predecessor (the Predecessor Company), and four of our direct and indirect
subsidiaries, filed voluntary petitions for relief under chapter 11 of the U.S.
Bankruptcy Code. In addition, we and Laidlaw Inc. commenced Canadian
insolvency proceedings under the Canadian Companies Creditors Arrangement Act
in the Ontario Superior Court of Justice (Canadian Court), in Toronto,
Ontario. On February 27, 2003, the U.S. Bankruptcy Court for the Western
District of New York (the U.S. Bankruptcy Court), entered an order confirming
our Third Amended Joint Plan of Reorganization (the Plan). On February 28,
2003, the Canadian Court issued an order recognizing the U.S. Bankruptcy
Courts confirmation order and implementing the Plan in Canada with respect to
our Canadian insolvency proceedings. We completed our restructuring when the Plan became effective on June 23, 2003.
Pursuant to the Plan, more than $3.2 billion of unsecured debt, $370 million
of accrued and unpaid interest and $400 million of various other liabilities
were compromised. The creditor groups received a combination of $1,185 million
in cash and 100 million shares of newly issued common stock in Laidlaw
International in exchange for the extinguishment of all claims, liabilities and
debt against the Predecessor Company. In addition, we issued approximately 3.8
million shares of common stock to a trust in connection with a settlement
agreement with the United States Pension Benefit Guaranty Corporation relating
to the funding level of certain subsidiary pension funds. The equity ownership
of the Predecessor Company was cancelled for no consideration. 4




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In connection with our reorganization, we filed a certificate of domestication
with the Secretary of State of the State of Delaware and became a Delaware
corporation and, as part of our domestication, we changed our name to Laidlaw
International, Inc. from Laidlaw Investments Ltd. We were originally
incorporated under the laws of Ontario, Canada under the name Laidlaw
Investments Ltd. on September 25, 1985. None of Laidlaw Internationals operating subsidiaries were a party to the
chapter 11 proceedings. Our subsidiaries were able to meet their obligations
with their own cash flow and credit facilities, and accordingly, continued to
operate normally and without interruption during the chapter 11 proceedings. 
 EDUCATION SERVICES SEGMENT Services Provided Our education services business offers the following transportation related
services in the United States and Canada:  (i)
    
    Home-to-school:Regularly scheduled transportation of students to and
from school, based on the negotiated terms of contracts with school
districts.(ii)
    
    Extra-curricular:Non-regularly scheduled transportation of students on
field trips, to athletic events or for other extra-curricular activities.(iii)
    
    Charter & transit:Transportation service provided to non-school
customers.(iv)
    
    Other:Leasing or sale of transportation equipment, logistical support,
maintenance agreements and other support services. The approximate percentage of education services revenue generated by type of
service provided for the year ended August 31, 2004 is as follows: Home-to-school
    
    
    88
    %Extra-curricular
    
    
    5
    %Charter & transit
    
    
    4
    %Other
    
    
    3
    %100
    %
 Competitive Environment There are an estimated 500,000 school buses in the United States and Canada,
serving a market of approximately 17,000 school districts and transporting over
25 million students to and from school. Competition comes from both the school districts themselves and from other
private carriers like ourselves. Approximately 67% of all school bus
transportation is provided by the school districts. The remaining 33% is
out-sourced to a handful of private carriers that operate on a national or
regional level and to thousands of locally owned and operated small bus
companies. We are the largest school bus operator in the United States and Canada,
providing student transportation services to more than a thousand school
districts with a fleet of over 40,000 buses. We transport approximately two
million students each weekday to and from school. The next largest provider of
student transportation operates a fleet of approximately 17,000 buses. We
compete based on price, service capabilities and our safety record. We believe
the Laidlaw brand is recognized as the leader in the industry. 5




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Operations Our education services business operates from 484 branch locations within 37
states and the District of Columbia in the United States and five provinces in
Canada. In aggregate, more than 90% of our education services revenue is
generated from contracts, generally with terms of three to five years in length
and options for extensions. Our school bus contracts are typically with school
districts, boards of education or municipalities. Contracts are customized to
suit the individual needs of each district and may include managing the entire
transportation system or specific components such as fleet acquisition or
maintenance services. Pricing is generally on a revenue per bus, per day basis
with annual increases typically specified in the agreement. The size of these
contracts varies from those covering very small operations to those covering up
to 400 buses. In addition to our contracted regular routes, we transport
students to extra-curricular events, field trips and athletic events and
provide charter services to outside groups. Our education services business has begun to implement a business strategy
designed to enhance its financial performance, maintain its leadership position
and develop alternative growth opportunities. We have identified a number of key areas of opportunity that should enable us
to improve the operating performance of our business and lower our costs.  
    
    Centralize administrative services  We are developing a shared
service center to centralize certain back office functions,
including payroll and accounts payable, that are currently
performed at the local or regional level.  
    
    Consolidate operating support functions  We are evaluating the
consolidation of operating support functions in market areas where
we have a large presence.  
    
    Deploy technology to improve safety and reduce costs  We have
a number of tests underway using various technologies to monitor
vehicle movement that we believe may reduce vehicle operating
costs.  
    
    Improve contract mix  We are taking steps to improve the
financial performance of underperforming contracts as they come up
for renewal. We are also developing value-added service offerings which leverage our core
competencies, such as vehicle maintenance, in an effort to create alternative
revenue growth opportunities. While we believe the initiatives identified above will help us realize improved
profitability, implementing these changes and achieving the desired results
will be challenging and could take considerable time. Seasonality Our education services business is seasonal with operations following the
typical school year schedule from September to June. As a result, our
education services business historically experiences a significant decline in
revenue and operating income in the fourth fiscal quarter due to school summer
vacations. Cash flows from operations generally are significantly lower during
the first quarter and are significantly higher during the fourth quarter due to
the lag between the expenses incurred from providing services at the beginning
of the school year and the collection of receivables related to those services. Employees As of August 31, 2004, our education services segment had approximately 45,000
employees, with 95% of these employees involved directly in operations,
primarily as drivers, mechanics and bus monitors. Part-time employees comprise
approximately 80% of all employees. 6




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Approximately 43% of our employees are represented by over 170 collective
bargaining agreements. We believe that our relations with our employees and
their collective bargaining organizations are good. The existence of many
local union contracts limits the impact of any individual labor disruption on
our operations. Safety We are committed to ensuring the safety of the school children we transport
every day. Our drivers operate under very stringent safety standards. In
addition to thorough background checks and testing at the time of hire, we
require mandatory training both in the classroom and behind the wheel for our
drivers. In addition to extensive on-going driver training and preventative
maintenance programs, we have developed and implemented a comprehensive system
of safety precautions and procedures that includes:  
    
    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  
    
    Deployment of equipment on certain of our vehicles that reinforces and
monitors behavior en route and at the completion of each run. These efforts have enabled us to reduce the frequency of accidents over the
past decade to a level that we believe is one of the lowest in the industry. Vehicle Fleet Our education services business owns in excess of 38,000 buses and support
vehicles and operates approximately 2,000 customer-owned buses. The average
age of our current bus fleet is approximately 6.5 years. Fleet replacements
are based on contract requirements, age and useful life of the vehicle. During
fiscal 2004, we purchased over 2,500 units at an average cost of $49,000. The
size and similarity of our fleet provides us with flexibility to redeploy buses
to different locations to fulfill the requirements of new or existing
contracts. Fuel Our operating costs historically have been only marginally affected by the
fluctuations in the price of fuel. During fiscal 2004, we consumed 70 million
gallons of fuel in the operation of our education services business. We
purchased 56 million gallons with the cost of the fuel representing 4% of
education services revenues. The remaining 14 million gallons used in
operations were supplied by the school districts themselves. In order to
mitigate the effect of price fluctuations we have incorporated two-way fuel
cost adjustments or escalation provisions in contracts representing
approximately 28% of the fuel we purchased last year. We may further manage
the impact of price increases by entering into forward purchase contracts for
fuel whereby we agree to take delivery of a set amount of fuel at a fixed price
on a future specified date. Regulation Companies operating in the school busing industry are not subject to
market-area licensing requirements in the United States. In Canada, licenses
to carry passengers are granted by provincial boards upon proof of public
convenience and necessity. The provincial boards exercise control over the
issuance, extension and transfer of licenses and regulate the general conduct
of a licensees business. 7




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Within the United States there are federal and state and in Canada there are
provincial regulations and licensing requirements that set standards for fleet
and safety equipment, driver qualification and insurance with which we must
comply. 
 PUBLIC TRANSIT SERVICES SEGMENT Services Provided Our public transit services business is a leading provider of the following
municipal transportation services in the United States:  (i)
    
    Paratransit:We provide transportation for the mobility challenged which
complies with the Americans with Disabilities Act (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.(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.(iii)
    
    Other:We provide other transportation services such as shuttle
services for corporate campuses. The percentage of public transit services revenue by type for the year ended
August 31, 2004 was as follows: Paratransit
    
    
    67
    %Fixed-route
    
    
    29
    %Other
    
    
    4
    %100
    %
 Competitive Environment The public transit market is estimated to be approximately $13.4 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. Nearly 90% of transit services are operated in-house by municipal transit
authorities with the remainder 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. There are four large private operators, including Laidlaw, all similar in
scale, which we believe provide an estimated 69% of the out-sourced transit
services. Two of these other transit providers are subsidiaries of large
foreign-owned transportation companies. The fourth large operator is a
privately held transportation company based in the United States. 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. 8




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Operations Our public transit business operates dispatch centers, brokerage operations,
management contracts and total turnkey operations for both paratransit and
fixed-route services from over 70 locations in 25 states across the United
States. We transport more than 52 million passengers per year under nearly 150
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 11% of the public transit segments revenue in fiscal year 2004. Employees As of August 31, 2004, our public transit business had approximately 6,300
employees, 48% of whom are unionized under 34 collective bargaining contracts.
Approximately 35% of the collective bargaining agreements, representing
approximately 1,000 employees, are subject to renegotiation in fiscal year
2005. Approximately 15% 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. Safety Public 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 70 hours of training both in the classroom and behind the wheel for
new drivers. Additionally, we require an average of 12 hours of training
annually for existing drivers. Vehicle Fleet As of August 31, 2004, public transit operated approximately 3,800
revenue-generating vehicles, of which we own approximately 1,700, 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. Fuel Fuel 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 approximately 11 million gallons of fuel purchased annually,
around 62% is subject to escalation clauses or passed through to our customers.
In 2004, fuel expense represented 5% of public transits revenues. 9




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Regulation Public 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. 
 GREYHOUND SEGMENT Services Provided Greyhound is the only national provider of scheduled inter-city bus
transportation services in the United States and Canada. Greyhound offers the
following services:  (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, we have interline agreements and alliances with other bus
carriers. These alliances allow us to provide cross-border transportation
to and from Mexico and access to smaller towns in the U.S. and Canada that
are complementary to our existing service schedules.(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 500 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.(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. Additionally we operate meet and greet
services for cruise lines at four ports in the United States. The meet
and greet service consists of meeting cruise line passengers (usually at
airports) and transferring these passengers and their baggage to and from
cruise ships.(iv)
    
    Food service and other:We offer food service and gift items for
purchase in many of our terminal locations. The percentage of Greyhounds revenue by type for the year ended August 31,
2004 was as follows: Passenger service
    
    
    76
    %Package express
    
    
    9
    %Tour & charter
    
    
    7
    %Food service and other
    
    
    8
    %100
    %
 Trademarks We own the Greyhound name and trademarks and the image of the running dog
trademarks worldwide. The duration of these trademarks are indefinite as long
as we continue to use them. We believe that the Greyhound name and our
trademarks have substantial consumer awareness. Competitive Environment The intercity transportation industry is highly competitive. Greyhounds
primary sources of competition for passengers are automobile travel, low cost
air travel from both regional and national airlines and, in some markets,
regional bus companies and trains. Price, choice of destination and convenient
schedules are the ways in which we meet this competitive challenge. 10




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In general, travel by automobile is the dominant mode of transportation in the
United States, accounting for 90% of total trips. Bus travel accounts for only
2% across all modes of transportation while trains are less than 1%. Travel by
automobile is the principal choice for trips of less than 1,000 miles, while
air travel is used 75% of the time for trips greater than 2,000 miles. The typical Greyhound passenger travels to visit friends and relatives and
generally has an annual income of less than $35,000. Greyhounds core
customers, short-haul travelers traveling 450 miles or less, comprise
approximately 80% of our total passengers. Lower income households travel by bus at more than twice the national average
and by air at less than half. Low-fare airlines impact Greyhounds revenue
particularly in the higher end income demographics and for trips less than 600
miles. Based on customer surveys, approximately 20% of our customers
considered air before selecting Greyhound. Greyhounds marketing and advertising philosophy is geared toward stimulating
additional travel through price awareness, improving the awareness and image of
Greyhound among potential customers and inducing first-time and repeat travel.
We use various means to advertise the passenger travel business, including
radio, television and print media (primarily yellow pages). Additionally, we
offer around-the-clock fare and schedule quotations as well as advance discount
ticket purchasing via a toll-free telephone number through our telephone
information centers and through our Internet website: www.greyhound.com. We face competition in our package delivery service from local courier
services, the U.S. Postal Service and overnight express and ground carriers.
We continue to develop programs to meet this competition and further develop
our package delivery business. These programs focus on system upgrades to
improve service, billing and tracking for our customers, localized marketing
strategies, and local, regional or national alliances with pick-up and delivery
carriers. A few regional carriers and several thousand local operators compete with us
for the tour and charter services. Principal factors in obtaining new
business and retaining existing customers include competitive pricing, type of
equipment and consistency in service. Due to the captive nature of the food service operations in Greyhounds
terminals, competition is limited. In some locations, however, fast food
restaurants and convenience stores located in close proximity to Greyhounds
terminals can pose a competitive factor. Operations Greyhound offers passenger service of more than 19,000 daily departures to
approximately 3,400 locations. Travelers can purchase tickets at approximately
200 company-operated bus terminals and approximately 1,900 agency-operated
terminals and sales agencies. Discounts usually are offered on tickets
purchased in advance of travel. However, most tickets are purchased and used
within three days of departure. Information technology is an integral component of Greyhounds operations and
supports, among other things, Greyhounds website, scheduling and pricing,
dispatch, operations planning, bus maintenance, telephone information center,
customer service, point of sale, payroll and finance functions. Greyhound also
uses a proprietary system called TRIPS to provide automated fare and schedule
quotations and to handle the ticketing process. Greyhound provides, through agreements with Mexican bus carriers, connecting
service at most major gateways between the United States and Mexico.
Additionally, in some of our terminals, Greyhound sells tickets for travel in
Mexico on Mexican-based bus carriers, and a number of Mexican bus carriers sell
tickets for travel in the U.S. on Greyhound. 11




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Beginning in the summer of 2001, Greyhound passenger travel declined from peak
levels along with revenues. The terrorist attacks of September 11, 2001,
accelerated the passenger and revenue decline and created additional burdens in
the form of unprecedented cost increases for insurance and security. Future
terrorist attacks or other potential disruptions in Greyhounds service could
adversely affect the demand for bus travel. The reduction of travel on Greyhound resulted in Greyhounds inability to
generate a sufficient level of profitability to fund its operating and capital
investment requirements to be a viable company. In response, beginning in the
summer of 2003, Greyhound changed its pricing strategy, particularly for
long-haul service, and began eliminating unprofitable and marginally profitable
routes. Greyhound also took actions to reduce staffing levels, overhead costs,
and capital expenditures. We believe that streamlining the network coupled
with continued spending constraints will make Greyhound a financially viable
business in the long term, increase profitability and improve return on assets.
The network should become more efficient, serving areas where customer demand
is greatest through a smaller, simpler network of routes that is short and
medium-haul focused. Customers should experience greater convenience, faster
service, fewer stops and improved on-time departures and arrivals. However,
there are no assurances that our actions will be successful and result in
increased profitability and return on our investment. The network
transformation will be carried out in phases over the next two to three years. Seasonality Our Greyhound business is seasonal in nature and generally follows the pattern
of the travel industry as a whole, with peaks during the summer months and the
Christmas holiday season. As a result, Greyhounds cash flows are also
seasonal, with a disproportionate amount of annual cash flows being generated
during the peak travel periods. Employees As of August 31, 2004, Greyhound employed approximately 14,200 workers,
consisting primarily of 5,600 drivers, 5,200 terminal employees and information
agents, 1,000 mechanics, and 2,400 management and administrative staff. Of the
total workforce, approximately 83% are full-time employees and approximately
17% are part-time employees. At August 31, 2004, approximately 50% of our Greyhound employees were
represented by collective bargaining agreements. Greyhound has agreements with
a number of unions, however, the largest agreement is with the Amalgamated
Transit Union Local 1700. This agreement covers approximately 4,400 of
Greyhounds U.S. employees, mostly drivers and maintenance employees, and
expires on January 31, 2007. We believe that our relations with employees at
Greyhound are good. Safety According to the U.S. Department of Transportation, Bureau of Transportation
Statistics, intercity bus travel, like Greyhound, is the safest mode of
transportation as compared to cars, trucks, trains, planes and other commercial
vehicles. Greyhound has made substantive changes to its procedures to increase safety and
lower risk as a result of the September 11 terrorist attacks. Our terminal
employees and drivers have a heightened alertness of suspicious behaviors and
prohibited items and are trained to notify local law enforcement authorities if
any suspicious activities or unaccompanied packages are observed. We have
increased our spending for safety and security in the bus terminals by
approximately $5 million annually. 12




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On August 20, 2003, Greyhound received a grant of approximately $10 million
from the Transportation Safety Administration (TSA), to provide reimbursement
for additional spending on safety and security related initiatives such as:
increased passenger screening in the bus terminals, bomb detection devices,
installation of protective shields in the driver compartment of buses and
installation of on-board communication devices. Although Greyhound received
this grant from the TSA, there can be no assurances that additional grants will
be received in the future. Additionally, it possible that the TSA could
mandate security procedures that exceed the level currently provided by
Greyhound further increasing costs. Vehicle Fleet During the twelve months ended August 31, 2004, Greyhound took delivery of 46
new buses and retired 194 buses, resulting in a fleet of approximately 3,600
buses, of which approximately 2,000 buses were owned and 1,600 were leased.
The average age of Greyhounds bus fleet was 8.0 years at August 31, 2004. The
majority of the buses added to the Greyhound fleet in fiscal 2004 were acquired
through operating leases rather than direct purchase. We have a long-term supply agreement with Motor Coach Industries, Inc. (MCI)
that extends through 2007, but may be canceled by either party at the end of
any year upon six months notice. If Greyhound acquires new buses, we must
purchase at least 80% of the new bus requirements from MCI pursuant to the
agreement. Fuel During fiscal 2004, Greyhound purchased 56 million gallons of fuel and their
fuel expense represented over 6% of Greyhounds revenue. Greyhound may
mitigate some of the impact of fuel cost increases by entering into forward
purchase contracts, although currently Greyhound has no such contracts
outstanding. Additionally, rising fuel costs have at times allowed Greyhound
to increase average ticket prices and declining fuel costs have at times
required Greyhound to lower ticket costs, thus providing some further hedge
against fuel price fluctuations. Due to the effect general economic conditions
may have on the discretionary spending levels of Greyhounds customers and the
competitive nature of the transportation industry, Greyhound is not always able
to pass on increased fuel prices to its customers by increasing its fares.
Likewise, increased price competition and lower demand because of a decline in
out-of-pocket costs for automobile use may offset any potential benefit of
lower fuel prices. Regulation As a motor carrier engaged in interstate as well as intrastate transportation
of passengers and express shipments, Greyhound is registered with the
Department of Transportation (DOT), and is also regulated by its Surface
Transportation Board. Greyhound is also subject to state regulations that are
consistent with federal requirements. Greyhound is subject to regulation under the ADA pursuant to regulations
adopted by the DOT. The regulations require that all new buses acquired by us
for our fixed route operations must be equipped with wheelchair lifts.
Additionally, by October 2006, one-half of our U.S. fleet involved in fixed
route operations will be required to be lift-equipped and, by October 2012, the
fleet must be entirely lift-equipped. Carriers are permitted to retrofit their
existing buses or purchase wheelchair accessible new or used buses to meet the
50% and 100% mandates. At August 31, 2004, approximately 18% of our U.S. fleet
deployed in fixed route operations were wheelchair lift-equipped. To meet the
50% requirement by October 2006, and assuming no change in current fleet size,
Greyhound must replace or retrofit 818 of our non-lift-equipped buses over the
next two years. Should Greyhound reduce the size of the fleet over the next
two years, they would likely dispose of non-lift equipped buses which would
reduce the aggregate number of buses which would need to be replaced or
retrofitted. Currently, the added cost of a built-in lift 13




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device in a new bus is approximately $35,000 plus additional maintenance and
employee training costs. In Canada, Greyhound operates under the Canada Transportation Act (CTA). The
CTA allows each province to regulate provincial scheduled service. Greyhound
generally is required to file tariffs with schedule and rate information for
its passenger services. The CTA does not cover package express or tour and
charter operations; these segments are unregulated in some provinces. 
 HEALTHCARE TRANSPORTATION SERVICES SEGMENT Services Provided Our healthcare transportation business, American Medical Response (AMR),
provides the following services in the United States:  (i)
    
    Emergency 911 response:Emergency response services (911)
are provided primarily under long-term contracts with communities,
municipalities, and other local government agencies. AMR typically
must respond to 911 calls in the designated area within a specified
response time determined by the communities.(ii)
    
    Non-emergency transports:Non-emergency transports involve
providing transportation to patients requiring varying degrees of
medical care between healthcare facilities or between healthcare
facilities and their homes. Non-emergency transports include
wheelchair and stretcher van transports and critical care
transports.(iii)
    
    Other:AMR provides call center and dispatch services, event
medical services, managed transportation services and other
services to public safety agencies, hospitals, communities, fire
departments, and other healthcare providers. These other services
include paramedic and EMT training, system status management and
deployment consulting and clinical data collection and reporting. The percentage of AMRs revenue by type for the year ended August 31, 2004 was
as follows: Emergency 911 response
    
    
    57
    %Non-emergency transports
    
    
    32
    %Other
    
    
    11
    %100
    %
 Competitive Environment The U.S. emergency and non-emergency ambulance services industry generates an
estimated $12 billion of annual revenues. Nationally, emergency response
services generate 65% of transports and 79% of revenues and non-emergency
response services generate 35% of transports and 21% of revenues. The market is highly fragmented with over 14,000 ambulance services providers.
Of the overall market participants, 35% are fire departments, 21% are
non-profits, 12% are private providers, such as ourselves, 9% are
hospital-based and 23% are government owned. AMRs predominant competitors are
fire departments. Firefighters have traditionally acted as the first response
providers during emergencies, and at times have been able to expand their scope
of services to include emergency medical care and transport. AMR is the largest private provider of emergency and non-emergency ambulance
services in the U.S. with an estimated 8% share of the outsourced market. AMR
operates in 34 states and 14




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has over 260 operating locations across the country. AMR treated and
transported approximately 3.7 million patients during the year ended August 31,
2004. The second largest private ambulance provider generated less than
one-half of the revenue of AMR in fiscal 2004. Local operators also pose a challenge to us as they tend to be single-client
focused. Compared to these small, local operators, AMR has a scale advantage
with the ability to bid for local, regional and national contracts. We believe the size and diversity of AMRs fleet gives us a competitive edge.
Ownership of the local emergency response contract can be advantageous when
bidding for non-emergency business because the existing fleet of ambulances and
the dispatching center maintained for emergency response can also be used for
non-emergency business. For the same reason, the ownership of a successful
non-emergency business can be advantageous to an operator trying to unseat an
incumbent emergency response operator or to obtain a contract in a newly
privatized market. We also market our non-emergency ambulance services to hospitals, health
maintenance organizations, convalescent homes and other health care facilities
that require a stable and reliable source of medical transportation for their
patients. A significant portion of AMRs non-emergency transports is provided
to such facilities and organizations in competitive markets without specific
contracts. Operations Contracts AMR provides most of its emergency ambulance response services pursuant to
contracts with counties, fire districts and municipalities. These contracts
typically appoint AMR as the exclusive provider of emergency ambulance services
in a designated service area and require AMR to respond to every emergency
medical call within that area. Contracts are typically three to five years in
length and are generally obtained through a competitive bidding process. In
some instances where AMR is the existing provider, communities elect to
renegotiate existing contracts rather than initiate new bidding processes.
Contracts with hospitals and other facilities and organizations for
non-emergency services are typically two years in length. Revenue from AMRs contracts with communities and healthcare providers is
typically collected from invoices generated by AMR for each patient transport.
In some cases, revenue is based on negotiated fees paid periodically by the
community, and patients are then billed directly by the community. Most emergency or 911 contracts are granted exclusive supplier status through
the issuance of a certificate of need or a public service agreement. Some
municipalities divide requirements into service zones. Exclusive supplier
status agreements are linked to service level measurements regarding response
times and performance. Some municipalities also govern or set rates that may
be charged for the ambulance services. As of the end of fiscal year 2004, AMR had nearly 150 agreements with municipal
or county public safety agencies to provide contracts for emergency 911
response and more than 3,000 client relationships to provide non-emergency,
critical care and wheelchair transports. Our largest contract with a community
represents less than 4% of AMRs total net revenue. Revenue Composition AMR derives a significant percentage of its revenue from reimbursement by
third-party payors, including payments under Medicare, Medicaid, private
insurance and managed care plans/contracts. AMR also collects payments
directly from patients, including payments under deductible and co-insurance
provisions. 15




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The table below provides detail of the payor mix: Medicare/Medicaid
    
    
    39
    %Private insurance/contract
    
    
    44
    %Private pay
    
    
    17
    %100
    %
 Dispatch and Communications Generally, ambulance units are not stationed at fixed sites, but are constantly
repositioned through flexible deployment systems. Communication centers
control the deployment and dispatch of ambulances in response to emergency
calls. We use location and detailed system status plans to position our
ambulances and medical crews within a designated service area in an effort to
reduce response time. Requests for non-emergency transports are usually made by physicians, nurses,
case managers and discharge coordinators who are interested in a quick transfer
of requested information and prompt ambulance arrival at the requested pick-up
time. AMR uses proprietary software to determine the patients true medical
transportation needs and to assist with the dispatching of ambulances. AMR
also offers on-line, web-enabled transportation ordering to certain facilities. Billing and Collections The collection process varies by payor. We have a collection staff specially
trained in third-party coverage and reimbursement procedures. An account may
move among several payor sources before final collection or resolution is
reached. We may also engage collection agencies to collect delinquent
accounts, primarily from private payors. AMR, from time to time, establishes usual and customary rates for the services
it provides. In certain cases, however, AMR is required to reduce these rates
due to local ordinances or regulatory restrictions. In locations where we face
rate restrictions and in the case of Medicare and Medicaid billing, AMR has
negotiated reduced rates with payors to reflect the restrictions. In addition,
AMR has established reserves to allow for services provided for which they
cannot collect fees. As a result, AMRs reported revenues are equal to its
gross billings based on our usual and customary rates, net of contractual
allowances for restricted rates and allowances for uncompensated care. Employees Approximately 72% of AMRs 17,800 employees have daily contact with patients
and include approximately 5,000 paramedics, 7,400 emergency medical technicians
and 300 nurses. The remaining 5,100 employees perform support functions such
as field administration, dispatch, billing and other administrative duties.
Approximately 74% of AMRs work force is full-time and 26% is part-time. Approximately 48% of AMRs employees are represented by 46 collective
bargaining agreements with 21 different unions. Nine of the existing
collective bargaining agreements, representing approximately 1,200 employees,
are subject to renegotiation during fiscal year 2005. We believe that our
relations with our ambulance services employees are good. 16




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Safety AMR is committed to the safety of its employees, patients and the communities
it serves. AMRs World Class Safety program has been recognized by the
National Safety Council for outstanding performance and is built upon five
important components:  
    
    Selecting highly qualified employees;
    
    Providing exemplary safety policies and programs to control losses;
    
    Effective training and education programs;
    
    Accountability of management and employees for safety of the operation; and
    
    Continuous review of new opportunities and existing programs for improvement. AMRs safety program includes driver qualification standards, physical agility
testing, injury and illness prevention policies and procedures, a monthly
safety awareness campaign, road safety monitoring devices, frequent vehicle
inspections, driver and safety training, management safety incentives and
review of statistics on safety activities. Vehicle Fleet As of August 31, 2004, AMR operated over 4,400 vehicles, of which approximately
3,300 are ambulances, 600 are wheelchair vans, and the remainder are support
vehicles. Ambulances are generally replaced every eight years, or as provided
in specific contracts. In fiscal 2004, we purchased 354 vehicles at an average
cost of approximately $57,000. The average age of our active fleet is
approximately four years. Regulation The operations and activities of both AMR and our emergency management services
segment, EmCare (described in detail in the next section, entitled EMERGENCY
MANAGEMENT SERVICES SEGMENT) are governed by numerous and complex federal and
state laws, rules and regulations. Changes in health care legislation or
government regulation may restrict our existing operations, limit the expansion
of our business or impose additional compliance requirements and costs on us.
Any such violation, restriction, limitation or imposition of additional
requirements and costs could have a material adverse effect on our business,
financial condition or results of operations. Government Reimbursement:Both AMR and EmCare derive a significant portion of
their revenue from services rendered to beneficiaries of Medicare, Medicaid and
other government-sponsored health care programs. To participate in these
programs, AMR and EmCare must comply with stringent and often complex
enrollment and reimbursement requirements from the federal government and
states. AMR and EmCare are subject to governmental reviews and audits of their
bills and claims for reimbursement. Retroactive adjustments to amounts
previously reimbursed from these programs can and do occur on a regular basis
as a result of these reviews and audits. In addition, these programs are
subject to statutory and regulatory changes, administrative rulings,
interpretations and determinations, all of which may materially increase or
decrease the payments we receive for our services as well as affect the cost of
providing services. Federal and State Anti-Kickback Laws:Federal anti-kickback law prohibits
certain offers, payments or receipts of remuneration in return for either

referring Medicare, Medicaid or other government-sponsored health care program
business, or purchasing, leasing, ordering, or arranging for or recommending
any service or item for which payment may be made by a government-sponsored
health care program. The federal anti-kickback law is broadly worded and
potentially subjects many of AMRs and EmCares business arrangements with
hospitals, physicians and other health care entities, to government
investigation and prosecution. Many states in which AMR and EmCare operate have
similar laws. Violations of these laws are punishable by substantial
penalties, including monetary fines, civil penalties, criminal sanctions 17




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(including imprisonment), exclusion from participation in government-sponsored
health care programs, and forfeiture of amounts unlawfully collected. Billing Fraud and Abuse Laws:There are a variety of federal and state laws
applicable to the submission of bills and claims for services rendered to
beneficiaries of government-sponsored health care programs, including the
Federal False Claims Act (FCA). The FCA prohibits the filing of false
claims for reimbursement under federal health care programs, including
Medicare and Medicaid. Whistleblower provisions permit private citizens to
sue a claimant on behalf of the government and thereby share in any fines
imposed under the law, and other federal and state laws, including so-called
civil money penalty laws, authorize substantial administrative fines and
exclusion from government programs in certain cases. Although we intend and
endeavor to conduct our business in compliance with all applicable federal and
state fraud and abuse laws, many of them are broadly worded and may be
interpreted or applied in ways that we cannot predict, so we cannot assure you
that our arrangements or business practices will not be subject to government
scrutiny or be found to violate applicable fraud and abuse laws. Medical Records Privacy Laws:Federal and state laws and regulations govern
AMRs and EmCares collection, dissemination, use and confidentiality of
patient health information, including the federal Health Insurance Portability
and Accountability Act of 1996 and related rules (HIPAA), violations of which
are punishable by monetary fines, civil penalties and criminal sanctions. The
Department of Health and Human Services adopted so-called privacy regulations
in December 2000 and security regulations in February 2003. AMR and EmCare
have implemented privacy policies and procedures, including training programs,
designed to ensure compliance with the privacy regulations. In addition, both
AMR and EmCare are taking measures that we believe to be appropriate to comply
with the security regulations, which are effective April 21, 2005. Licensure, Certification and Accreditation:AMR and its operations are subject
to various federal, states and local licensing and certification laws and
regulations and accreditation standards relating to, among other things, the
adequacy of medical care, equipment, personnel and operating policies and
procedures. AMRs operations are also subject to periodic inspection by
governmental and other authorities to assure continued compliance with the
various standards necessary for licensing and accreditation.. 
 EMERGENCY MANAGEMENT SERVICES SEGMENT Services Provided Our emergency management services segment, EmCare, offers the following
services:  (i)
    
    Emergency staffing and management services:EmCares principal activity
is providing staffing and management services to hospital emergency
departments. Generally, EmCare is responsible for recruiting, evaluating
credentials and scheduling qualified physicians to staff the emergency
departments of contracting hospitals.(ii)
    
    Hospitalist services:EmCare recruits and schedules physicians to
provide medical care and treatment of patients in hospital inpatient
settings.(iii)
    
    Other:EmCare also provides unbundled services such as billing,
scheduling, recruitment and risk management. Approximately 93% of EmCares revenue is derived from emergency management
services with the remainder derived from hospitalist and other services. 18




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Competitive Environment There are approximately 4,700 hospitals in the U.S. with emergency departments
that receive over 110 million visits, generating approximately $10 billion in
billings annually. Approximately 67% of these hospitals currently outsource
physician services. The emergency department market can be categorized into two major segments:
medium to high volume emergency departments, with 15,000 or more annual visits,
and low volume emergency departments, typically seeing less than 15,000 annual
patient visits. Medium to high volume emergency departments represent 54% of
the U.S. market and 76% of these hospitals outsource the management and
staffing of their emergency departments. The hospitals with low volume
represent 46% of the market and 56% currently outsource the management and
staffing of their emergency departments. EmCare is the largest provider of outsourced emergency management services in
the United States providing services to over 300 client hospitals. Annually,
physicians affiliated with EmCare treat approximately 5 million patients at
emergency departments in 38 states. EmCare faces competition from a number of
national and regional providers. Competition for services is generally based
upon cost and the ability to make available physicians capable of providing
high quality care. Competition is also based upon the proper utilization of
the emergency department, as well as the ability to integrate the emergency
department with other hospital departments and to provide value added services. Operations Emergency department staffing We recruit and schedule physicians and emergency support staff for the
management of emergency departments. We are the nations leading recruiter of
board-certified emergency medicine physicians. Our physician recruiters are
trained to identify and pre-screen all candidates and recommend the right
physician for each position. MedLink, our proprietary mapping software, allows
us to pinpoint all American Medical Association members by geographic location
so that recruiting efforts can be focused on the immediate region.
Additionally, we recruit nationally through trade advertising, the Internet and
our senior level residents education programs. Contracts We have contracts to provide emergency management services with over 300
hospitals. Our standard hospital agreement is usually three years in length
and is awarded on a competitive basis. Depending on contractual agreements
with clients, EmCare may bill the hospitals, the third party payors, including
patients, or a combination of both for services provided. In all cases, the
hospitals are directly responsible for billing and collecting for all
non-physician-related services. Revenue Composition Commercial insurers are billed based on specific fee schedules and are
generally discounted based on negotiated rates with the payors. We do not
accept capitation fees for professional emergency services. Governmental
revenue mostly comes from the federal Medicare program and state-based Medicaid
programs. Government reimbursement is based on specific allowed fees for
each professional procedure. Patients visiting an emergency department must be
assessed and provided with necessary treatment, regardless of the patients
ability to pay. In locations with high rates of uninsured patients, EmCare
receives subsidies from the hospitals. 19




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The table below provides detail of the payor mix: Private insurance/contract
    
    
    50
    %Medicare/Medicaid
    
    
    30
    %Private pay
    
    
    20
    %100
    %
 Employees EmCare retains its medical professionals as employees or as independent
contractors. Currently, EmCare employs approximately 4,100 people, which
include approximately 3,000 medical professionals under contract.
Approximately 2,600 physicians, 200 physician assistants and 200 nurse
practitioners are affiliated with EmCare as employees or independent
contractors. Approximately 95% of EmCare affiliated physicians are Board
certified. Regulation In addition to the laws and regulations governing EmCare described in the
preceding Regulation section under the HEALTHCARE TRANSPORTATION SERVICES
SEGMENT, EmCare and its operations and activities are subject to various state
laws that prohibit or restrict business corporations such as EmCare from
practicing medicine, employing physicians to practice medicine, exercising
control over medical decisions by physicians, or engaging in certain
arrangements, such as fee-splitting, with physicians. In such states, EmCare
maintains long-term management contracts with its affiliated medical groups,
which employ or contract with physicians to provide physician services. We
believe that we are in material compliance with applicable state laws relating
to the corporate practice of medicine and fee-splitting. However, regulatory
authorities or other parties, including EmCares affiliated physicians, may
assert that, despite these arrangements, we are engaged in the corporate
practice of medicine or that our contractual arrangements between EmCare and
its affiliated medical groups constitute unlawful fee-splitting, in which case
we could be subject to civil or criminal penalties, our contracts could be
found legally invalid and unenforceable or EmCare could be required to
restructure its contractual arrangements with its affiliated medical groups. 
 AVAILABLE INFORMATION We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and other information with the Securities and Exchange
Commission. The public can obtain copies of these materials by visiting the
Commissions Public Reference Room at 450 Fifth Street, NW, Washington DC
20549, by calling the Commission at 1-800-SEC-0330, or by accessing the SECs
website at http://www.sec.gov. In addition, as soon as reasonably practicable
after such materials are filed with or furnished to the Commission, we make
copies available to the public free of charge on or through our website at
www.laidlaw.com. Copies of our Code of Ethics, as defined under Item 406 of
Regulation S-K, Corporate Governance Guidelines, Director Independence Criteria
and Board Committee Charters can also be accessed on our website. We will
provide, at no cost, a copy of our Code of Ethics upon request by phone or in
writing to our corporate address at 55 Shuman Boulevard, Naperville, Illinois
60563 (telephone number: (630) 848-3000), attention: Investor Relations. The
information on our website is not incorporated into, and is not part of, this
report. 
 ITEM 2. PROPERTIES Our education services business operates school buses and special education
vehicles from 428 facilities in the United States and 56 in Canada, of which
160 are owned and 324 are leased or operated under contract. To provide these
services, we operate approximately 40,000 school buses and special education
vehicles. Approximately 38,000 of these vehicles are owned by us while the
balance are owned by the city or municipality. 20




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Our public transit business operates from over 70 locations in the United
States, of which five are owned and the rest are leased. To provide these
services, we operate approximately 3,800 revenue-generating vehicles, including
2,300 paratransit vehicles, of which approximately 1,700 are owned by us while
the remaining units are owned and provided by our customers. Our Greyhound business provides services from approximately 2,100 locations
throughout the United States and Canada. The majority of our locations are
owned and operated by independent agents of Greyhound. Greyhound owns or
leases 534 properties in the United States and 118 properties in Canada.
Greyhound has a fleet of approximately 3,600 buses, of which approximately
2,000 buses are owned and 1,600 are leased. American Medical Response operates out of 510 locations in the United States,
of which 14 are owned and the balance are leased. We utilize nearly 3,900
ambulances and wheelchair vans and over 500 support vehicles. EmCare leases 21 facilities to house administrative, billing and other support functions.
We believe our facilities and equipment are adequate to service our present business needs. 
 ITEM 3. LEGAL PROCEEDINGS General Litigation and Other Disputes Health Care Our healthcare businesses are subject to the Medicare and Medicaid fraud and
abuse laws, which prohibit, among other things, any false claims, or any bribe,
kick-back or rebate in return for the referral of Medicare and Medicaid
patients. Violation of these prohibitions may result in civil and criminal
penalties and exclusion from participation in the Medicare and Medicaid
programs. We have implemented policies and procedures that management believes
will assure that we are in substantial compliance with these laws. Laidlaw or
its subsidiaries continually undergo investigations by certain government
agencies regarding compliance with Medicare fraud and abuse statutes. We are
cooperating with the government agencies conducting these investigations and
are providing requested information to the government agencies. Other than the
investigations described in the following two paragraphs, management believes
that the outcome of any of these investigations would not have a material
adverse effect on us. On May 9, 2002, AMR received a subpoena duces tecum from the Office of
Inspector General for the United States Department of Health and Human Services
(HHS). The subpoena requested copies of documents for the period from
January 1993 through May 2002. The subpoena required AMR to produce a broad
range of documents relating to Huguley Hospital and Regional Emergency Services
contracts in Texas, Georgia and Colorado. The claims in Texas have been
resolved pursuant to the $20 million settlement agreement described below. The
government investigations in Georgia and Colorado are continuing. During the first quarter of fiscal 2004, AMR was advised by the U.S. Department
of Justice (DOJ), that it was investigating certain business practices at
AMR. The specific practices at issue were (1) whether ambulance transports
involving Medicare eligible patients complied with the medically necessary
requirement imposed by Medicare regulations, (2) whether patient signatures,
when required, were properly obtained from Medicare eligible patients; and (3)
whether discounts in violation of the Federal Anti-Kickback Act were provided
by AMR in exchange for referrals involving Medicare eligible patients. At this
juncture, it is not possible to predict the ultimate conclusion of the
investigations described in this and the preceding paragraph, nor is it
possible to calculate any possible financial exposure to the Company. 21




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From August 1998 until August 2000, American Medical Response West (AMR
West), a subsidiary of AMR, received six subpoenas duces tecum from the United
States Attorneys Office. These subpoenas related to billing matters for
emergency transports and specialized services. AMR West has entered into a
settlement agreement with the United States Attorneys Office pursuant to which
it has paid $3.5 million and agreed to enter into a five year Corporate
Integrity Agreement with the HHS in settlement of these matters. In June 1999, the DOJ began an investigation of the billing processes of
Regional Emergency Services, a subsidiary of AMR, and of Florida Hospital
Waterman. Regional Emergency Services managed the ambulance services for
Florida Hospital Waterman. The DOJ reviewed the billing processes of the
companies from October 1992 to May 2002. The DOJ alleged violations by the
companies of the False Claims Act based on the absence of certificates of
medical necessity and other non-compliant billing practices. The parties have
entered into a settlement agreement for an aggregate of $20 million, of which
AMR has contributed a total of $5 million. Greyhound Default Judgment On September 20, 2004, Greyhound responded to proceedings brought in Georgia
state court in August 2004 (August Proceedings) seeking to enforce a default
garnishment judgment on funds in a Greyhound bank account. While this action
has since been dismissed, it stemmed from an October 1995 default judgment in
the amount of approximately $7 million (1995 Judgment) against Gary Jones, a
former consultant to Greyhound. More than four years later, in October 2000,
the plaintiff who obtained the 1995 Judgment (Plaintiff) began garnishment
proceedings against Greyhound in Georgia state court seeking to recover amounts
owed to Gary Jones, who then allegedly owed the Plaintiff the amount of
approximately $11 million based on the 1995 Judgment plus post-judgment
interest. On May 2, 2001, a default judgment for $11 million (Default
Judgment) was entered by the Georgia state court against Greyhound. Greyhound
first learned of the Default Judgment through the August Proceedings and,
therefore, was unaware of the garnishment and the Default Judgment and
inadvertently failed to contest it. Had the garnishment been timely answered,
Greyhound believes that the amount due in response to the garnishment summons
would not have exceeded $1,500. It is now alleged that Greyhound is liable to the Plaintiff in the amount of
$15 million, based on the $11 million Default Judgment plus post-judgment
interest. Greyhound has filed a Motion to Vacate the Default Judgment in the
Court where such judgment was rendered. Based on several legal grounds,
Greyhound believes that the Default Judgment is null and void and not
enforceable. Greyhound intends to vigorously defend its interests in the
litigation. Also refer to the discussion of the potential impact of this
litigation on the Greyhound Facility included in Item 7  Liquidity and
Capital Resources. Other We are also a defendant in various lawsuits arising in the ordinary course of
business, primarily cases involving personal injury, property damage or
employment related claims. Some of these actions are covered to varying
degrees by our insurance policies. Based on our assessment of known claims and
our historical claims payout pattern, management believes that there is no
proceeding either threatened or pending against us relating to personal injury
and/or property damage claims and/or employment related claims that would have
a material adverse effect on the Company. 22




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Environmental Our operations are subject to various federal, state, local and foreign laws
and regulations relating to environmental matters, including those concerning
emissions to the air; waste water discharges; storage, treatment and disposal
of waste and remediation of soil and ground water contamination. We have
incurred, and expect to incur, costs for our operations to comply with these
legal requirements, and these costs could increase in the future. In
particular, we have been named as a potentially responsible party under the
United States Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, at various third-party sites at which our waste was
allegedly disposed. In addition, we are investigating or engaged in
remediation of past contamination at other sites used in our businesses. We
record liabilities when environmental liabilities are either known or
considered probable and can be reasonably estimated. On an ongoing basis,
management assesses and evaluates environmental risk and, when necessary,
conducts appropriate corrective measures. As of the date of this report,
management believes that adequate accruals have been made related to all known
environmental matters, however actual environmental liabilities could differ
significantly from these estimates. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 
 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Laidlaw International as of November 1, 2004 are as
follows. Name
    
    Age
    
    PositionKevin E. Benson
    
    
    57
    
    
    Director, President and Chief Executive OfficerDouglas A. Carty
    
    
    48
    
    
    Senior Vice President and Chief Financial OfficerBeth Byster Corvino
    
    
    47
    
    
    Senior Vice President, General Counsel and Corporate
SecretaryJeffrey W. Sanders
    
    
    42
    
    
    Vice President, Corporate Development and ControllerJeffery A. McDougle
    
    
    48
    
    
    Vice President, Treasurer
 Biographical information relating to each of our officers is set forth below. Kevin E. Bensonhas been President and Chief Executive Officer and a director
of Laidlaw International since June 23, 2003. From September 2002 to June 23,
2003, Mr. Benson was President and Chief Executive Officer of Laidlaw Inc., the
Companys predecessor. Prior to that, Mr. Benson served as President and Chief
Executive Officer of the Insurance Corporation of British Columbia from
December 2001 until September 2002 and as President of The Pattison Group, a
privately owned company and a conglomerate that owns interests in numerous
businesses across a range of industries, in 2000 and 2001. He previously
served as President and Chief Executive Officer of Canadian Airlines from 1996
until 2000. Mr. Benson also serves as a director of Manulife Financial. 23




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##### Table of Contents



Douglas A. Cartyhas been Senior Vice President and Chief Financial Officer of
Laidlaw International since June 23, 2003. From January 2003 to June 23, 2003,
Mr. Carty was Senior Vice President and Chief Financial Officer of Laidlaw Inc.
Prior to that, Mr. Carty served as Senior Vice President and Chief Financial
Officer of Atlas Air Worldwide Holdings, an aviation transportation company,
from July 2001 until December 2002. From 1990 until July 2000, Mr. Carty was
employed with Canadian Airlines, where he served in a variety of positions,
including Senior Vice President and Chief Financial Officer from 1996 until
July 2000. Mr. Carty also serves as a non-executive Chairman of the Board of
Points International Ltd. Beth Byster Corvinohas been Senior Vice President, General Counsel and
Corporate Secretary of Laidlaw International since April 12, 2004. From April
1998 to April 2004, she served as Vice President, General Counsel and Corporate
Secretary, and then as a consultant to Chas. Levy Company LLC, where she was
responsible for all legal affairs and strategic planning, and served as Chief
Operating Officer of its trucking subsidiary. Jeffrey W. Sandershas been Vice President, Corporate Development of Laidlaw
International since August 2003 and has been Controller since January 2004.
From May 1999 until July 2003, he served as Senior Vice President and Chief
Financial Officer of Greyhound Lines, Inc. Mr. Sanders joined Greyhound Lines,
Inc. in June 1997 as Vice President, Corporate Development and from September
1997 through May 1999 served as Vice President Finance. Jeffery A. McDouglehas been Vice President and Treasurer of Laidlaw
International since February 2, 2004. From July 2003 until January 2004, he
served as Vice President, Fleet at US Airways Inc. From April 2002 until July
2003, Mr. McDougle served as Vice President, Finance and Treasurer for US
Airways Group, where in addition to his treasury functions, he was responsible
for corporate finance, corporate insurance and purchasing. In addition, he
served as Vice President, Purchasing of US Airways, Inc. from November 2001 to
April 2002 and Vice President, Treasurer of US Airways Group from May 1999 to
November 2001. 24




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##### Table of Contents



PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is listed on the New York Stock Exchange (NYSE) under the
symbol LI. The initial holders of our common stock were the creditors of the
former company, Laidlaw Inc. Under the Plan, the common stock of our
Predecessor Company, Laidlaw Inc., was cancelled for no consideration. The following table details the high and low sale prices for the common stock
traded on the NYSE and on the over the counter markets in the United States. HIGH
    
    LOWYear ended August 31, 2004:First Quarter
    
    $
    13.38
    
    
    $
    9.45Second Quarter
    
    
    15.30
    
    
    
    12.68Third Quarter
    
    
    15.14
    
    
    
    12.00Fourth Quarter
    
    
    15.74
    
    
    
    11.96Year ended August 31, 2003:First Quarter
    
    NA
    
    NASecond Quarter
    
    NA
    
    NAThird Quarter
    
    NA
    
    NAFourth Quarter (from June 23, 2003)
    
    $
    10.52
    
    
    $
    7.45
 On November 1, 2004, the last sale price of the common stock as reported by the
NYSE was $16.75 per share and there were 49 holders of record of our common
stock. We have never paid any cash dividends on our common stock and our Board of
Directors currently intends, for the foreseeable future, to retain all earnings
for use in our business. Any future payment of dividends will depend upon our
results of operations, financial condition, cash requirements, restrictions
contained in credit and other agreements and other factors deemed relevant by
the Board of Directors. Covenants in the indenture governing our senior notes
and our senior secured credit facility restrict our ability to pay dividends
and may prohibit the payment of dividends and certain other payments. Summary of Equity Compensation Plans The Companys 2003 Equity and Performance Incentive Plan (2003 Incentive
Plan) was approved by the U.S. Bankruptcy Court on February 27, 2003. The
2003 Incentive Plan provides for the grant of stock options, stock appreciation
rights, restricted shares, deferred shares, performance shares, and performance
units to officers and employees of the Company and its subsidiaries. The 2003
Incentive Plan also provides for the grant of option rights and restricted
stock to non-employee directors. There are 5,000,000 shares of common stock
available under the 2003 Incentive Plan. In any calendar year, no participant
may be granted more than 500,000 option rights, appreciation rights, deferred
shares, or restricted shares, or more than $1,000,000 worth of performance
shares or performance units determined on the date of the grant. The 2003 Incentive Plan is administered by the Board of Directors unless it
delegates such authority to a committee. The administrator of the Incentive
Plan has the authority to select plan participants, grant awards, and determine
the terms and conditions of such awards. Generally, 25




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##### Table of Contents



with respect to awards granted under the 2003 Incentive Plan, (i) option
rights, and corresponding appreciation rights, vest ratably over not less than
a three-year period, (ii) restricted stock grants are subject to a risk of
forfeiture for a period of not less than three years, (iii) deferred shares are
subject to a deferral period of not less than one year, and (iv) performance
shares and performance units are paid to a plan participant upon the
achievement of management objectives specified in the grant measured over a
period specified in the grant of not less than one year. If stated in the
award, the exercise of option rights, appreciation rights, and restricted stock
may also be subject to the achievement of management objectives, as defined in
the 2003 Incentive Plan. Securities authorized for issuance under compensation plans as of August 31,
2004 are summarized below: Available forNumber of shares to
    
    
    
    
    
    future issuancebe issued upon
    
    Weighted-average
    
    under equityexercise of
    
    exercise price of
    
    compensation plansoutstanding
    
    outstanding
    
    (excluding sharesoptions, warrants
    
    options, warrants
    
    reflected in columnand rights
    
    and rights
    
    (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
shareholders
    
    None
    
    None
    
    NoneEquity compensation
plans not approved by shareholders *
    
    
    1,323,925
    
    
    $
    12.96
    
    
    
    3,647,387Total
    
    
    1,323,925
    
    
    $
    12.96
    
    
    
    3,647,387
  *
    
    The 2003 Incentive Plan was approved by the U.S. Bankruptcy Court as part
of our emergence process, but was not approved by our shareholders. We
will be submitting the 2003 Incentive Plan for shareholder approval at our
2005 annual meeting of shareholders. 26




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA The following information should be read in conjunction with our consolidated
financial statements, Management Discussion and Analysis of Financial
Condition and Result of Operations and Business included elsewhere in this
filing. Predecessor CompanyYear Ended
    
    Three Months Ended
    
    
    Nine Months Ended($ in millions except per share
    
    August
    
    August
    
    
    May 31,
    
    Year Ended August 31,amounts)
    
    31, 2004
    
    31, 2003
    
    
    2003
    
    2002
    
    2001
    
    2000Statements of Operations DataRevenue
    
    $
    4,631.4
    
    
    $
    997.1
    
    
    
    $
    3,485.7
    
    
    $
    4,432.1
    
    
    $
    4,418.3
    
    
    $
    4,273.1Depreciation and amortization
    
    
    283.5
    
    
    
    52.1
    
    
    
    
    229.3
    
    
    
    358.8
    
    
    
    350.3
    
    
    
    347.1Operating income
    
    
    221.2
    
    
    
    11.5
    
    
    
    
    163.5
    
    
    
    62.2
    
    
    
    33.1
    
    
    
    38.8Income (loss) from continuing operations
    
    
    61.7
    
    
    
    (9.9
    )
    
    
    
    (1,212.8)
    *
    
    
    14.9
    
    
    
    (246.5
    )
    
    
    (637.6
    )Net income (loss)
    
    
    61.7
    
    
    
    (9.9
    )
    
    
    
    (1,212.8)
    *
    
    
    14.9
    
    
    
    1,425.9
    **
    
    
    (2,253.1)
    **Earnings (loss) per share from continuing
operationsBasic
    
    
    0.62
    
    
    
    (0.10
    )
    
    
    
    (3.72
    )
    
    
    0.05
    
    
    
    (0.76
    )
    
    
    (1.95
    )Diluted
    
    
    0.59
    
    
    
    (0.10
    )
    
    
    
    (3.72
    )
    
    
    0.05
    
    
    
    (0.76
    )
    
    
    (1.95
    )Earnings (loss) per shareBasic
    
    
    0.62
    
    
    
    (0.10
    )
    
    
    
    (3.72
    )
    
    
    0.05
    
    
    
    4.37
    
    
    
    (6.89
    )Diluted
    
    
    0.59
    
    
    
    (0.10
    )
    
    
    
    (3.72
    )
    
    
    0.05
    
    
    
    4.37
    
    
    
    (6.89
    )Dividends per Common Share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.095Balance Sheet Data ***(at period end)Working capital (deficiency)
    
    
    345.3
    
    
    
    253.2
    
    
    
    
    289.0
    
    
    
    482.5
    
    
    
    480.6
    
    
    
    (3,169.3
    )Total assets
    
    
    3,905.2
    
    
    
    3,911.3
    
    
    
    
    3,953.9
    
    
    
    6,275.9
    
    
    
    6,219.8
    
    
    
    6,108.6Total debt
    
    
    1,150.6
    
    
    
    1,214.5
    
    
    
    
    1,239.1
    
    
    
    224.7
    
    
    
    280.2
    
    
    
    3,627.7Liabilities subject to compromise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,977.1
    
    
    
    3,978.5
    
    
    
    Shareholders equity (deficiency)
    
    
    1,376.5
    
    
    
    1,290.3
    
    
    
    
    1,309.3
    
    
    
    954.1
    
    
    
    1,029.5
    
    
    
    (398.0
    )
  *
    
    Includes net gain on extinguishment of debt of $1,482.8
million, charges to income of $609.6 for fresh start accounting
adjustments and a goodwill impairment charge of $2,205.4.**
    
    The healthcare businesses were classified as discontinued
operations in 2000 resulting in a charge to discontinued
operations. The health care businesses were reinstated as
continuing businesses in 2001 and remaining loss provision was
brought back into income.  ***
    
    All balance sheet data on May 31, 2003 has been adjusted for fresh
start accounting adjustments. 27




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 CORPORATE OVERVIEW We are primarily a bus and healthcare transportation provider in the United
States and Canada. We operate in five reportable segments: Education
services, public transit services, Greyhound, healthcare transportation
services and emergency management services. Education services.Through our education services segment, we provide school
bus transportation in the United States and Canada. We operate school buses
and special education vehicles and transport approximately two million students
each school day. We also use our school bus fleet for charter purposes. Public Transit services.Through our public transit services segment, we
provide municipal transit and paratransit bus transportation within the United
States. There are two main businesses within this market: fixed-route
municipal bus services and paratransit bus services for riders with
disabilities or who are unable to use scheduled services. Greyhound.Greyhound provides scheduled intercity bus transportation services
in the United States and Canada and is the only national provider of this
service in those areas. Greyhound also provides package delivery service,
charter bus service and, in certain terminals, food service. In addition,
Greyhound provides package tours to major tourist regions in the United States
and Canada. Healthcare Transportation services.We provide healthcare transportation
services in the United States under the name American Medical Response (AMR).
We offer critical care transportation services, non-emergency ambulance and
transfer services and emergency response services. We provide joint training,
shared staffing and stationing arrangements and contracted dispatching. We
also provide comprehensive onsite medical care and transport services for
special events. Emergency Management services.We provide emergency management services in the
United States to hospital-based emergency departments, operating primarily
under the EmCare name. 
 YEAR IN REVIEW Fiscal 2004 was Laidlaw Internationals first full year of operations after we
emerged as the successor company from the reorganization of Laidlaw Inc. We
began the year with a newly constituted board of directors, an energized
management team and a business plan that was directed towards enhancing the
operational performance of each of our business segments. Our first step was a strategic review to assess the performance of each of the
businesses. This included a determination of each business units position
within its industry  its relative strengths and weaknesses, and the potential
to optimize its performance. We established with each of the business unit
management teams a framework for detailed operational reviews, set financial
targets for the fiscal year, and held monthly meetings to monitor progress and
make changes where necessary or prudent. Our focus for education services was on improving operating margins and more
effectively managing the capital employed across its nearly 500 branches and
40,000 school buses. A detailed review of operations identified a number of
areas where we believe costs could be reduced or revenue could be enhanced
through the centralization of administrative and financial services and the
utilization of technology. Operational changes flowing from the review will
take a number of years to fully implement, but should enable the Company to
continue to deliver the same quality product for which it is known, while
addressing the price constraints set by our 28




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##### Table of Contents



customers. In addition contracts that failed to meet acceptable returns were
identified and placed on a watch list. As these contracts expire, a pricing
committee will establish the minimum rates required, taking into account the
capital employed in each contract. Greyhound has been under severe financial pressure for the past several years.
As a result, Laidlaws exit financing included restrictions on Laidlaw from
funding Greyhound, and necessitated that Greyhound take immediate steps to
stabilize its financial condition. A number of actions were taken by
management to contain costs and enhance revenue. These included a downsizing
of the operations that led to reductions in overheads, the network and fleet,
as well as the implementation of a more flexible pricing strategy. At the same
time, Greyhound negotiated an extension in its bank financing and a three-year,
no cost increase, labor contract with its drivers. While these moves began to
stabilize Greyhound financially, a more elaborate network overhaul is still
required. A number of changes are now being implemented to bring about this
overhaul and will continue for the next two years. These changes address the
reality that Greyhound, as the operator of expensive intercity coaches, cannot
afford to deviate from its core competency of safe, reliable intercity transit,
especially when considering the realities of a weakened travel market post the
9/11 terrorist attacks. Laidlaws healthcare operations were placed under new management during its
predecessors reorganization and were already showing good improvements in all
areas of their operations. The focus for this past year has been the
development of technology that should enable the ongoing reduction in unit
costs, as well as the enhancement of all aspects of services. Core processes,
such as billing, were further centralized and streamlined and AMR began the
rollout of Electronic Patient Record technology to capture and retain vital
patient and treatment information. At EmCare a focus on customer retention and
on offering unique contracts designed to meet specific customer needs, resulted
in significant top-line revenue expansion and bottom line growth, adding new
contracts for hospital emergency department services and expanding contracts to
include hospitalist services. Revenue at public transit grew as it was no longer hindered by municipal
contract eligibility requirements tied to the former parent companys
restructuring. An enhanced driver training program and revised safety
education resulted in a much improved safety record and saw the company regain
its status as one of its industrys leading suppliers of municipal and
community transport. As a holding company of five distinct businesses, we initiated a process to
evaluate the role of each of the businesses within the portfolio of Laidlaw
International. The strategic review of our holdings was undertaken to identify
potential opportunities to deliver value to our shareholders. As a result of
the evaluation process, there may be changes, from time to time, to the
portfolio of businesses we operate. During the year, we revised the management reward programs within the business
segments to more closely align management and shareholder interests. As a
result employee incentive programs now incorporate the relevant costs of
capital, ensuring that business unit management is focused on pursuing those
new business opportunities or renewal of existing business relationships where
an appropriate return on capital is provided. The performance of each of the business units improved during 2004 resulting in
the improved performance of the Company as a whole. 29




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##### Table of Contents



RESULTS OF OPERATIONS Basis of Presentation As is more fully discussed in Note 2  Fresh Start Accounting of the Notes to
the Consolidated Financial Statements, we adopted fresh start accounting
pursuant to the guidance provided by the American Institute of Certified Public
Accountants Statement of Position 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code (SOP 90-7). For financial
reporting purposes, the effective date of the reorganization was June 1, 2003
and our results of operations and cash flows have been separated as pre-June 1
and post-May 31, 2003 due to a change in basis of accounting in the underlying
assets and liabilities. We have made no comparisons for the Companys results for the three months
ended August 31, 2003 or for the Predecessor Companys results for the nine
months ended May 31, 2003. As the length of these periods is significantly
different than the length of any corresponding comparative periods these
results are not comparable in absolute dollar terms. Additionally, due to the
seasonality of our largest and most profitable segment, the education services
segment, meaningful comparisons cannot be made on a percentage of sales basis
either. However, in order to facilitate the identification of certain business trends,
our discussion of the Companys financial results for the year ended August 31,
2004 has been compared to the combined financial results for the year ended
August 31, 2003, which represents the financial results for the Company for the
three months ended August 31, 2003 and the financial results for the
Predecessor Company for the nine months ended May 31, 2003, and are also
compared with the Predecessor Companys results for the year ended August 31,
2002. The combined year ended August 31, 2003 presented below does not comply
with SOP 90-7, which calls for separate reporting for the Company and the
Predecessor Company. Additionally, for the reasons described in Note 2 and due
to other non-recurring adjustments, the Predecessor Companys financial
statements for the periods prior to our emergence from bankruptcy may not be
comparable to the Companys financial statements and results of operations
after emergence from bankruptcy. Readers should, therefore, review this
material with caution and not solely rely on the information concerning the
Predecessor Company or the combined year ended August 31, 2003 as being
indicative of our future results or providing an accurate comparison of
financial performance. Pursuant to the terms of our $406.0 million Senior Notes, we segregate the
consolidated results of operations between our subsidiaries that are not a
party to the agreement, comprised of our U.S. based businesses in the Greyhound
segment (the Unrestricted Subsidiaries), and all of our remaining
subsidiaries (the Restricted Subsidiaries). 30




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##### Table of Contents



Non-GAAP Measures EBITDA is presented solely as a supplemental disclosure with respect to
liquidity because management believes it provides useful information regarding
our ability to service or incur debt. All companies do not calculate EBITDA
the same way. We define EBITDA as operating income plus depreciation and
amortization. EBITDA is not intended to represent cash flow for the period, is
not presented as an alternative to operating income as an indicator of
operating performance, should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles (GAAP) and is not indicative of operating income or
cash flow from operations as determined under GAAP. The following is a reconciliation of our EBITDA to net income (loss) and net
cash provided by operating activities, the GAAP measures management believes to
be most directly comparable to
EBITDA: Year Ended2004
    
    2003
    
    2002EBITDA
    
    $
    504.7
    
    
    $
    456.4
    
    
    $
    421.0Depreciation and amortization
    
    
    (283.5
    )
    
    
    (281.4
    )
    
    
    (358.8
    )Interest expense
    
    
    (129.6
    )
    
    
    (51.1
    )
    
    
    (27.7
    )Other income (expense), net
    
    
    2.4
    
    
    
    (19.9
    )
    
    
    (29.4
    )Income tax benefit (expense)
    
    
    (32.3
    )
    
    
    5.5
    
    
    
    9.8Fresh start accounting adjustments
    
    
    
    
    
    
    (609.6
    )
    
    
    Gain on discharge of debt
    
    
    
    
    
    
    1,482.8
    
    
    
    Income from operations before cumulative effect of change in
accounting principle
    
    
    61.7
    
    
    
    982.7
    
    
    
    14.9Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (2,205.4
    )
    
    
    Net income (loss)
    
    $
    61.7
    
    
    $
    (1,222.7
    )
    
    $
    14.9
 Year Ended2004
    
    2003
    
    2002EBITDA
    
    $
    504.7
    
    
    $
    456.4
    
    
    $
    421.0Cash paid for interest
    
    
    (117.0
    )
    
    
    (37.3
    )
    
    
    (31.9
    )Cash received for income taxes
    
    
    9.7
    
    
    
    12.7
    
    
    
    10.4Increase in claims liabilities and professional liability reserves
    
    
    38.0
    
    
    
    60.8
    
    
    
    61.6Pension contribution per the PBGC Agreement
    
    
    (50.0
    )
    
    
    (50.0
    )
    
    
    Increase in pension liability
    
    
    12.6
    
    
    
    1.3
    
    
    
    Cash provided by (used in financing) other working capital items
    
    
    (15.1
    )
    
    
    (25.7
    )
    
    
    7.5Decrease (increase) in restricted cash and cash equivalents
    
    
    (10.1
    )
    
    
    0.2
    
    
    
    (38.6
    )Other
    
    
    17.2
    
    
    
    (22.9
    )
    
    
    3.8Net cash provided by operating activities
    
    $
    390.0
    
    
    $
    395.5
    
    
    $
    433.8Net cash used in investing activities
    
    $
    (242.7
    )
    
    $
    (440.6
    )
    
    $
    (275.7
    )Net cash used in financing activities
    
    $
    (89.6
    )
    
    $
    (198.1
    )
    
    $
    (95.8
    )
 31




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##### Table of Contents



Year ended August 31, 2004, 2003 and 2002 results of operations Year Ended($ in millions)
    
    2004
    
    2003
    
    2002Revenue
    
    $
    4,631.4
    
    
    $
    4,482.8
    
    
    $
    4,432.1Compensation expenses
    
    
    2,678.0
    
    
    
    2,582.8
    
    
    
    2,523.0Accident claims expense and professional liability expenses
    
    
    288.3
    
    
    
    304.3
    
    
    
    325.8Vehicle related costs
    
    
    279.3
    
    
    
    277.2
    
    
    
    272.5Occupancy costs
    
    
    203.4
    
    
    
    201.8
    
    
    
    202.2Fuel expense
    
    
    182.1
    
    
    
    170.1
    
    
    
    163.0Other operating expense
    
    
    495.6
    
    
    
    490.2
    
    
    
    524.6EBITDA
    
    
    504.7
    
    
    
    456.4
    
    
    
    421.0Depreciation
    
    
    265.1
    
    
    
    276.1
    
    
    
    270.6Amortization
    
    
    18.4
    
    
    
    5.3
    
    
    
    88.2Operating income
    
    
    221.2
    
    
    
    175.0
    
    
    
    62.2Interest expense
    
    
    (129.6
    )
    
    
    (51.1
    )
    
    
    (27.7
    )Gain on discharge of debt
    
    
    
    
    
    
    1,482.8
    
    
    
    Fresh start accounting adjustments
    
    
    
    
    
    
    (609.6
    )
    
    
    Other income (expenses), net
    
    
    2.4
    
    
    
    (19.9
    )
    
    
    (29.4
    )Income before income taxes and effect of a cumulative change in
accounting principle
    
    
    94.0
    
    
    
    977.2
    
    
    
    5.1Income tax benefit (expense)
    
    
    (32.3
    )
    
    
    5.5
    
    
    
    9.8Income before effect of a cumulative change in accounting principle
    
    
    61.7
    
    
    
    982.7
    
    
    
    14.9Cumulative effect of change in accounting principles
    
    
    
    
    
    
    (2,205.4
    )
    
    
    Net income (loss)
    
    $
    61.7
    
    
    $
    (1,222.7
    )
    
    $
    14.9Results as a Percentage of RevenueRevenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Compensation expenses
    
    
    57.8
    
    
    
    57.6
    
    
    
    56.9Accident claims expense and professional liability expenses
    
    
    6.2
    
    
    
    6.8
    
    
    
    7.4Vehicle related costs
    
    
    6.0
    
    
    
    6.2
    
    
    
    6.1Occupancy costs
    
    
    4.4
    
    
    
    4.5
    
    
    
    4.6Fuel expense
    
    
    3.9
    
    
    
    3.8
    
    
    
    3.7Other operating expense
    
    
    10.8
    
    
    
    10.9
    
    
    
    11.8EBITDA
    
    
    10.9
    
    
    
    10.2
    
    
    
    9.5Depreciation
    
    
    5.7
    
    
    
    6.2
    
    
    
    6.1Amortization
    
    
    0.4
    
    
    
    0.1
    
    
    
    2.0Operating income
    
    
    4.8
    %
    
    
    3.9
    %
    
    
    1.4
    %
 32




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Revenue by business segment and by Restricted Subsidiaries and Unrestricted
Subsidiaries are as follows ($ in millions): RevenuePercentageYear Ended
    
    Increase (Decrease)2004
    
    2003
    
    2002
    
    Year 2004 Over 2003
    
    Year 2003 Over 2002Education services
    
    $
    1,495.8
    
    
    $
    1,499.7
    
    
    $
    1,479.7
    
    
    
    (0.3
    )%
    
    
    1.4
    %Public transit services
    
    
    300.5
    
    
    
    283.1
    
    
    
    309.5
    
    
    
    6.1
    
    
    
    (8.5
    )Greyhound
    
    
    1,230.5
    
    
    
    1,204.2
    
    
    
    1,223.7
    
    
    
    2.2
    
    
    
    (1.6
    )Healthcare transportation services
    
    
    1,054.8
    
    
    
    1,015.2
    
    
    
    987.9
    
    
    
    3.9
    
    
    
    2.8Emergency management services
    
    
    549.8
    
    
    
    480.6
    
    
    
    431.3
    
    
    
    14.4
    
    
    
    11.4Total
    
    $
    4,631.4
    
    
    $
    4,482.8
    
    
    $
    4,432.1
    
    
    
    3.3
    %
    
    
    1.1
    %Restricted Subsidiaries
    
    $
    3,648.1
    
    
    $
    3,491.0
    
    
    $
    3,412.2
    
    
    
    4.5
    %
    
    
    2.3
    %Unrestricted Subsidiaries
    
    
    983.3
    
    
    
    991.8
    
    
    
    1,019.9
    
    
    
    (0.9
    )
    
    
    (2.8
    )Total
    
    $
    4,631.4
    
    
    $
    4,482.8
    
    
    $
    4,432.1
    
    
    
    3.3
    %
    
    
    1.1
    %
 EBITDA by business segment and by Restricted Subsidiaries and Unrestricted
Subsidiaries are as follows ($ in millions): EBITDAPercentageYear Ended
    
    Increase (Decrease)2004
    
    2003
    
    2002
    
    Year 2004 Over 2003
    
    Year 2003 Over 2002Education services
    
    $
    286.7
    
    
    $
    280.3
    
    
    $
    272.7
    
    
    
    2.3
    %
    
    
    2.8
    %Public transit services
    
    
    8.0
    
    
    
    16.5
    
    
    
    (1.7
    )
    
    
    (51.5
    )
    
    NMGreyhound
    
    
    87.4
    
    
    
    67.0
    
    
    
    53.6
    
    
    
    30.4
    
    
    
    25.0Healthcare transportation services
    
    
    86.6
    
    
    
    63.4
    
    
    
    76.0
    
    
    
    36.6
    
    
    
    (16.6
    )Emergency management services
    
    
    36.0
    
    
    
    29.2
    
    
    
    20.4
    
    
    
    23.3
    
    
    
    43.1Total
    
    $
    504.7
    
    
    $
    456.4
    
    
    $
    421.0
    
    
    
    10.6
    %
    
    
    8.4
    %Restricted Subsidiaries
    
    $
    439.0
    
    
    $
    406.4
    
    
    $
    354.2
    
    
    
    8.0
    %
    
    
    14.7
    %Unrestricted Subsidiaries
    
    
    65.7
    
    
    
    50.0
    
    
    
    66.8
    
    
    
    31.4
    
    
    
    (25.1
    )Total
    
    $
    504.7
    
    
    $
    456.4
    
    
    $
    421.0
    
    
    
    10.6
    %
    
    
    8.4
    %
 33




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##### Table of Contents



Results by business segment Education services Revenue in the education services segment was down slightly in fiscal 2004
compared to the year ended 2003. The effect of $101 million of lost business,
approximately half of which was due to the loss of the City of Boston contract,
was largely offset by new contracts, price increases and the strengthening of
the Canadian currency relative to the U.S. dollar. The effect of the increase
in the Canadian currency increased revenues 1.1% over 2003. Revenue increased 1.4% from fiscal 2002 to 2003 as price increases, new
contracts and additional routes more than offset the decline in revenue due to
contracts that were not retained. Additionally, a strengthening of the
Canadian dollar against the U.S. dollar increased revenue approximately 0.5%. In fiscal 2004, EBITDA was $6.4 million higher than the year ended August 31,
2003. The improvement in EBITDA was due to lower accident claims costs, and a
favorable Canadian exchange rate, offset somewhat by an increase in fuel
prices. All of these changes had the impact of improving education services
EBITDA margin to 19.2% from 18.7%. The increase of $7.6 million in EBITDA for the year ended August 31, 2003 over
the year ended August 31, 2002 was principally due to lower recruiting and
training expenses, lower legal and other administrative expenses, and other
reduced operating expenses, including the absence of one-time charges incurred
in fiscal 2002 relating to the exit of certain contracts in Alaska. Public Transit services During the year ended August 31, 2004, revenue in the public transit services
segment increased 6.1% principally due to the addition of routes and services.
The 8.5% decrease in revenue in fiscal 2003 compared to 2002 was principally
due to the loss of contracts in fiscal 2003. In fiscal 2004, EBITDA was $8.5 million lower than the year ended 2003 due to
increased accident claims costs as compared to the unusually low level
experienced in 2003. Additionally, the segment incurred higher compensation
expense, primarily due to driver shortages, and higher fuel costs compared to
prior year. All of these items reduced the segments EBITDA margins to 2.7%
from 5.8%. For the year ended August 31, 2003, EBITDA increased $18.2 million over the
year ended August 31, 2002. This increase was the result of a significant
decline in accident claims costs of approximately $22.5 million. The segment
also experienced an increase in health and welfare benefit costs, primarily
driven by increased cost of medical coverage for employees. Greyhound Revenue increased 2.2% during the year ended August 31, 2004 in the Greyhound
segment almost entirely due to a favorable Canadian currency exchange rate.
Excluding the effect of foreign currency, revenue was basically flat in fiscal
2004 compared to the year ended August 31, 2003 as an increase in tour and
charter revenue from new contracts was mostly offset by lower passenger revenue
as we reduced miles driven. The reduction in miles driven in fiscal 2004 is
due to managements focus on improving profitability by reducing lower yielding
long-distance trips, mainly through pricing actions. The 1.6% decrease in revenue in fiscal 2003 compared to 2002 in the Greyhound
segment was primarily due to the slow recovery of the travel services market
and the discontinuation of the Golden State Transportation (Golden State)
operations. Revenues from Golden State were $27.6 million in 2002. 34




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During the year ended August 31, 2004, EBITDA in the Greyhound segment was
$20.4 million better than the year ended August 31, 2003. The improvement in
Greyhounds EBITDA is primarily due to managements continued focus on
improving revenue per mile and reducing operating costs. We continued to take
actions to improve revenue per bus mile by increasing ticket prices,
particularly for long haul travel, shifting the mix of passengers toward higher
yielding short and medium haul travel and reducing bus miles. Since over 70%
of our wages are variable with bus and passenger miles, the improvement in
revenue per bus mile has resulted in a reduction in compensation costs as a
percent of revenue. Some of the reduction in compensation cost was offset by
increases in fuel costs and accident claims costs. Overall, the initiatives
taken by management have improved EBITDA margins to 7.1% in fiscal 2004
compared to 5.6% in fiscal 2003. In the year ended August 31, 2003, EBITDA increased $13.4 million over the year
ended August 31, 2002. The increase was primarily due to unusually high
accident claims costs in fiscal 2002. This was partially offset by increased
vehicle maintenance costs and fuel prices in 2003. Healthcare Transportation The 3.9% increase in revenue during the year ended August 31, 2004 in the
healthcare transportation services segment is primarily due to an increase in
ambulance transports which more than offset a decline in wheelchair transports.
The 2.8% increase in revenue in fiscal 2003 compared to 2002 in the healthcare
transportation services segment is primarily due to rate increases and improved
collection and fee increases resulting in an increase in the revenue per
transport recorded. In fiscal 2004, EBITDA in the healthcare transportation services segment was
$23.2 million higher than 2003 principally due to improved accident and
insurance claims costs from unusually high levels in 2003. The benefit from
increased revenues was offset by increases in compensation costs caused by
higher wage rates and healthcare costs. Most of the wage rate increases were
driven by shortages of paramedics and scheduled union wage increases. Overall,
EBITDA margins have improved to 8.2% in fiscal 2004 from 6.2% in fiscal 2003. In the year ended August 31, 2003, EBITDA decreased $12.6 million from the year
ended August 31, 2002. The decrease is primarily due to an increase in
accident claims costs of $31.1 million due in part to an increase of
approximately $17.1 million in the actuarial estimate of the costs required to
settle prior years accident claims, partially offset by the margin associated
with the increase in revenue per transport. Emergency Management The 14.4% increase in revenue in the emergency management services segment
during the year ended August 31, 2004 is primarily attributable to an increase
in the number of patient visits from new contracts. The 11.4% increase in revenue in fiscal 2003 compared to 2002 in the emergency
management services segment is primarily due to an increase in the revenue per
visit. The segment also experienced an increase in the volume of visits during
2003 because of new contracts. The emergency management services segment EBITDA increased $6.8 million during
the year ended August 31, 2004 compared to the year ended August 31, 2003. The
additional contribution from increased sales more than offset an increase in
compensation costs, due to the higher number of physicians needed to serve the
new contract base and an increase in long-term incentive plan costs. Overall,
EBITDA margins improved to 6.5% in fiscal 2004 from 6.1% in fiscal 2003. 35




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In the year ended August 31, 2003, EBITDA was $8.8 million higher than the year
ended August 31, 2002 due primarily to an increase in revenue per visit. The
increase in revenue per visit is offset by an increase in physician wages and
malpractice claims costs. Restricted Subsidiaries The 4.5% increase in the Restricted Subsidiaries revenue in fiscal 2004 over
fiscal 2003 is due to revenue increases in public transit, healthcare
transportation services, emergency management services and our Greyhound
operations in Canada (Greyhound Canada) partially offset by a decrease in the
education services segment. The 2.3% increase in the Restricted Subsidiaries
revenue in fiscal 2003 over fiscal 2002 is due to revenue increases in
education services, healthcare transportation services, emergency management
services and Greyhound Canada partially offset by a decrease in the public
transit segment. The 8.0% increase in the Restricted Subsidiaries EBITDA in fiscal 2004 over
fiscal 2003 is due to increases in education services, healthcare
transportation services, emergency management services and Greyhound Canada
partially offset by a decrease in the public transit segment. The 14.7%
increase in the Restricted Subsidiaries EBITDA in fiscal 2003 over fiscal 2002
is due to education services, healthcare transportation services, emergency
management services and Greyhound Canada partially offset by a decrease in the
public transit segment. Unrestricted Subsidiaries The Unrestricted Subsidiaries revenue was down slightly in fiscal 2004
compared to fiscal 2003. A decline in passengers and passenger miles was
partially offset by an increase in prices. The declines were principally in
the low yielding long-haul trip distances. Revenue for the Unrestricted
Subsidiaries declined 2.8% in fiscal 2003 compared to fiscal 2002 primarily due
to the slow recovery of the travel services market and the discontinuation of
the Golden State operations. Fiscal 2004 EBITDA for the
Unrestricted Subsidiaries was $15.7 million higher
than fiscal 2003 due to improved revenue per mile and reduced operating costs.
Efforts to reduce bus miles resulted in a decrease in expenses. EBITDA
declined $16.8 million in fiscal 2003 compared to fiscal 2002 primarily due to
lower revenues combined with increased vehicle operating costs. Depreciation expense Depreciation expense during fiscal 2004 decreased $11.0 million over fiscal
2003, reflecting an $8.3 million decrease in depreciation for the Restricted
Subsidiaries and a $2.7 million decrease in depreciation for the Unrestricted
Subsidiaries. The decline in the Restricted Subsidiaries depreciation is
principally due to a slight increase in the estimated useful lives of certain
model school buses, which was partially offset by increased depreciation due to
the write up, in fresh start accounting, of the school bus fleet. The decline
in the Unrestricted Subsidiaries is principally due to the revaluation of
property and equipment that occurred under fresh start accounting. Depreciation expense for the year ended August 31, 2003 was $276.1 million,
$5.5 million higher than the year ended August 31, 2002 due to equipment
purchases (mostly vehicles) during the year that were more expensive than the
original cost of the equipment being replaced. Amortization expense Amortization expense for fiscal 2004, increased $13.1 million compared to
fiscal 2003. Amortization is primarily related to customer contracts
capitalized under fresh start accounting with principally all of the
amortization expense being recorded by the Restricted Subsidiaries. 36




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Amortization expense in fiscal 2002 primarily related to amortization of
goodwill prior to the change in accounting for goodwill discussed below in
Cumulative effect of change in accounting principle. Interest expense Interest expense increased $78.5 million in fiscal 2004 compared to fiscal
2003. The increase is primarily due to interest incurred on long-term debt
associated with our senior secured credit facility and the senior notes, both
of which were only outstanding for approximately three months of fiscal 2003.
Interest expense for the Unrestricted Subsidiaries increased $8.2 million due
to a higher effective interest rate on debt that was adjusted to fair value
under fresh start accounting. In the combined year ended August 31, 2003, interest expense increased to $51.1
million from $27.7 million in the year ended August 31, 2002. The increase is
primarily due to interest incurred on long-term debt associated with our senior
secured credit facility and the senior notes. No interest expense was incurred
on pre-petition debt of the Debtors for the nine months ended May 31, 2003 and
for the year ended August 31, 2002. The total interest on pre-petition debt
that was not incurred during fiscal 2003 was approximately $214.1 million,
compared to $274.2 million for fiscal 2002. Gain on discharge of debt As is more fully discussed in Note 1 of the Notes to the Consolidated Financial
Statements, as part of the reorganization and emergence from chapter 11,
liabilities subject to compromise of the Predecessor Company in the amount of
$3,977.1 million were discharged. As satisfaction of the liabilities subject
to compromise, the Predecessor Companys creditors received $1,185 million in
cash and 100 million common shares of Laidlaw International common stock with a
value of $1,309.3 million. The resulting $1,482.8 million gain on discharge of
debt has been recorded in the Consolidated Statement of Operations for the
period from September 1, 2002 through May 31, 2003. Fresh Start accounting adjustments We applied fresh start accounting as of June 1, 2003 pursuant to the guidance
provided by SOP 90-7. In accordance with the principles of fresh start
accounting, we have adjusted our assets and liabilities to their estimated fair
values as of June 1, 2003 with the excess of our reorganization value over the
fair value of our tangible and identifiable intangible assets reported as
goodwill in the Consolidated Balance Sheets. The net effect of all fresh start
accounting adjustments resulted in a loss of $609.6 million, which is reflected
in the Predecessor Companys results for the period from September 1, 2002
through May 31, 2003. Other income (expenses), net Other income net was $2.4 million for the year ended
August 31, 2004 and was primarily related to reimbursements of legal fees
expensed in previous periods to defend former directors and officers of the
Predecessor Company. Other expenses, net of
$19.9 million in fiscal 2003 was mostly due to
financing, accounting, legal and consulting services incurred by the
Predecessor Company during the reorganization process partially offset by $12.5
million of income related to the settlement of certain bondholder actions.
Other expenses, net of $29.4 million in fiscal 2002 were mostly due to
financing, accounting, legal and consulting services incurred by the
Predecessor Company during the reorganization process. 37




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##### Table of Contents



Cumulative effect of change in accounting principle Effective September 1, 2002, we adopted SFAS 142 and, as a result, we ceased to
amortize goodwill. On adoption, the Company completed the transitional
impairment assessment as required by SFAS 142 and determined that the carrying
value of certain of its operations exceeded their fair value. As a result, we
recorded a non-cash charge of $2,205.4 million on September 1, 2002 as a
cumulative effect of change in accounting principle. Income taxes Income tax expense for the year ended August 31, 2004 was $32.3 million or 34%
of income before taxes. The 2004 tax provision includes a one-time benefit of
$6.6 million due to a change in the Canadian tax rate; otherwise, income tax
expense would have been $38.9 million or 41% of income before taxes. The
income tax benefit for the year ended August 31, 2003 was $5.5 million compared
to $9.8 million in the year ended August 31, 2002. The Company recognized a
$10.0 million tax benefit on the loss incurred during the three months ended
August 31, 2003, while tax expense for the first nine months of 2003 and all of
2002 principally represented estimated cash taxes as the Predecessor Company
had established a full valuation allowance against its net deferred tax assets.
Additionally, the Predecessor Company reduced reserves in 2002 that were
previously set up regarding U.S. Internal Revenue Services (IRS) audits
because the IRS filed an amended claim in the Predecessor Companys
restructuring proceedings that was less than the previous claim filed. 
 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased by $57.7 million to $158.0 million on
August 31, 2004. The cash build up at August 31, 2004 anticipates a cash
outflow during the first quarter of fiscal 2005 due to the cyclical nature of
cash flows from our education services segment. Significant cash outflows
occur at the start of the school year creating a lag between the cash expended
to provide services and the collection of receivables related to those
services. Likewise, collection of cash in the fourth quarter exceeds the
outlay of cash due to the school vacation season. Cash provided by operating activities was $390.0 million for the year ended
August 31, 2004. Working capital, excluding the current portion of long-term
debt, increased from $322.6 million on August 31, 2003 to $381.7 million on
August 31, 2004. Accounts receivable increased $18.2 million primarily driven
by increased revenues in our healthcare businesses. Other current assets
decreased by $12.7 million to $47.4 million at August 31, 2004 primarily due to
the timing of payments for insurance premiums. Accrued expenses were up $29.2
million from August 31, 2003, primarily due to an increase in the current
portion of insurance claims and increases in payroll and benefits accruals. Of the $224.9 million expended on property and equipment in fiscal 2004, 73%
was spent on vehicles (primarily school buses), while the remaining 27% was
spent on facilities, information technology and other equipment. The $28.9 million net increase in investments (which consist of restricted cash
and cash equivalents, short-term deposits and marketable securities and
long-term investments) was due to a $93 million increase in insurance
investments partially offset by a reduction in performance bond collateral.
The increase in the insurance related investments was principally to support
the increase in claims liabilities and professional liability reserves. The
amount of performance bond collateral was reduced as a result of the Companys
improved financial condition upon emerging from bankruptcy. 38




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##### Table of Contents



Net debt payments of $71.2 million consist of the $25.0 million principal
payment on the Term B Facility, a $30.1 million payment under the Greyhound
Facility and a $16.1 million net reduction in other notes and capital leases. We believe that borrowings under the revolving credit facility of the senior
secured credit facility, together with existing cash and cash flow from
operations, will be sufficient to fund our anticipated capital expenditures and
working capital requirements. Senior Secured Credit Facility; Senior Notes Upon emergence from chapter 11, in June 2003, we established a new $825.0
million senior secured credit facility (the Exit Facility). The Exit
Facility consists of a $625.0 million Term B facility (the Term B Facility)
due June 2009 ($100.0 million of the proceeds from the Term B Facility is cash
collateral for a $100.0 million letters of credit facility) and a $200.0
million senior secured revolving credit facility (the Revolver) due June
2008. The Term B Facility, as amended, provides for mandatory $6.25 million
quarterly principal repayments through March 2008 followed by four $125.0
million quarterly installments. Interest paid on the Term B Facility is
charged at either Base Rate + 2.75% or LIBOR +3.75%. A 1% prepayment premium
may be payable should the Company prepay the Term B Facility prior to December
17, 2004. The Term B Facility and the Revolver are guaranteed, for the U.S.
dollar borrowings, by us and all of our U.S. subsidiaries, except Greyhound
Lines, Inc. (Greyhound Lines) and any of our subsidiaries that are in the
business of insurance and for the Canadian dollar borrowings, by the guarantors
of the U.S. dollar borrowings and the Canadian subsidiaries (except
subsidiaries incorporated under the laws of British Columbia). The Exit
Facility is secured, on a senior secured basis, by our assets and the assets of
all of our subsidiaries, except Greyhound Lines and any of our subsidiaries
that are in the business of insurance. In fiscal 2004 we entered into an interest rate swap agreement (Swap) that
effectively converted $110 million of Term B Facility floating rate debt to
fixed rate debt with an interest rate of 6.8%. The Swap was entered into
because we are required, under the Term B Facility, to have a fixed interest
rate on a portion of the underlying debt. The Swap is considered a cash flow
hedge and expires in September 2006. The Revolver, with a $35.0 million letter of credit sub-facility, a $35.0
million sub-limit for Canadian dollar borrowings and a $20 million sub-limit
for Canadian dollar letters of credit for use by the Canadian subsidiaries of
the Company, was established to fund the Companys working capital and letter
of credit needs. Interest is determined by reference to a leverage ratio, as
defined in the senior credit facility agreement. Interest rates are available
at a range of rates as follows: Base Rate +3.25% to 3.75%; LIBOR Rate +4.25%
to 4.75%; Bankers Acceptance Rate +4.25% to 4.75%. The LIBOR rate is subject
to a 2.00% floor. Under the revolver, as of August 31, 2004, there were no
cash borrowings, issued letters of credit of $43.2 million and $66.0 million
was reserved for guarantee obligations on Greyhound vehicle leases, leaving
availability of $90.8 million. Under the terms of the Exit Facility the Company is required to meet certain
financial covenants, including a fixed charge coverage ratio, leverage ratio,
interest coverage ratio, net tangible asset ratio and maximum senior secured
leverage ratio as well as certain non-financial covenants. As of August 31,
2004, the Company was in compliance with all such covenants. In addition, in June 2003 the Company issued $406.0 million aggregate principal
amount of 10.75% Senior Notes due 2011 at a discount for net proceeds of
approximately $400.6 million. The notes bear interest at a rate of 10.75%
payable semi-annually each December 15 and June 15. The Company may redeem all
of the notes at any time after June 15, 2007 at redemption prices of 105.375%
until June 15, 2008 and 102.688% until June 15, 2009 at which time they are
redeemable at 100%. The notes are guaranteed by all Restricted Subsidiaries,
other than the Canadian subsidiaries and any subsidiaries that are in the
business of insurance. 39




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##### Table of Contents



The Greyhound 111⁄2% Senior Notes The Greyhound 111⁄2% Senior Notes due 2007 (the 111⁄2% Senior Notes) bear
interest at the rate of 111⁄2% per annum, payable each April 15 and October
15. On June 1, 2003, the 111⁄2% Senior Notes were recorded at the notes
estimated fair value of $113.4 million, resulting in a 20.8% effective interest
rate. The 111⁄2% Senior Notes are redeemable at the option of Greyhound in
whole or in part, at a redemption price of 101.917% until April 15, 2005 at
which time they are redeemable at their $150 million par value, plus any
accrued but unpaid interest. The 111⁄2% Senior Note indenture contains
certain covenants that, among other things, limit the ability of Greyhound to
incur additional indebtedness, pay dividends or make other distributions,
repurchase equity interests or subordinated indebtedness, create certain liens,
sell assets or enter into certain mergers or consolidations. As of August 31,
2004, Greyhound was in compliance with all such covenants. Greyhound Facility Greyhound Lines is party to a revolving credit facility to fund working capital
needs and for general corporate purposes (the Greyhound Facility) that
expires on October 24, 2006. Greyhound Lines has the option to elect to extend
the maturity date an additional year to October 24, 2007 provided that certain
terms and conditions are met. Letters of credit or borrowings are available
under the Greyhound Facility based upon the total of 80% of the appraised
wholesale value of bus collateral, plus 65% of the quick sale value of certain
real property collateral, minus $20 million, (which at August 31, 2004,
aggregated to $107.1 million), subject to a maximum of $125.0 million,
inclusive of a $70.0 million letter of credit sub-facility. As of August 31,
2004, Greyhound Lines had no cash borrowings under the Greyhound Facility,
issued letters of $61.6 million and had availability of $45.5 million. Borrowings under the Greyhound Facility are available at a rate, determined by
reference to a leverage ratio calculated quarterly, equal to Wells Fargo Banks
prime rate plus 0.375% to 2.25% or LIBOR plus 2.375% to 4.25%. Letter of
credit fees are 3.5% per annum. A 1% prepayment premium is payable should
Greyhound Lines terminate the facility before October 25, 2005; if terminated
between October 25, 2005 and October 23, 2006 the premium is 0.5%, and if after
October 23, 2006 there is no premium. The Greyhound Facility is secured by liens on substantially all of the assets
of Greyhound Lines and the stock and assets of certain of its subsidiaries.
The Greyhound Facility is subject to certain affirmative and negative operating
and financial covenants, including maximum total debt to cash flow ratio;
minimum cash flow to interest expense ratio; minimum cash flow; limitation on
non-bus capital expenditures; limitations on additional liens, indebtedness,
guarantees, asset disposals, advances, investments and loans; and restrictions
on the redemption or retirement of certain subordinated indebtedness or equity
interests, payment of dividends and transactions with affiliates, including
Laidlaw International, Inc. Although Greyhound Lines most recent financial
forecast indicates they will remain in compliance with the financial covenants
under the Greyhound Facility, further increases in fuel prices, continued
softness in discretionary travel or other unforeseen events or changes in
assumptions may occur and result in material differences between Greyhound
Lines future results and the current financial forecast. Those differences
could result in management concluding in the future that Greyhound Lines may
not be able to remain in compliance with the financial covenants under the
Greyhound Facility. As described in Item 3 Legal Proceedings, in August 2004, Greyhound Lines
became aware of proceedings brought in Georgia state court seeking to enforce a
default garnishment judgment. The garnishment alleges that Greyhound Lines is
liable in an underlying Default Judgment in 40




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the amount of over $15 million. Greyhound Lines intends to vigorously defend
its interests in the litigation. Although Greyhound Lines is seeking to
overturn the Default Judgment, unless and until it is declared void, stayed,
bonded or paid, the Default Judgment could be deemed to be an event of default
under the Greyhound Facility. To date, Greyhound Lines lenders have indicated
they do not wish to give notice of default or accelerate the repayment of
Greyhound Lines outstanding obligations under the Greyhound Facility. Any
accelerated repayment of Greyhound Lines indebtedness could cause defaults
under Greyhound Lines other debt agreements and force Greyhound Lines to
refinance and/or renegotiate all or a significant portion of its outstanding
indebtedness. Should the Greyhound Facility be accelerated and Greyhound Lines
is unable to renegotiate or refinance its outstanding indebtedness, then
Greyhound Lines may not be able to satisfy its obligations as they become due
and may not be able to continue as a going concern. If the going concern
basis on which Greyhound Lines consolidated financial statements were prepared
was not appropriate for those consolidated financial statements, then
significant adjustments would need to be made to the carrying value of the
assets and liabilities, the reported revenue and expenses and balance sheet
classifications used by Greyhound Lines. Accordingly, if such changes were
made to Greyhound Lines consolidated financial statements, significant
adjustments would be required to the Companys consolidated financial
statements. Compliance by the Company with the financial and other covenants in its senior
secured credit facility is generally not dependent on the financial results or
financial condition of Greyhound Lines, as Greyhound Lines performance has
been excluded for purposes of determining compliance with such provisions.
Moreover, consistent with the intent to exclude events solely related to
Greyhound Lines, the Companys senior secured credit facility specifies that a
default by Greyhound Lines under the Greyhound Facility or a bankruptcy filing
by Greyhound Lines would not be an event of default under the Companys senior
secured credit facility. However, should Greyhound Lines be unable to continue as a going concern, the
Company may be required to honor certain of Greyhound Lines lease commitments
and pension obligations. The Companys management believes that any required
expenditures with respect to such liabilities would not materially impact the
Companys financial condition. 
 OFF-BALANCE SHEET ARRANGEMENTS As described in Note 21 Commitments and contingencies of the Notes to the
Consolidated Financial Statements, we have entered into vehicle operating
leases that contain residual value guarantees. The residual value guarantees
were included as part of these operating leases in order to reduce the leasing
costs for these leases. Of those leases that contain these residual value
guarantees, the aggregate residual value at lease expiration is $134.3 million
of which we have guaranteed $84.6 million. At August 31, 2004, management
estimates that the residual value on certain leases will exceed the projected
fair market value of the underlying buses by $3.9 million and has established
appropriate reserves for this estimated liability. 41




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Contractual obligations We have entered into certain contractual obligations that will require various
payments over future periods as follows ($ in millions): Scheduled payments in fiscal yearsTotal
    
    2005
    
    2006-2007
    
    2008-2009
    
    ThereafterLong-term debt*
    
    $
    1,166.4
    
    
    $
    28.9
    
    
    $
    206.8
    
    
    $
    520.4
    
    
    $
    410.3Interest on long-term debt**
    
    
    471.0
    
    
    
    94.7
    
    
    
    177.2
    
    
    
    120.9
    
    
    
    78.2Capital lease obligation
    
    
    17.8
    
    
    
    7.5
    
    
    
    10.0
    
    
    
    0.2
    
    
    
    0.1Operating lease obligation
    
    
    418.7
    
    
    
    132.3
    
    
    
    152.0
    
    
    
    69.5
    
    
    
    64.9Purchase orders
    
    
    18.3
    
    
    
    18.3
    
    
    
    
    
    
    
    
    
    
    
    Pension
Obligation
    
    
    13.7
    
    
    
    13.7
    
    
    
    
    
    
    
    
    
    
    
    Director and Officer trust fund
    
    
    3.0
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    2,108.9
    
    
    $
    298.4
    
    
    $
    546.0
    
    
    $
    711.0
    
    
    $
    553.5
  *
    
    Excluding capital lease obligations. Timing of Greyhounds debt
obligations could be accelerated  Refer to the discussion of the
Greyhound Facility in the Liquidity and Capital Resources section.  **
    
    For variable rate debt we used the interest rate in effect at August 31,
2004 for all periods presented. 
 CRITICAL ACCOUNTING POLICIES The preparation of financial statements requires management to make estimates
and assumptions relating to the reporting of results of operations, financial
condition and related disclosure of contingent assets and liabilities at the
date of the financial statements. Actual results may differ from those
estimates under different assumptions or conditions. The following are our
most critical accounting policies, which are those that require managements
most difficult, subjective and complex judgments, requiring the need to make
estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods. Claims Liability and Professional Liability Reserves We are self-insured up to certain limits for costs associated with workers
compensation claims, vehicle accidents, professional liability claims and
general business liabilities. Reserves are established for estimates of the
loss that we will ultimately incur on claims that have been reported but not
paid and claims that have been incurred but not reported. These reserves are
based upon actuarial valuations that are prepared by our outside actuaries.
The actuarial valuations consider a number of factors, including historical
claim payment patterns and changes in case reserves, the assumed rate of
increase in healthcare costs and property damage repairs and ultimate court
awards. Historical experience and recent trends in the historical experience
are the most significant factors in the determination of these reserves. We
believe the use of actuarial methods to account for these reserves provides a
consistent and effective way to measure these subjective accruals. However,
given the magnitude of the claims involved and the length of time until the
ultimate cost is known, the use of any estimation technique in this area is
inherently sensitive. Accordingly, our recorded reserves could differ from our
ultimate costs related to these claims due to changes in our accident
reporting, claims payment and settlement practices or claims reserve practices,
as well as differences between assumed and future cost increases. Revenue Recognition in the Healthcare Services Businesses A significant portion of the revenue in our healthcare services businesses is
derived from Medicare, Medicaid and private insurance payors that receive
discounts from our standard charges (referred to as contractual allowances).
Additionally, we are also subject to collection risk for services provided to
uninsured patients or for the deductible or co-pay portion of 42




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services for insured patients (referred to as uncompensated care). We record
our healthcare services revenue net of an estimated provision for the
contractual allowances and uncompensated care. Healthcare reimbursement is complex and may involve lengthy delays.
Third-party payors are continuing their efforts to control expenditures for
healthcare and may disallow, in whole or in part, claims for reimbursement
based on determinations that certain amounts are not reimbursable under plan
coverage, were for services provided that were not determined medically
necessary, or insufficient supporting information was provided. In addition,
multiple payors with different requirements can be involved with each claim. Management utilizes sophisticated information systems and financial models to
estimate the provisions for contractual allowances and uncompensated care. The
estimate for contractual allowances is determined on a payor-specific basis and
is predominantly based on prior collection experience, adjusted as needed for
known changes in reimbursement rates and recent changes in payor mix and
patient acuity factors. The estimate for uncompensated care is principally
based on historical collection rates, write-off percentages and accounts
receivable agings. These estimates are continually analyzed and updated by
management by monitoring reimbursement rate trends from governmental and
private insurance payors, recent trends in collections from self-pay patients,
the ultimate cash collection patterns from all payors, accounts receivable
aging trends, operating statistics and ratios, and the overall trends in
accounts receivable write-offs. The evaluation of these factors, as well as the interpretation of governmental
regulations and private insurance contract provisions, involves complex,
subjective judgments. As a result of the inherent complexity of these
calculations, our actual revenues and net income, and our accounts receivable,
could vary from the amounts reported. Income Tax Valuation Allowance We have significant net deferred tax assets resulting from net operating losses
(NOL), and interest deduction carry forwards and other deductible temporary
differences that will reduce taxable income in future periods. Statement of
Financial Accounting Standards No. 109 Accounting for Income Taxes requires
that a valuation allowance be established when it is more likely than not
that all or a portion of net deferred tax assets will not be realized. A
review of all available positive and negative evidence needs to be considered,
including expected reversals of significant deductible temporary differences, a
companys recent financial performance, the market environment in which a
company operates, tax planning strategies and the length of NOL and interest
deduction carryforward periods. Furthermore, the weight given to the potential
effect of negative and positive evidence should be commensurate with the extent
to which it can be objectively verified. At August 31, 2004, management
concluded that it was more likely than not that $305.1 million of deferred tax
assets would not be realized and, as a result, has recorded a valuation
allowance for that amount. Certain future events may result in a reduction of
the valuation allowance. Any reduction would reduce goodwill and other
intangibles in existence at fresh start and, thereafter, would be reported as
an addition to additional paid in capital. Pension Our obligation and expense for pension benefits are determined using actuarial
methods that are dependent on the selection of certain assumptions and factors.
These include assumptions about the discount rate, the expected return on plan
assets and the rate of future compensation increases as determined by
management. We determine the discount rate based upon yields available on
quality long-term corporate bonds (generally by reference to the Moodys Aa
bond index and similar U.S. and Canadian bond indices). For the year ended
August 31, 2004, we assumed a 6.25% discount rate. A 25 basis point increase
or decrease in last years discount 43




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rate would have increased or decreased our annual pension expense by
approximately $2.4 million. The expected return on plan assets is based on plan-specific historical
long-term portfolio performance, asset allocations and investment strategies
and the views of the plans investment advisors. The assumptions and factors
we use may differ materially from actual return on our plan assets. For the
year ended August 31, 2004, we assumed a 7.45% long-term rate of return on our
plan assets. A 25 basis point increase or decrease in the long-term rate of
return would have increased or decreased our annual pension expense by
approximately $1.8 million. Our rate of increase in future compensation levels is based primarily on labor
contracts currently in effect with our employees under collective bargaining
agreements and expected future pay rate increases for other employees. In
addition, our actuarial consultants also use factors to estimate such items as
retirement age and mortality tables, which are primarily based upon historical
plan experience. These assumptions may differ materially from actual results
due to changing market conditions, earlier or later retirement ages or longer
or shorter life spans of participants. These differences may significantly
impact the amount of our pension obligation and expense. Contingencies As discussed in Note 20  Legal proceedings and Note 21  Commitments and
contingencies of the Notes to Consolidated Financial Statements, management may
not be able to make a reasonable estimate of liabilities that result from the
final resolution of certain contingencies disclosed. Further assessments of
the potential liability will be made as additional information becomes
available. Management currently does not believe that these matters will have
a material adverse affect on our consolidated financial position. It is
possible, however, that results of operations could be materially affected by
changes in managements assumptions relating to these matters or the actual
final resolution of these proceedings. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about our market risk includes forward-looking
statements that involve risk and uncertainties. Actual results could differ
materially from these projections. We are currently exposed to market risk
from changes in commodity prices for fuel, investment prices, foreign exchange
and interest rates. We do not use derivative instruments for speculative or
trading purposes. Commodity Prices. We currently have exposure to commodity risk from our fuel
inventory and advance purchase commitments for fuel. At August 31, 2004, we
had an inventory of fuel of 2.8 million gallons and advance purchase
commitments to purchase an additional 11.8 million gallons of fuel. A 10%
increase or decrease in fuel costs would not have a material effect on this
commitment. In fiscal 2005 we anticipate that approximately 33% of our fuel usage will be
protected from price fluctuations through contract escalation clauses and the
forward fuel purchase contracts presently entered into. In fiscal 2004 we
purchased 150.8 million gallons of fuel at a cost of $182.1 million. A 10%
increase or decrease in the cost of fuel on our 2004 fuel usage, assuming 67%
was unprotected, would have had a $12.2 million effect on our fuel costs. Investment Prices. We currently have exposure in the market price of our
equity investments. At August 31, 2004, we had $46.3 million of equity
investments. A 10% decrease in the market price of our equity security
investment would have a $4.6 million effect on the total fair value of our
investment. Foreign Exchange. We currently conduct approximately 9% of our business in
Canada and have exposure to changes in the Canadian dollar relative to the U.S
dollar. A 10% change in 44




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the Canadian foreign currency exchange rate would affect our operating revenue
by approximately $41 million, our operating income by approximately $3 million
and our total assets by approximately $37 million. Interest Rate Sensitivity. We currently have exposure to interest rates from
our long-term debt and debt securities held in our investment portfolio. At August 31,2004, we had $593.8 million of floating rate debt, of which $483.8
million was subject to a 1.75% LIBOR floor. A 10% increase in variable
interest rates would increase our future interest expense and decrease our
future cash flows by $0.8 million. Due to the Libor floor, a 10% decrease in
variable interest rates would not materially affect our future interest
expense. The market risk of our fixed-rate long-term debt is estimated to be
approximately $2.5 million due to a potential increase in fair value resulting
from a hypothetical 10% decrease in interest rates. At August 31, 2004, we had $306.9 million of investments in debt securities. A
50 basis point increase or decrease in interest rates would have a $5 million
effect on the total fair value of our investments in debt securities. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Information on page F-1. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES On November 10, 2004 we announced the need to restate deferred tax expense for
our second fiscal quarter of 2004. As part of our year-end processes and
procedures to determine the Companys annual tax provision, management
identified a $6.6 million increase in our Canadian deferred tax assets and a
corresponding tax benefit to reflect a change in the Ontario, Canada provincial
tax rates. As the rate changes became effective in our second fiscal quarter,
the $6.6 million tax benefit should have been reflected as a reduction of our
second quarter tax expense. However, the adjustment was not reflected in our
originally reported second quarter results because our internal control over financial reporting did not include quarterly procedures to verify enacted tax rates and adjust the rate used to
value our deferred tax assets for any changes that might have occurred. Management determined that the internal control deficiency that resulted in
this restatement represents a material weakness, as defined by the Public
Company Accounting Oversight Boards Auditing Standard No.2. The Public
Company Accounting Oversight Board has defined material weakness as a
significant deficiency or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. Managements
conclusion is that the noted control deficiency surrounding the calculation of
the quarterly tax provision constitutes a material weakness, since, if not
corrected, would more than likely result in a material misstatement in future
quarterly financial statements if further tax rate changes are passed by a
taxing authority in a jurisdiction in which we conduct business. Management
has also concluded that this material weakness only relates to the
controls and procedures for our 45




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quarterly control process, and that internal control over financial reporting for annual periods provide for the verification and adjustment, if
needed, of the effective tax rates used by us and therefore operate at a reasonable assurance level. Going forward, managements quarterly controls and procedures have been
strengthened to require verification of applicable tax rates and adjust, if
needed, our effective tax rate for tax changes enacted during such period by
taxing authorities in the jurisdictions in which we conduct business. As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as
amended, management carried out an evaluation under the supervision and with
the participation of the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures that were in effect as of the end of the period covered by this
report. The material weakness described above that existed during our
quarterly financial closing process has been remediated and our year-end
financial closing process detected the existence of the weakness,
therefore, our Chief Executive Officer and Chief Financial
Officer each concluded that our disclosure controls and procedures are
effective at a reasonable assurance level as of August 31, 2004, the end of the
period covered by this report. In addition, in light of the implementation of
the new corrective measures described above, our Chief Executive Officer and
Chief Financial Officer believe, as of the date of this report, management has
taken appropriate action to strengthen our internal controls over financial
reporting relating to the quarterly tax calculation process and has remediated
this material weakness. Except as stated above, there have been no other changes in our internal
controls over financial reporting during our most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting. 46




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PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors of the Company will be set forth under the
caption Election of Directors in the Companys proxy statement for the
Companys 2005 annual meeting of stockholders (the Proxy Statement) and is
incorporated herein by reference. Information regarding executive officers of
the Company is included in Item 4A of Part I of this Form 10-K. Information
required by Item 405 of Regulation S-K will be set forth under the caption
Section 16(a) Beneficial Ownership Reporting Compliance in the Proxy
Statement and is incorporated herein by reference. The information required by this item regarding our audit committee members and
our audit committee financial expert is incorporated herein by reference from
the information provided under the heading Committees of the Board  Audit
Committee and Independent Auditors in our Proxy Statement. The information required by this item with respect to our code of business
ethics is incorporated herein by reference from the information provided under
the heading Statement Code of Business Conduct and Ethics and Supplemental
Code of Ethics in our Proxy Statement. The information required by this item regarding material changes to the
procedures by which our stockholders may recommend nominees to our Board of
Directors is incorporated herein by reference from the information provided
under the heading Committees of the Board  Nominating and Corporate
Governance Committee in our Proxy Statement. 
 ITEM 11. EXECUTIVE COMPENSATION Information required by this item will be set forth under the caption
Executive Compensation in the Proxy Statement and, except for the information
under the captions Compensation Committee Report on Executive Compensation
and Performance Graph, is incorporated herein by reference. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item will be set forth under the caption Security
Ownership of Certain Beneficial Owners and Management in the Proxy Statement
and is incorporated herein by reference. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding any disclosable relationships and related transactions of
directors and officers will be set forth under the caption Certain
Relationships and Related Transactions in the Proxy Statement and is
incorporated herein by reference. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information required by this item will be set forth under the captions Audit
Fees, Audit-Related Fees, Tax Fees and All Other Fees in the Proxy
Statement and is incorporated herein by reference. The information required by
this item with respect to our audit committees pre-approval policies and
procedures is incorporated by reference herein by reference from the
information provided under the heading Audit Committee and Independent
Auditors  Pre-Approval Policies and Procedures of our Proxy Statement. 47




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PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) See Index to Financial Statements on page F-1 and (c) below. (b) Reports on Form 8-K None (c) 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).4.2
    
    
    Indenture dated as of June 3,
2003 between Laidlaw
International, Inc. and
Deutsche Bank Trust Company
Americas, relating to the 10
3/4% Senior Notes due 2011
(filed as Exhibit 4.1 to the
Form 10-Q for the quarter
ended May 31, 2003 and
incorporated herein by
reference).4.3
    
    
    First Supplemental Indenture,
dated as of June 18, 2003
between Laidlaw International,
Inc. and Deutsche Bank Trust
Company Americas (filed as
Exhibit 4.2 to the Form 10-Q
for the quarter ended May 31,
2003 and incorporated herein
by reference).4.4
    
    
    Indenture, dated April 16,
1997, by and among Greyhound
Lines, Inc., the Guarantors
and PNC Bank, N.A., as Trustee
(filed as an exhibit to
Greyhound Lines, Inc.
Registration Statement on Form
S-4 regarding the Greyhound 11
1/2% Series B Senior Notes
and incorporated herein by
reference).
 48




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##### Table of Contents



4.5
    
    
    First Supplemental Indenture
dated as of July 9, 1997
between Greyhound Lines, Inc.
and PNC Bank, N.A. as Trustee
(filed as an exhibit to
Greyhound Lines, Inc. Form
10-K for the year ended
December 31, 2002 and
incorporated herein by
reference).4.6
    
    
    Second Supplemental Indenture
dated as of August 25, 1997
between Greyhound Lines, Inc.
and PNC Bank, N.A. as Trustee
(filed as an exhibit to
Greyhound Lines, Inc. Form
10-K for the year ended
December 31, 2002 and
incorporated herein by
reference).4.7
    
    
    Third Supplemental Indenture
dated as of February 1, 1999
between Greyhound Lines, Inc.
and Chase Manhattan Trust
Company as Trustee (filed as
an exhibit to Greyhound Lines,
Inc. Form 10-Q for the quarter
ended June 30, 1999 and
incorporated herein by
reference).4.8
    
    
    Fourth Supplemental Indenture
dated as of May 14, 1999,
between Greyhound Lines, Inc.
and Chase Manhattan Trust
Company as Trustee (filed as
an exhibit to Greyhound Lines,
Inc. Form 10-Q for the quarter
ended June 30, 1999 and
incorporated herein by
reference).10.1
    
    
    Laidlaw International, Inc.
Equity Incentive Plan (filed
as Exhibit 10.1 to the Form
10-Q for the quarter ended May
31, 2003 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 19, 2003 among Laidlaw
International, Inc., and
others, as Borrowers and the
financial institutions named
therein (filed as Exhibit 10.3
to the Form 10-Q for the
quarter ended May 31, 2003 and
incorporated herein by
reference).10.4
    
    
    Amendment dated as of June 26,
2003 to the credit agreement
dated as of June 19, 2003
(filed as Exhibit 10.4 to the
Form 10-Q for the quarter
ended May 31, 2003 and
incorporated herein by
reference).10.5
    
    
    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).10.6
    
    
    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).10.7
    
    
    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).*10.8
    
    
    Amendment to Employment
Agreement between Kevin E.
Benson and Laidlaw
International, Inc. effective
as of August 20, 2004.*10.9
    
    
    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).*
 49




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10.10
    
    
    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).*10.11
    
    
    Amendment to Employment
Agreement between Douglas A.
Carty and Laidlaw
International, Inc. effective
August 20, 2004.*10.12
    
    
    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).*10.13
    
    
    Employment Agreement between
Beth Byster Corvino and
Laidlaw International, Inc.
effective August 20, 2004.*10.14
    
    
    Change in Control Severance
Agreement between Beth Byster
Corvino and Laidlaw
International, Inc. dated
March 11, 2004.*10.15
    
    
    Employment Agreement between
Jeffrey W. Sanders and Laidlaw
International, Inc. effective
August 20, 2004.*10.16
    
    
    Change of Control Severance
Agreement between Jeffrey W.
Sanders and Laidlaw
International, Inc. effective
August 20, 2004.*10.17
    
    
    Employment Agreement between
Jeffery A. McDougle and
Laidlaw International, Inc.
effective August 20, 2004.*10.18
    
    
    Change of Control Severance
Agreement between Jeffery A.
McDougle and Laidlaw
International, Inc. effective
August 20, 2004.*10.19
    
    
    Employment agreement among
Laidlaw Inc., American Medical
Response, Inc. and EmCare
Holdings, Inc. and William A.
Sanger effective October 1,
2002 (filed as Exhibit 10.11
to the Form 10-K for the year
ended August 31, 2003 and
incorporated herein by
reference).*10.20
    
    
    Employment agreement between
EmCare Holdings, Inc. and Don
S. Harvey effective April 1,
2003 (filed as Exhibit 10.12
to the Form 10-K for the year
ended August 31, 2003 and
incorporated herein by
reference).*10.21
    
    
    Amended and Restated Loan and
Security Agreement among
Greyhound Lines, Inc., as
Borrower, the financial
institutions named as lenders,
and Foothill Capital
Corporation as Agent, dated as
of May 14, 2003 (filed by
Greyhound Lines, Inc. as a
current report on Form 8-K
dated May 21, 2003 and
incorporated herein by
reference).10.22
    
    
    Amendment No. 1 to Amended and
Restated Loan and Security
Agreement among Greyhound
Lines, Inc. as borrower, the
Financial Institutions named
as lenders, and Wells Fargo
Foothill, Inc, as Agent dated
as of July 6, 2004 (filed as
Exhibit 10.2 to the Form 10-Q
for the quarter ended May 31,
2004 and incorporated herein
by reference).10.23
    
    
    Amendment No. 2 to Credit
Agreement, dated as of
December 17, 2003, among
Laidlaw International, Inc.,
certain of its subsidiaries
and the financial institutions
named herein (filed as Exhibit
10.1 to the Form 10-Q for the
quarter ended November 30,
2003 and incorporated herein
by reference).
 50




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##### Table of Contents



10.24
    
    
    Amendment No. 3 to Credit
Agreement, dated as of January
28, 2004, among Laidlaw
International, Inc., certain
of its subsidiaries and the
financial institutions named
herein (filed as Exhibit 10.18
to the Companys Registration
Statement on Form S-4 (Reg.
No. 333-112309) and
incorporated herein by
reference).10.25
    
    
    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).21.1
    
    
    Subsidiaries of the registrant.23.1
    
    
    Consent of Pricewaterhouse Coopers LLP23.2
    
    
    Consent of Pricewaterhouse Coopers LLP23.3
    
    
    Consent of Pricewaterhouse Coopers 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. 51




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on November 15, 2004. LAIDLAW INTERNATIONAL, INC.By:  /s/  Kevin E. BensonKevin E. Benson
President, Chief Executive Officer and Director
 Pursuant to the requirements of the Securities Exchange Act, this report has
been signed below on November 15, 2004 by the following persons on behalf of
the registrant in the capacities below. Signature
    
    Title/s/ Kevin E. Benson
    
    President, Chief Executive Officer and DirectorKevin E. Benson
    
    (Principal Executive Officer)/s/ Douglas A. Carty
    
    Senior Vice President and Chief FinancialDouglas A. Carty
    
    Officer (Principal Financial Officer)/s/ Jeffrey W. Sanders
    
    Vice President, Corporate Development andJeffrey W. Sanders
    
    Controller (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/ D.A. CartyDouglas A. CartyAs Attorney-in-Fact
 52




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INDEX TO FINANCIAL STATEMENTS
LAIDLAW INTERNATIONAL, INC.

Reports of Independent Registered Accounting Firm and Independent Auditors
    
    
    F-2Consolidated Balance Sheets as of August 31, 2004 and 2003
    
    
    F-4Consolidated Statements of Operations for the year ended August 31, 2004, the periods June 1, 2003 through August 31, 2003 and September 1, 2002 through May 31, 2003 and for the year ended August 31, 2002
    
    
    F-6Consolidated Statements of Shareholders Equity for the year ended August 31, 2004, the periods June 1, 2003 through August 31, 2003 and September 1, 2002 through May 31, 2003 and for the year ended August 31, 2002
    
    
    F-7Consolidated Statements of Cash Flows for the year ended August 31, 2004, the periods June 1, 2003 through August 31, 2003 and September 1, 2002 through May 31, 2003 and for the year ended August 31, 2002
    
    
    F-8Notes to Consolidated Financial Statements
    
    
    F-9




F-1



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##### Table of Contents






Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
of Laidlaw International, Inc.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Laidlaw International, Inc. at August 31, 2004, and the results of
its operations and its cash flows for the year ended August 31, 2004 in
conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.



| |  | PricewaterhouseCoopers LLPChicago, IllinoisNovember 9, 2004
| |  | -----------------------------------------------------------

F-2



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##### Table of Contents







Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Laidlaw International, Inc.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Laidlaw International, Inc. at August 31, 2003, and the results of
its operations and its cash flows for the period from June 1, 2003 through
August 31, 2003 in conformity with accounting principles generally accepted in
the United States of America. These financial
statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audit. We
conducted our audit of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, the United
States Bankruptcy Court for the Western District of New York confirmed the
Companys reorganization plan (the plan) on February 27, 2003. Confirmation
of the plan resulted in the discharge of all claims against the Company that
arose before June 28, 2001 and terminates all rights and interests of equity
security holders as provided for in the plan. The plan was implemented in
June 2003 and the Company emerged from bankruptcy. In connection with the
emergence from bankruptcy, the Company adopted fresh start accounting as of
June 1, 2003.



| |  | PricewaterhouseCoopers LLPChartered AccountantsMississauga, OntarioNovember 18, 2003
| |  | ------------------------------------------------------------------------------------

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Laidlaw International, Inc.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the results of
operations and cash flows of Laidlaw Inc. for each of the periods from
September 1, 2002 through May 31, 2003 and the year ended August 31, 2002 in
conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

As discussed in Note 1 to the consolidated financial statements, the Company
filed a petition on June 28, 2001 with the United States Bankruptcy Court for
the Western District of New York for reorganization under the provisions of
Chapter 11 of the Bankruptcy Code. The Companys reorganization plan was
implemented in June 2003 and the Company emerged from bankruptcy. In
connection with the emergence from bankruptcy, the Company adopted fresh start
accounting.

As described in Note 8 to the consolidated financial statements, on September
1, 2002, Laidlaw Inc. changed its method of accounting for goodwill.



| |  | PricewaterhouseCoopers LLPChartered AccountantsMississauga, OntarioNovember 18, 2003
| |  | ------------------------------------------------------------------------------------

F-3



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##### Table of Contents







LAIDLAW INTERNATIONAL, INC.




CONSOLIDATED BALANCE SHEETS


($ in millions)


August 31,
    
    August 31,2004
    
    2003ASSETSCurrent assetsCash and cash equivalents
    
    $
    158.0
    
    
    $
    100.3Restricted cash and cash equivalents
    
    
    95.0
    
    
    
    39.4Short-term deposits and marketable securities
    
    
    17.4
    
    
    
    42.0Accounts receivable
    
    
    588.0
    
    
    
    569.8Parts and supplies
    
    
    50.6
    
    
    
    50.2Deferred income tax assets
    
    
    75.5
    
    
    
    86.2Other current assets
    
    
    47.4
    
    
    
    60.1Total current assets
    
    
    1,031.9
    
    
    
    948.0Long-term investments
    
    
    608.6
    
    
    
    612.1Property and equipment
    
    
    1,625.8
    
    
    
    1,669.8Other assetsGoodwill
    
    
    139.1
    
    
    
    183.1Contracts and customer relationships
    
    
    203.0
    
    
    
    216.9Deferred income tax assets
    
    
    228.5
    
    
    
    203.2Deferred charges and other assets
    
    
    68.3
    
    
    
    78.2638.9
    
    
    
    681.4Total assets
    
    $
    3,905.2
    
    
    $
    3,911.3


The accompanying notes are an integral part of these statements.

F-4



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##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
($ in millions)

August 31,
    
    August 31,2004
    
    2003LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    115.0
    
    
    $
    119.4Accrued liabilities
    
    
    535.2
    
    
    
    506.0Current portion of long-term debt
    
    
    36.4
    
    
    
    69.4Total current liabilities
    
    
    686.6
    
    
    
    694.8Long-term debt
    
    
    1,114.2
    
    
    
    1,145.1Pension liability
    
    
    188.3
    
    
    
    225.7Other long-term liabilities
    
    
    539.6
    
    
    
    555.4Total liabilities
    
    
    2,528.7
    
    
    
    2,621.0Commitments and contingencies (Notes 10, 11, 20 and 21)SHAREHOLDERS EQUITYCommon shares; $0.01 par value per share;
issued and outstanding 103,806,110
(August 31, 2003  103,777,422)
    
    
    1.0
    
    
    
    1.0Additional paid in capital
    
    
    1,360.9
    
    
    
    1,358.3Common shares held in trust; 3,777,419 issued
    
    
    (50.0
    )
    
    
    (50.0
    )Accumulated other comprehensive income (loss)
    
    
    12.8
    
    
    
    (9.1
    )Retained earnings (deficit)
    
    
    51.8
    
    
    
    (9.9
    )Total shareholders equity
    
    
    1,376.5
    
    
    
    1,290.3Total liabilities and shareholders equity
    
    $
    3,905.2
    
    
    $
    3,911.3


The accompanying notes are an integral part of these statements.

F-5



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##### Table of Contents



LAIDLAW INTERNATIONAL, INC.




CONSOLIDATED STATEMENTS OF OPERATIONS


($ in millions except per share amounts)


Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,2004
    
    2003
    
    
    2003
    
    2002Revenue
    
    $
    4,631.4
    
    
    $
    997.1
    
    
    
    $
    3,485.7
    
    
    $
    4,432.1Compensation expense
    
    
    2,678.0
    
    
    
    581.7
    
    
    
    
    2,001.1
    
    
    
    2,523.0Accident claims and professional liability expenses
    
    
    288.3
    
    
    
    62.9
    
    
    
    
    241.4
    
    
    
    325.8Vehicle related costs
    
    
    279.3
    
    
    
    74.8
    
    
    
    
    202.4
    
    
    
    272.5Occupancy costs
    
    
    203.4
    
    
    
    51.4
    
    
    
    
    150.4
    
    
    
    202.2Fuel expense
    
    
    182.1
    
    
    
    36.7
    
    
    
    
    133.4
    
    
    
    163.0Depreciation
    
    
    265.1
    
    
    
    47.7
    
    
    
    
    228.4
    
    
    
    270.6Amortization
    
    
    18.4
    
    
    
    4.4
    
    
    
    
    0.9
    
    
    
    88.2Other operating expenses
    
    
    495.6
    
    
    
    126.0
    
    
    
    
    364.2
    
    
    
    524.6Operating income
    
    
    221.2
    
    
    
    11.5
    
    
    
    
    163.5
    
    
    
    62.2Interest expense
    
    
    (129.6
    )
    
    
    (31.5
    )
    
    
    
    (19.6
    )
    
    
    (27.7
    )Gain on discharge of debt
    
    
    
    
    
    
    
    
    
    
    
    1,482.8
    
    
    
    Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    
    (609.6
    )
    
    
    Other income (expenses), net
    

    
    2.4
    
    
    
    0.1
    
    
    
    
    (20.0
    )
    
    
    (29.4
    )Income (loss) before income taxes and cumulative effect of a change in
accounting principle
    
    
    94.0
    
    
    
    (19.9
    )
    
    
    
    997.1
    
    
    
    5.1Income tax benefit (expense)
    
    
    (32.3
    )
    
    
    10.0
    
    
    
    
    (4.5
    )
    
    
    9.8Income (loss) before cumulative effect of a change in accounting principle
    
    
    61.7
    
    
    
    (9.9
    )
    
    
    
    992.6
    
    
    
    14.9Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    (2,205.4
    )
    
    
    Net income (loss)
    
    $
    61.7
    
    
    $
    (9.9
    )
    
    
    $
    (1,212.8
    )
    
    $
    14.9Basic earnings (loss) per shareIncome (loss) before cumulative effect of a change in
accounting principle
    
    $
    0.62
    
    
    $
    (0.10
    )
    
    
    $
    3.05
    
    
    $
    0.05Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    (6.77
    )
    
    
    Net income (loss)
    
    $
    0.62
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )
    
    $
    0.05Diluted earnings (loss) per shareIncome (loss) before cumulative effect of a change in
accounting principle
    
    $
    0.59
    
    
    $
    (0.10
    )
    
    
    $
    3.05
    
    
    $
    0.05Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    (6.77
    )
    
    
    Net income (loss)
    
    $
    0.59
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )
    
    $
    0.05


The accompanying notes are an integral part of these statements.

F-6



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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, 2001
    
    
    325,927,870
    
    
    $
    2,222.6
    
    
    $
    
    
    
    
    528,770
    
    
    $
    7.9
    
    
    $
    (1,032.6
    )
    
    $
    (168.4
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.9
    
    
    
    
    
    
    $
    14.9Other comprehensive income (loss):Net change in unrealized gain (loss)
on security holdings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.7
    
    
    
    3.7Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.1
    )
    
    
    (2.1
    )Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91.9
    )
    
    
    (91.9
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (75.4
    )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 change in unrealized gain (loss)
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 change in unrealized gain (loss)
on security holdings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (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 change in unrealized gain (loss)
on security holdings and interest
rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    $
    12.8


* Net of 3,777,419 common shares held in trust

** Adjusted to include Fresh Start accounting adjustments and gain on discharge of debt

The accompanying notes are an integral part of these statements.

F-7



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##### Table of Contents



LAIDLAW INTERNATIONAL, INC.




CONSOLIDATED STATEMENTS OF CASH FLOWS


($ in millions)


Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,2004
    
    2003
    
    
    2003**
    
    2002Operating activitiesNet income (loss)
    
    $
    61.7
    
    
    $
    (9.9
    )
    
    
    $
    (1,212.8
    )
    
    $
    14.9Items not affecting cash:Depreciation and amortization
    
    
    283.5
    
    
    
    52.1
    
    
    
    
    229.3
    
    
    
    358.8Deferred income taxes
    
    
    29.5
    
    
    
    (10.0
    )
    
    
    
    
    
    
    
    Gain on discharge of debt
    
    
    
    
    
    
    
    
    
    
    
    (1,482.8
    )
    
    
    Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    
    609.6
    
    
    
    Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    2,205.4
    
    
    
    Loss (gain) on sale of assets
    
    
    4.1
    
    
    
    (0.8
    )
    
    
    
    (4.3
    )
    
    
    (4.2
    )Other items

    
    
    20.1
    
    
    
    4.8
    
    
    
    
    (3.8
    )
    
    
    (10.4
    )Increase in claims liabilities and professional
liability reserves
    
    
    38.0
    
    
    
    4.7
    
    
    
    
    56.1
    
    
    
    61.6Increase (decrease) in accrued interest
    
    
    (2.7
    )
    
    
    16.5
    
    
    
    
    (4.3
    )
    
    
    (0.5
    )Pension contribution per the PBGC agreement
    
    
    (50.0
    )
    
    
    
    
    
    
    
    (50.0
    )
    
    
    Increase in pension liability
    
    
    12.6
    
    
    
    0.6
    
    
    
    
    0.7
    
    
    
    Cash provided by (used in) financing other working
capital items
    
    
    3.3
    
    
    
    129.7
    
    
    
    
    (135.5
    )
    
    
    52.2Decrease (increase) in restricted cash and
cash equivalents
    
    
    (10.1
    )
    
    
    (0.7
    )
    
    
    
    0.9
    
    
    
    (38.6
    )Net cash provided by operating activities
    
    $
    390.0
    
    
    $
    187.0
    
    
    
    $
    208.5
    
    
    $
    433.8Investing activitiesPurchase of property and equipment
    
    $
    (224.9
    )
    
    $
    (90.5
    )
    
    
    $
    (230.1
    )
    
    $
    (283.3
    )Proceeds from sale of property and equipment
    
    
    15.8
    
    
    
    4.4
    
    
    
    
    24.6
    
    
    
    45.5Expended on acquisitions
    
    
    (3.4
    )
    
    
    (0.1
    )
    
    
    
    (4.6
    )
    
    
    (3.6
    )Net decrease (increase) in investments
    
    
    (28.9
    )
    
    
    11.3
    
    
    
    
    (151.3
    )
    
    
    (37.1
    )Net decrease (increase) in other assets
    
    
    (1.3
    )
    
    
    (1.1
    )
    
    
    
    (3.2
    )
    
    
    2.8Net cash used in investing activities
    
    $
    (242.7
    )
    
    $
    (76.0
    )
    
    
    $
    (364.6
    )
    
    $
    (275.7
    )Financing activitiesProceeds from issue of long-term debt
    
    $
    239.4
    
    
    $
    17.3
    
    
    
    $
    1,207.8
    
    
    $
    172.2Repayments of long-term debt
    
    
    (310.6
    )
    
    
    (45.5
    )
    
    
    
    (148.0
    )
    
    
    (258.3
    )Payment of financing fees
    
    
    (5.3
    )
    
    
    (3.8
    )
    
    
    
    (37.5
    )
    
    
    Change in other non-current liabilities
    
    
    (13.1
    )
    
    
    (2.1
    )
    
    
    
    (1.3
    )
    
    
    (9.7
    )Repayment of liabilities subject to compromise
    
    
    
    
    
    
    
    
    
    
    
    (1,185.0
    )
    
    
    Net cash used in financing activities
    
    $
    (89.6
    )
    
    $
    (34.1
    )
    
    
    $
    (164.0
    )
    
    $
    (95.8
    )Cash and cash equivalents  beginning of period*
    
    
    100.3
    
    
    
    23.4
    
    
    
    
    343.5
    
    
    
    281.2Cash and cash equivalents  end of period*
    
    $
    158.0
    
    
    $
    100.3
    
    
    
    $
    23.4
    
    
    $
    343.5


* These amounts represent the unrestricted cash and cash equivalents

** Adjusted to include fresh start accounting adjustments and gain on discharge of debt

The accompanying notes are an integral part of these statements.

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LAIDLAW INTERNATIONAL, INC.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1  Voluntary petition for reorganization and emergence from Chapter 11
and basis of presentation

Voluntary petition for reorganization and emergence from Chapter 11

On June 28, 2001, the predecessor company, Laidlaw Inc. (the Predecessor
Company) and five of its direct and indirect subsidiaries (collectively, the
Debtors) filed voluntary petitions for relief under chapter 11 of the United
States Bankruptcy Code, 11 U.S.C. 101-1330 (the Bankruptcy Code), in the
United States Bankruptcy Court for the Western District of New York (the
Bankruptcy Court). The other Debtors included: Laidlaw USA, Inc., Laidlaw
Investments Ltd. (LIL), Laidlaw International Finance Corporation, Laidlaw
One, Inc., and Laidlaw Transportation, Inc. In addition, the Predecessor
Company and LIL commenced Canadian insolvency proceedings under the Canada
Companies Creditors Arrangement Act (CCAA) in the Ontario Superior Court of
Justice in Toronto, Ontario (the Canadian Court). None of the Predecessor
Companys operating or insurance subsidiaries were included in the filings.

The Predecessor Company reorganized its affairs under the protection of the
Bankruptcy Code and the CCAA and proposed a plan of reorganization (the Plan)
for itself and the other Debtors. On February 27, 2003, the Bankruptcy Court
entered an order confirming the Plan. On February 28, 2003, the Canadian Court
issued an order recognizing the Bankruptcy Courts confirmation order and
implementing it in Canada with respect to the Predecessor Companys Canadian
insolvency proceeding. The Plan provided for the satisfaction of claims
against and interests in the Predecessor Company and the other Debtors,
including the liabilities subject to compromise. On June 6, 2003, the
Predecessor Company received final financing commitments and on June 23, 2003,
the Company (as defined below) emerged from bankruptcy protection. In
accordance with the terms of the Plan, the Predecessor Company engaged in an
internal restructuring that resulted in the transfer, directly or indirectly,
of all the assets of the Predecessor Company to LIL which domesticated into the
United States as a Delaware corporation and changed its name to Laidlaw
International, Inc. (the Company).

As part of the emergence from chapter 11, the Company obtained exit financing
of approximately $1.23 billion, including $200.0 million available under a
revolving line of credit (see Note 10). Approximately $1.0 billion of this
financing was used to fund a portion of the distributions to the Predecessor
Companys creditors. In addition, the Company issued 100.0 million shares of
new common stock for distribution to the Predecessor Companys creditors and
3.8 million shares of new common stock to the Pension Benefit Guaranty
Corporation (See Note 11). Consistent with the Plan, the Predecessor Companys
common and preference stock was cancelled upon emergence.

As a result of the Plan becoming effective, the following liabilities that were
subject to compromise were discharged by the Bankruptcy Court and Canadian
Court ($ in millions):

Unsecured debt
    
    $
    3,203.3Accrued interest payable
    
    
    370.7Safety-Kleen Corp. related liabilities
    
    
    302.3Derivative liabilities
    
    
    89.5Accrued liabilities
    
    
    11.3$
    3,977.1


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As satisfaction of the liabilities subject to compromise, the Predecessor
Companys creditors received $1,185.0 million in cash and the 100.0 million
common shares, with a value of $1,309.3 million. The resulting $1,482.8
million gain on discharge of debt has been recorded in the Consolidated
Statement of Operations for the period from September 1, 2002 through May 31,
2003. The value of common stock of $1,309.3 million (or $13.09 per common
share) issued to the Predecessor Companys creditors pursuant to the Plan
represents the net assets of the reorganized company and was the difference
between the reorganization value and the fair value of liabilities of the
Company immediately after the reorganization was completed. Reorganization
value, the fair value of liabilities and the value of common stock as of June
1, 2003 was not materially different from those included in the projected
consolidated balance sheet appearing in the Plan approved by the creditors and
confirmed by the court on February 27, 2003.

Basis of presentation

The consolidated financial statements of the Company and the Predecessor
Company have been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP) and all figures are presented in
U.S. dollars.

Pursuant to the terms of the our $406.0 million Senior Notes, we segregate the
consolidated results of operations between our subsidiaries that are not a
party to the agreement, comprised of our U.S. based businesses in the Greyhound
segment (the Unrestricted Subsidiaries), and all of our remaining
subsidiaries (the Restricted Subsidiaries).

Certain prior period amounts have been reclassified to conform to the current
year presentation.

Note 2  Fresh start accounting

The Company adopted fresh start accounting pursuant to the guidance provided by
the American Institute of Certified Public Accountants Statement of Position
90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy
Code (SOP 90-7). For financial reporting purposes, the effective date of the
Plan was considered to be June 1, 2003. In accordance with the principles of
fresh start accounting, the Company adjusted its assets and liabilities to
their estimated fair values as of June 1, 2003 with the excess of the Companys
reorganization value over the fair value of its tangible and identifiable
intangible assets reported as goodwill in the Consolidated Balance Sheets. The
net effect of all fresh start accounting adjustments resulted in a loss of
$609.6 million, which is reflected as an adjustment to the Predecessor
Companys results for the period from September 1, 2002 through May 31, 2003.

In accordance with SOP 90-7, management determined the reorganization value of
the Company. Management determined that the reorganization value was within a
range of $3.5 billion to $4.3 billion, with approximately $3.9 billion
representing managements best estimate of the Companys reorganization value.
The reorganization value was based on the consideration of many factors such as
the industries in which the Companys segments operate, the general economic
conditions that impact those segments, and application of certain valuation
methods, including a discounted cash flow analysis, an analysis of comparable
publicly traded company multiples and a comparable acquisitions analysis. The
valuation methods used to determine reorganization value utilized a number of
estimates and assumptions, including projected financial information by
operating segment, discount rates, terminal values utilizing both a perpetuity
value of final cash flows and an earnings multiple, future tax rates and
realization of interest deduction carryforwards. Many of these estimates and
assumptions are inherently subject to significant uncertainties and
contingencies beyond the control of the Company.

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Due to the changes in the financial structure of the Company and the
application of fresh start accounting as a result of the consummation of the
Plan, the consolidated financial statements of the Company issued subsequent to
the Plan implementation may not be comparable with the consolidated financial
statements issued by the Predecessor Company prior to the Plan implementation.
A black line has been drawn on the accompanying Consolidated Financial
Statements to separate and distinguish between the Company and the Predecessor
Company.

Note 3  Summary of significant accounting policies

A summary of significant accounting policies followed in the preparation of
these consolidated financial statements is as follows:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company or of
the Predecessor Company and all of their respective subsidiaries reported in
U.S. dollars. All significant intercompany transactions and balances have been
eliminated.

Revenue recognition

Revenue is recognized in the education services, public transit services and
Greyhound segments at the time services are provided. Revenue collected in
advance on contracts and tickets is deferred and taken into income as the
services are provided.

Revenue is recognized in the healthcare transportation services and emergency
management services segments (the Healthcare Businesses) at the time of
service and is recorded net of allowances for uncompensated care and
contractual allowances.

Cash and cash equivalents

Cash and cash equivalents include short-term investments that are part of the
Companys cash management portfolio. These investments are highly liquid and
have original maturities of three months or less.

Parts and supplies

Parts and supplies are valued at the lower of cost, determined on a first-in,
first-out basis and replacement cost. This approximates fair value.

Long-term investments

The Company determines the classification of securities as held-to-maturity or
available-for-sale at the time of purchase and reevaluates such designation as
of each balance sheet date. Securities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at cost, adjusted for
amortization of premiums and discounts to maturity. Investments not classified
as held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with net unrealized gains and losses
reported as a component of accumulated other comprehensive income. The cost of
securities sold is based on the specific identification method.

Investments in shares of companies over which the Company has significant
influence are accounted for by the equity method. Equity earnings are recorded
to the extent that any

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increase in the carrying value is determined to be realizable. Other long-term
investments are carried at cost.

Property and equipment

In accordance with fresh start accounting, property and equipment were
reflected at their fair values as of June 1, 2003. Additions to property and
equipment subsequent to this date are recorded at cost. Depreciation of
property and equipment is recorded on a straight-line basis over their
estimated useful lives, which range from twenty to forty years for buildings,
five to eighteen years for vehicles, and three to ten years for all other
items. Depreciation of education services vehicles during the year is based
on usage. Maintenance costs are expensed as incurred and renewals and
improvements are capitalized.

Goodwill

The Companys goodwill balance represents the excess of the Companys
reorganization value over the aggregate fair value of the Companys tangible
and identifiable intangible net assets upon emergence from bankruptcy.

Effective September 1, 2002, the Predecessor Company adopted SFAS No. 142
Accounting for Goodwill and Other Intangible Assets and as a result, the
Predecessor Company ceased to amortize goodwill. For the year ended August 31,
2002, goodwill was amortized on a straight-line basis over 40 years. SFAS
No.142 requires that goodwill be reviewed for impairment upon adoption of SFAS
No. 142 and at least annually thereafter. As a result of this review, on
September 1, 2002, the Predecessor Company recorded a non-cash charge in the
Consolidated Statements of Operations of $2,205.4 million as a cumulative
effect of change in accounting principle (See Note 8). Our review of goodwill
for the year ended August 31, 2004 resulted in no change to the balance of
goodwill.

Contracts and customer relationships

The Companys contracts and customer relationships represent the amortized fair
value of such assets held by the Company at June 1, 2003 (the Fresh Start
Contract Assets) and the amortized cost of the contracts (the Purchased
Contract Assets) purchased through acquisition subsequent to June 1, 2003.
Substantially all of the revenue of the education services, public transit
services, healthcare transportation services and emergency management services segments is derived from
contracts. The contracts generally have terms of three to five years and
historically most contracts have been renewed.

The Fresh Start Contract Assets represent, by segment, the aggregate value of
the contract portfolios that existed at the fresh start date and are amortized
on a straight-line basis over the average length of the contracts and the
expected contract renewal periods, which range from ten to fifteen years. The
straight-line method was used since the pattern of consumption of the
intangible could not be reliably determined as the Fresh Start Contract Assets
were valued on an aggregate basis and, therefore, as the Company renews or
loses individual contracts, the Company would be unable to determine the amount
of the Fresh Start Contract Asset value assigned to a specific contract. The
Purchased Contract Assets are amortized on a straight-line basis over the
length of the contracts, generally ranging from three to five years as the
acquisition price is determined based on the remaining term of the contract.

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Deferred charges and other assets

Deferred charges and other assets are primarily comprised of deferred financing
costs, long term deposits and radio frequency licenses. The deferred financing
costs are amortized over the term of the financing to which the costs relate,
which range from five to eight years. The radio frequency licenses, totaling
$12.0 million at August 31, 2004 (August 31, 2003  $12.0 million), are
considered to be indefinite lived intangible assets and as such, are not
amortized. The radio frequency licenses are reviewed for impairment on an
annual basis.

Impairment of long-lived assets other than goodwill and other indefinite lived
intangibles

Long-lived assets other than goodwill and other indefinite lived intangibles
are assessed for impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Important factors
which could trigger impairment review include significant underperformance
relative to historical or projected future operating results, significant
changes in the use of the acquired assets or the strategy for the overall
business, and significant negative industry or economic trends. If indicators
of impairment are present, management evaluates the carrying value of
long-lived assets other than goodwill and other indefinite lived intangibles in
relation to the projection of future undiscounted cash flows of the underlying
assets. Projected cash flows are based on historical results adjusted to
reflect managements best estimate of future market and operating conditions,
which may differ from actual cash flows.

Defined benefit pension plans

The costs of pension benefits are actuarially determined using the projected
benefit method pro-rated on service and managements best estimate of expected
plan investment performance, salary escalation, retirement ages of employees
and mortality tables. Plan assets are recorded at market value. Any net
actuarial gain or loss in excess of 10 percent of the greater of the benefit
obligation or the market-related value of plan assets is amortized over the
average remaining service period of participating employees for active plans
and average remaining life expectancy of retired participants for frozen plans.

Claims liabilities and professional liability reserves

The Company generally retains liability for auto, general and workers
compensation claims for the first $5 million of any one occurrence (and insures
amounts above $5 million up to a maximum of $275 million per occurrence) and
self-insures professional liability claims.

The Company establishes reserves for claims based upon an assessment of actual
claims and claims incurred but not reported. The reserves are developed using
actuarial principles and assumptions that considered a number of factors,
including historical claim payment patterns (including legal costs) and changes
in case reserves and the assumed rate of inflation in health care costs and
property damage repairs. All claims arising before June 1, 2003 were recorded
at fair value as of the fresh start date. Claims, other than auto and general
liability claims that arose after June 1, 2003, are discounted at a rate
commensurate with the interest rate on monetary assets that are essentially
risk free and have a maturity comparable to the underlying liabilities. Auto
and general liability claims that arose after June 1, 2003, are not discounted.

Investment income earned on the investments of the wholly owned insurance
subsidiaries has been offset against the costs related to the Companys
self-insurance program and are included as part of accident claims and
professional liability expenses in the Consolidated Statements

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of Operations. The accretion of imputed interest from the discounting of the
reserves is also included as part of these expenses.

Foreign currency translation

The accounts of foreign-based subsidiaries are measured using the local
currency as the functional currency. All balance sheet amounts have been
translated into U.S. dollars using the exchange rates in effect at the
applicable period end. Income statement amounts have been translated using the
average exchange rate for the applicable period. The gains and losses
resulting from the changes in exchange rates from the translation of subsidiary
accounts in local currency to U.S. dollars have been reported as a component of
Accumulated other comprehensive income (loss). Currency transaction gains
and losses are immaterial for all periods presented.

Financial instruments

The Companys cash and cash equivalents, restricted cash and cash equivalents,
short-term deposits and marketable securities, accounts receivable, accounts
payable, accrued liabilities (other than the current portion of claims
liabilities and professional liability reserve), other long-term liabilities
(other than the claims liabilities and professional liability reserves) and
long-term debt constitute financial instruments. Concentration of credit risks
in accounts receivable is limited, due to the large number of customers
comprising the Companys customer base throughout North America. A significant
component of the Companys revenue is derived from Medicare and Medicaid.
Given that these are government programs, the credit risk for these customers
is considered low. The Company performs ongoing credit evaluations of its
other customers and generally does not require collateral to support customer
accounts receivable. The Company establishes an allowance for doubtful
accounts based on the credit risk applicable to particular customers,
historical trends and other relevant information.

The Company may use derivative financial instruments for purposes other than
trading to minimize the risk and costs associated with financing and operating
activities. Pursuant to the terms of the Companys credit facility, the
Company entered into an interest rate swap agreement that effectively hedges a
portion of the interest exposure on the long-term debt (See Note 10).
Additionally, the Company periodically enters into forward purchase contracts
for the purchase of diesel fuel whereby we agree to take delivery of a set
amount of fuel at a fixed price at a future specified date as an economic hedge
against future price changes.

Stock options

The Company records the expense of stock option awards over the period in which
the options vest. The stock options are valued using the Black-Scholes
valuation method.

Income taxes

Income taxes are accounted for using the asset and liability method. Under
this method, deferred income tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. A valuation allowance is provided for those
deferred income tax assets for which it is more likely than not that the
related benefits will not be realized.

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The utilization of benefits in excess of the amount recorded as deferred income
tax assets at June 1, 2003 would reduce goodwill and other intangibles in
existence at that date until exhausted, and thereafter would be reported as a
component of additional paid in capital.

Use of estimates

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenue and expenses,
and disclosure of contingencies. Future events could alter such estimates.

In addition to the use of estimates in the recording of the Healthcare
Businesses revenue and deferred income tax valuation allowances as described
above, the Company uses third-party actuaries and assumptions of future events
in estimating the claims liability reserves and future pension obligations. As
a result of using assumptions, there is a reasonable possibility that the
recorded Healthcare Businesses revenue, deferred income tax assets, claims
liabilities and pension liability could change materially.

Recent accounting pronouncements

There are no recent accounting pronouncements that would have a material effect
on the Companys results or financial position if they were presently
applicable.

Note 4  Restricted cash and cash equivalents and short-term investments

Restricted cash and cash equivalents and short-term deposits and marketable
securities are assets of the Companys wholly owned insurance subsidiaries and
are used to support the current portion of claims liabilities under the
Companys self-insurance program. If these amounts are withdrawn from the
subsidiaries, they will have to be replaced by other suitable financial
assurances. Given these restrictions, management has concluded that such cash
and cash equivalents and short-term deposits and marketable securities of the
insurance subsidiaries are restricted.

Note 5  Accounts receivable

Accounts receivable are net of an allowance for doubtful accounts of $4.9
million on August 31, 2004 ($5.6 million on August 31, 2003) in the education
services, public transit services and Greyhound businesses and net of $588.6
million (August 31, 2003  $527.9 million), of allowances for uncompensated
care and contractual allowances in the Healthcare Businesses.

Note 6  Long-term investments

Components of long-term investments are as follows:

August 31,
    
    August 31,($ in millions)
    
    2004
    
    2003Investments and collateral supporting insurance reserves
    
    $
    446.7
    
    
    $
    384.9Letter of credit facility cash collateral
    
    
    100.0
    
    
    
    100.0Investments and collateral supporting performance bonds
    
    
    25.9
    
    
    
    95.7Other
    
    
    36.0
    
    
    
    31.5$
    608.6
    
    
    $
    612.1


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Investments supporting our insurance reserves and performance bonds are
comprised principally of government securities and investment grade debt
securities. If these investments were sold or otherwise liquidated they would
have to be replaced by other suitable financial assurances and are, therefore,
considered restricted. These investments are designated as available-for-sale
and are stated at fair value.

Upon emergence from bankruptcy, the Company entered into a $100.0 million
cash-collateralized letter of credit facility expiring in June 2009 (the LOC
Facility) as part of the senior secured credit facility (See Note 10). The
cash collateral must be maintained for the duration of the LOC Facility.

Note 7  Property and equipment

Components of property and equipment are as follows ($ in millions):

August 31, 2004
    
    August 31, 2003Accumulated
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    Depreciation
    
    Net
    
    Cost
    
    Depreciation
    
    NetLand
    
    $
    186.2
    
    
    $
    
    
    
    $
    186.2
    
    
    $
    184.3
    
    
    $
    
    
    
    $
    184.3Buildings
    
    
    171.9
    
    
    
    26.6
    
    
    
    145.3
    
    
    
    151.1
    
    
    
    4.2
    
    
    
    146.9Vehicles
    
    
    1,381.1
    
    
    
    211.7
    
    
    
    1,169.4
    
    
    
    1,228.4
    
    
    
    31.2
    
    
    
    1,197.2Other
    
    
    182.7
    
    
    
    57.8
    
    
    
    124.9
    
    
    
    153.6
    
    
    
    12.2
    
    
    
    141.4$
    1,921.9
    
    
    
    296.1
    
    
    $
    1,625.8
    
    
    $
    1,717.4
    
    
    $
    47.6
    
    
    $
    1,669.8


Note 8  Goodwill

Effective September 1, 2002, the Predecessor Company adopted SFAS 142 and, as a
result, the Predecessor Company ceased to amortize goodwill. SFAS 142 requires
that goodwill be reviewed for impairment upon adoption of SFAS 142 and at least
annually thereafter. Goodwill impairment is deemed to exist if the carrying
amount of a reporting unit exceeds its estimated fair value and the carrying
amount of the goodwill exceeds its estimated fair value. To determine
estimated fair value of the reporting units, the Predecessor Company utilized
independent valuations of the underlying businesses. During the three months
ended November 30, 2002, the Predecessor Company determined that a significant
portion of its goodwill was impaired as of September 1, 2002. As a result,
the Predecessor Company recorded a non-cash charge of $2,205.4 million as a
cumulative effect of change in accounting principle.

At fresh start the Company recorded $183.1 million of goodwill, all of which
pertains to the Education services segment. During the year ended August 31,
2004, the Company reduced its deferred tax valuation allowance by $44 million
and, as required under fresh start accounting, made a corresponding reduction
in goodwill. Based on the estimated fair value of the Education services
business, management concluded that the goodwill balance of $139.1 million at
August 31, 2004 did not exceed fair value.

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Goodwill Activity by Business Segment

Goodwill activity by business segment is as follows:

Public
    
    
    
    
    
    Healthcare
    
    EmergencyEducation
    
    Transit
    
    
    
    
    
    Transportation
    
    ManagementServices
    
    Services
    
    Greyhound
    
    Services
    
    Services
    
    TotalPredecessor Company:Balance on August 31, 2002
    
    $
    557.7
    
    
    $
    99.0
    
    
    $
    482.9
    
    
    $
    1,328.7
    
    
    $
    508.5
    
    
    $
    2,976.8Impairment loss
    
    
    (54.5
    )
    
    
    (99.0
    )
    
    
    (482.9
    )
    
    
    (1,146.0
    )
    
    
    (423.0
    )
    
    
    (2,205.4
    )Other
    
    
    9.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    10.5Balance on May 31, 2003
    
    $
    512.5
    
    
    $
    
    
    
    $
    
    
    
    $
    182.7
    
    
    $
    86.7
    
    
    $
    781.9Laidlaw International, Inc.:Fresh start adjustment
    
    
    (329.4
    )
    
    
    
    
    
    
    
    
    
    
    (182.7
    )
    
    
    (86.7
    )
    
    
    (598.8
    )Balance on June 1, 2003 and
August 31, 2003
    
    $
    183.1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    183.1Reduction due to change
in tax valuation
allowance
    
    
    (44.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44.0
    )Balance on August 31, 2004
    
    $
    139.1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    139.1


Pro forma results of change in goodwill amortization

Due to the change in our accounting policy for amortizing goodwill, the
Predecessor Companys Income before cumulative effect of a change in accounting
principle and net income for the year ended August 31, 2002 would have been
$102.0 million compared to $14.9 million as originally recorded. Additionally,
earnings per share before cumulative effect of a change in accounting principle
and earnings per share would have been $0.31 compared to $0.05 as originally
recorded. There would have been no changes to the results recorded for the
year ended August 31, 2004, the three-month period ended August 31, 2003 or the
Predecessor Company nine-month period ending May 31, 2003.

Note 9  Accrued liabilities

Components of accrued liabilities are as follows:

August 31,
    
    August 31,($ in millions)
    
    2004
    
    2003Current portion of claims liabilities
and professional liability reserves
    
    $
    204.2
    
    
    $
    185.9Accrued wages and benefits
    
    
    149.8
    
    
    
    121.0Accrued vacation pay
    
    
    46.2
    
    
    
    44.3Other
    
    
    135.0
    
    
    
    154.8$
    535.2
    
    
    $
    506.0


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Note 10  Long-term debt

Components of long-term debt are as follows:

Weighted AverageDebt Balance
    
    Interest RateAugust 31,
    
    August 31,
    
    August 31,
    
    August 31,($ in millions)
    
    2004
    
    2003
    
    2004
    
    2003Exit FacilityTerm B Facility
    
    $
    593.7
    
    
    $
    618.8
    
    
    
    6.2
    %
    
    
    7.0
    %Revolver
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103⁄4% Senior Notes
    
    
    401.2
    
    
    
    400.7
    
    
    
    11.0
    %
    
    
    11.0
    %Greyhound
111⁄2% Senior Notes
    
    
    122.1
    
    
    
    115.7
    
    
    
    20.8
    %
    
    
    20.8
    %Greyhound Facility
    
    
    
    
    
    
    30.1
    
    
    
    
    
    
    
    5.0
    %Notes and other debt
    
    
    33.6
    
    
    
    49.2
    
    
    
    8.4
    %
    
    
    9.8
    %Total debt
    
    
    1,150.6
    
    
    
    1,214.5Less: current portion
    
    
    36.4
    
    
    
    69.4Long-term debt
    
    $
    1,114.2
    
    
    $
    1,145.1


Secured debt consists of the Exit Facility, the Greyhound Facility and
capitalized leases. The amount of secured and unsecured debt is as follows:

August 31,
    
    August 31,($ in millions)
    
    2004
    
    2003Secured debt
    
    $
    611.7
    
    
    $
    677.8Unsecured debt
    
    
    538.9
    
    
    
    536.7Total debt
    
    $
    1,150.6
    
    
    $
    1,214.5


At August 31, 2004, maturities of long-term debt for the next five years ending
August 31 and all years thereafter are as follows (in millions):

Year ending August 31,2005
    
    $
    36.42006
    
    
    35.82007
    
    
    181.02008
    
    
    144.62009
    
    
    376.0Thereafter
    
    
    410.4Total maturities
    
    
    1,184.2Unamortized discount
    
    
    (33.6
    )Total debt
    
    $
    1,150.6


Exit Facility

Upon emergence from chapter 11, in June 2003, the Company established an $825.0
million senior secured credit facility (the Exit Facility). This facility
consisted of a $625.0 million Term B facility (the Term B Facility) due June
2009, ($100.0 million of the proceeds from the Term B Facility is cash
collateral for a $100.0 million letters of credit facility) and a $200.0
million senior secured revolving credit facility (the Revolver) due June
2008. The Term B Facility and the Revolver are guaranteed, for the U.S. dollar
borrowings, by the Company and all of the U.S. subsidiaries, except the
Unrestricted Subsidiaries and any subsidiaries that are in the business of
insurance and for the Canadian dollar borrowings, by the guarantors of the U.S.
dollar

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##### Table of Contents



borrowings and the Canadian subsidiaries. The Term B Facility and the Revolver
are secured, on a senior secured basis, by the assets of the Company and all of
its Restricted Subsidiaries. Under the terms of the Exit Facility the Company is required to meet certain
financial covenants including a fixed charge coverage ratio, leverage ratio,
interest coverage ratio, net tangible asset ratio and maximum senior secured
leverage ratio as well as certain non-financial covenants. As of August 31,
2004, the Company was in compliance with all such covenants.

The Term B Facility provides for mandatory $6.25 million quarterly principal
repayments through March 2008 followed by four $125.0 million quarterly
repayments. The interest rate charged on the loan is LIBOR plus 3.75% subject
to a LIBOR floor or minimum LIBOR rate of 1.75%. A 1% prepayment premium may
be payable should the Company prepay the Term B Facility prior to December 17,
2004. The Company also entered into an interest rate swap agreement (Swap)
that effectively converted $110 million of Term B Facility floating rate debt
to fixed rate debt with an interest rate of 6.8%. The Swap was entered into
because the Company is required, under the Term B Facility, to have a fixed
interest rate on a portion of the underlying debt. The Swap is considered a
cash flow hedge and expires in September 2006.

The Revolver, with a $35.0 million letter of credit sub-facility, a $35.0
million sub-limit for Canadian dollar borrowings and a $20 million sub-limit
for Canadian dollar letters of credit for use by the Canadian subsidiaries of
the Company, was established to fund the Companys working capital and letter
of credit needs. Interest is determined by reference to a leverage ratio, as
defined in the credit facility agreement. The range of rates is as follows:
Base Rate +3.25% to 3.75%; LIBOR Rate +4.25% to 4.75%; The
LIBOR rate is subject to a 2.00% floor. Bankers Acceptance Rate
+4.25% to 4.75%. Under the revolver, as of August 31, 2004, there were no
cash borrowings, issued letters of credit of $43.2 million and $66.0 million
was reserved for guarantee obligations on Greyhound vehicle leases, leaving
availability of $90.8 million.

103⁄4% Senior Notes

In June 2003, as a result of emergence from chapter 11, the Company issued
$406.0 million of Senior Notes due 2011 at a discount for net proceeds of
$400.6 million. The notes are unsecured and bear interest at a rate of
103⁄4% payable every June 15 and December 15. The Company may redeem some or
all of the notes at any time after June 15, 2007 at redemption prices of
105.375% until June 15, 2008 and 102.688% until June 15, 2009 at which time
they are redeemable at 100%. The notes are guaranteed by the Companys
subsidiaries other than the Unrestricted Subsidiaries, the Canadian
subsidiaries and any of the Companys subsidiaries that are in the business of
insurance.

Greyhound 111⁄2% Senior Notes

The Greyhound 111⁄2% Senior Notes due 2007 (the 111⁄2% Senior Notes) bear
interest at the rate of 111⁄2% per annum, payable each April 15 and October
15. On June 1, 2003, the 111⁄2% Senior Notes were recorded at the notes
estimated fair value of $113.4 million, resulting in a 20.8% effective interest
rate. The 111⁄2% Senior Notes are redeemable at the option of Greyhound in
whole or in part, at a redemption price of 101.917% until April 15, 2005, at
which time they are redeemable at their $150 million par value, plus any
accrued but unpaid interest. The 111⁄2% Senior Note indenture contains
certain covenants that, among other things, limit the ability of Greyhound to
incur additional indebtedness, pay dividends or make other distributions,
repurchase equity interests or subordinated indebtedness, create certain liens,
sell assets or enter into certain mergers or consolidations. As of August 31,
2004, Greyhound was in compliance with all such covenants.

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Greyhound Facility

Greyhound Lines, Inc. (Greyhound Lines) is party to a revolving credit
facility to fund working capital needs and for general corporate purposes (the
Greyhound Facility) that expires on October 24, 2006. Greyhound Lines has
the option to elect to extend the maturity date an additional year to October
24, 2007 provided that certain terms and conditions are met. Letters of credit
or borrowings are available under the Greyhound Facility based upon the total
of 80% of the appraised wholesale value of bus collateral, plus 65% of the
quick sale value of certain real property collateral, minus $20 million, (which
at August 31, 2004, aggregated to $107.1 million), subject to a maximum of
$125.0 million, inclusive of a $70.0 million letter of credit sub-facility. As
of August 31, 2004, Greyhound Lines had no cash borrowings under the Greyhound
Facility, issued letters of $61.6 million and had availability of $45.5
million.

Borrowings under the Greyhound Facility are available at a rate, determined by
reference to a leverage ratio calculated quarterly, equal to Wells Fargo Banks
prime rate plus 0.375% to 2.25% or LIBOR plus 2.375% to 4.25%. Letter of
credit fees are 3.5% per annum. A 1% prepayment premium is payable should
Greyhound Lines terminate the facility before October 25, 2005; if terminated
between October 25, 2005 and October 23, 2006 the premium is 0.5%, and if after
October 23, 2006 there is no premium.

The Greyhound Facility is secured by liens on substantially all of the assets
of Greyhound Lines and the stock and assets of certain of its subsidiaries.
The Greyhound Facility is subject to certain affirmative and negative operating
and financial covenants, including maximum total debt to cash flow ratio;
minimum cash flow to interest expense ratio; minimum cash flow; limitation on
non-bus capital expenditures; limitations on additional liens, indebtedness,
guarantees, asset disposals, advances, investments and loans; and restrictions
on the redemption or retirement of certain subordinated indebtedness or equity
interests, payment of dividends and transactions with affiliates, including
Laidlaw International, Inc. Although Greyhound Lines most recent financial
forecast indicates they will remain in compliance with the financial covenants
under the Greyhound Facility, further increases in fuel prices, continued
softness in discretionary travel or other unforeseen events or changes in
assumptions may occur and result in material differences between Greyhound
Lines future results and the current financial forecast. Those differences
could result in management concluding in the future that Greyhound Lines may
not be able to remain in compliance with the financial covenants under the
Greyhound Facility.

As described in Note 20  Legal proceedings, in August 2004, Greyhound Lines
became aware of proceedings brought in Georgia state court seeking to enforce a
default garnishment judgment. The garnishment alleges that Greyhound Lines is
liable in an underlying Default Judgment in the amount of over $15 million.
Greyhound Lines intends to vigorously defend its interests in the litigation.
Although Greyhound is seeking to overturn the Default Judgment, unless and
until it is declared void, stayed, bonded or paid, the Default Judgment could
be deemed to be an event of default under the Greyhound Facility. To date,
Greyhound Lines lenders have indicated they do not wish to give notice of
default or accelerate the repayment of Greyhound Lines outstanding obligations
under the Greyhound Facility. Any accelerated repayment of Greyhound Lines
indebtedness could cause defaults under Greyhound Lines other debt agreements
and force Greyhound Lines to refinance and/or renegotiate all or a significant
portion of its outstanding indebtedness. Should the Greyhound Facility be
accelerated and Greyhound Lines is unable to renegotiate or refinance its
outstanding indebtedness, then Greyhound Lines may not be able to satisfy its
obligations as they become due and may not be able to continue as a going
concern. If the going concern basis on which Greyhound Lines consolidated
financial statements were prepared was not appropriate for those consolidated
financial statements, then significant adjustments would need to be made to the
carrying value of the assets and liabilities, the reported revenue and expenses
and balance

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##### Table of Contents



sheet classifications used by Greyhound Lines. Accordingly, if such changes
were made to Greyhound Lines consolidated financial statements, significant
adjustments would be required to the Companys consolidated financial
statements.

Compliance by the Company with the financial and other covenants in its senior
secured credit facility is generally not dependent on the financial results or
financial condition of Greyhound Lines, as Greyhound Lines performance has
been excluded for purposes of determining compliance with such provisions.
Moreover, consistent with the intent to exclude events solely related to
Greyhound Lines, the Companys senior secured credit facility specifies that a
default by Greyhound Lines under the Greyhound Facility or a bankruptcy filing
by Greyhound Lines would not be an event of default under the Companys senior
secured credit facility.

However, should Greyhound Lines be unable to continue as a going concern, the
Company may be required to honor certain of Greyhound Lines lease commitments
and pension obligations. The Companys management believes that any required
expenditures with respect to such liabilities would not materially impact the
Companys financial condition.

Notes and other debt

Notes and other debt consists primarily of capitalized equipment leases and
notes.

Note 11  Pension plans

The Companys subsidiaries sponsor fourteen (August 31, 2003  14) defined
benefit pension plans. Four plans relate to Greyhound Canada Transportation
Corp. and cover employees represented by The Canadian Auto Workers Union and
the Amalgamated Transit Union (ATU) and all non-unionized employees meeting
certain eligibility requirements. A fifth plan is a multi-employer pension
plan, instituted in 1992, to cover certain union mechanics of Greyhound
represented by the International Association of Machinists and Aerospace
Workers. A further eight plans are single employer pension plans maintained in
the United States by Greyhound (the Greyhound U.S. Plans). The largest of
the Greyhound U.S. Plans (the ATU Plan) covers approximately 13,500 current
and former Greyhound employees, fewer than 900 of whom are active employees.
The ATU Plan was closed to new participants on October 31, 1983, and service
and wage accruals were frozen for active employees effective March 15, 2002.
Other Greyhound U.S. Plans include two plans that cover salaried employees of
Greyhound through May 7, 1990, and substantially all employees at Vermont
Transit Company through June 30, 2000, when the plans were curtailed. The
remaining five Greyhound U.S. Plans are active plans that cover salaried and
hourly personnel of other Greyhound subsidiaries. Additionally, Laidlaw
International Inc. has a Supplemental Employee Retirement Plan (SERP) that
covers certain executives of the parent and subsidiaries in both the U.S. and
Canada. Except as described below, it is the Companys policy to fund the
minimum required contribution under existing laws.

The Greyhound U.S. Plans, except for one small plan, have an annual measurement
date of May 31, while the Greyhound Canada Transportation Corp. plans have an
annual measurement date of June 30, and the SERP has a measurement date of
August 31.

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Changes in the Companys benefit obligation and plan assets are as follows:

PredecessorCompanyThree
    
    
    NineYear
    
    Months
    
    
    MonthsEnded
    
    Ended
    
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,($ in millions)
    
    2004
    
    2003
    
    
    2003Change in benefit Obligation:Benefit obligation at beginning of period
    
    $
    957.7
    
    
    $
    954.8
    
    
    
    $
    805.4Service cost
    
    
    7.2
    
    
    
    1.4
    
    
    
    
    4.8Interest cost
    
    
    55.0
    
    
    
    14.2
    
    
    
    
    41.5Plan participants contributions
    
    
    0.2
    
    
    
    
    
    
    
    
    0.2Plan amendments
    
    
    0.5
    
    
    
    (1.5
    )
    
    
    
    Actuarial loss (gain)
    
    
    (4.1
    )
    
    
    (11.2
    )
    
    
    
    172.8Benefits paid
    
    
    (83.3
    )
    
    
    (1.7
    )
    
    
    
    (85.6
    )Foreign exchange
    
    
    1.7
    
    
    
    1.7
    
    
    
    
    15.7Benefit obligation at end of period
    
    $
    934.9
    
    
    $
    957.7
    
    
    
    $
    954.8
    *Change in Plan Assets:Fair value of plan assets at beginning of period
    
    $
    734.0
    
    
    $
    679.7
    
    
    
    $
    749.4Actual return on plan assets
    
    
    72.6
    
    
    
    2.5
    
    
    
    
    (7.0
    )Employer contributions
    
    
    6.9
    
    
    
    51.2
    
    
    
    
    6.0Plan participants contributions
    
    
    2.5
    
    
    
    0.6
    
    
    
    
    1.7Benefits paid
    
    
    (83.3
    )
    
    
    (1.7
    )
    
    
    
    (85.6
    )Foreign exchange
    
    
    1.7
    
    
    
    1.7
    
    
    
    
    15.2Fair value of plan assets at end of period
    
    $
    734.4
    
    
    $
    734.0
    
    
    
    $
    679.7
    *Funded status
    
    $
    (200.5
    )
    
    $
    (223.7
    )
    
    
    $
    (275.1
    )Unrecognized net gain
    
    
    (39.9
    )
    
    
    (2.0
    )
    
    
    
    Unrecognized prior service cost
    
    
    0.5
    
    
    
    
    
    
    
    
    Funding after measurement date
    
    
    51.6
    
    
    
    
    
    
    
    
    50.0Accrued benefit liability
    
    $
    (188.3
    )
    
    $
    (225.7
    )
    
    
    $
    (225.1
    )*


* As adjusted to include fresh start accounting adjustments.

The components of net
periodic pension cost for the Companys pension plans are as follows:

Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,($ in millions)
    
    2004
    
    2003
    
    
    2003
    
    2002Service cost
    
    $
    7.2
    
    
    $
    1.4
    
    
    
    $
    4.8
    
    
    $
    6.6Interest cost
    
    
    55.0
    
    
    
    14.2
    
    
    
    
    41.5
    
    
    
    59.1Expected return on plan assets
    
    
    (51.3
    )
    
    
    (12.7
    )
    
    
    
    (37.5
    )
    
    
    (58.7
    )Amortization
    
    
    
    
    
    
    (1.0
    )
    
    
    
    0.7
    
    
    
    (0.6
    )Net pension expense
    
    $
    10.9
    
    
    $
    1.9
    
    
    
    $
    9.5
    
    
    $
    6.4


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The weighted-average assumptions used to determine the pension plans benefit
obligations and net periodic costs are as follows:

Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,2004
    
    2003
    
    
    2003
    
    2002Benefit obligationsDiscount rate
    
    
    6.3
    %
    
    
    5.9
    %
    
    
    
    5.9
    %
    
    
    7.2
    %Rate of salary progression
    
    
    3.6
    %
    
    
    3.5
    %
    
    
    
    3.5
    %
    
    
    3.9
    %Net periodic costsDiscount rate
    
    
    5.9
    %
    
    
    5.9
    %
    
    
    
    7.2
    %
    
    
    7.4
    %Rate of salary progression
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    
    3.9
    %
    
    
    3.9
    %Expected long-term rate
of return on plan assets
    
    
    7.5
    %
    
    
    7.0
    %
    
    
    
    7.0
    %
    
    
    7.3
    %


As of August 31, 2004 and 2003, ten and nine of the Companys pension plans,
respectively had accumulated benefit obligations in excess of plan assets. As
of August 31, 2004 and 2003, twelve of the Companys pension plans had
projected benefit obligations in excess of plan assets.

The accumulated benefit obligations in excess of plan assets, projected benefit
obligations in excess of plan assets and total accumulated benefit obligation
are as follows:

August 31,
    
    August 31,($ in millions)
    
    2004
    
    2003Accumulated obligation in excess of plan assets:Projected benefit obligation
    
    $
    766.6
    
    
    $
    805.5Accumulated benefit obligation
    
    
    763.0
    
    
    
    802.9Fair value of assets
    
    
    559.8
    
    
    
    583.9Projected benefit obligation in excess of plan
assets:Projected benefit obligation
    
    $
    806.8
    
    
    $
    949.8Accumulated benefit obligation
    
    
    797.7
    
    
    
    932.0Fair value of assets
    
    
    598.5
    
    
    
    723.7Total accumulated benefit obligation
    
    $
    913.4
    
    
    $
    939.5


Plan Assets

Assets of the various plans consist primarily of government-backed securities,
corporate equity securities, guaranteed insurance contracts, annuities and
corporate debt obligations. Furthermore, equity investments are diversified
across large and small capitalizations. The plan assets at August 31, 2004 and
2003 contain no investments in equity or debt securities of the Company or its
subsidiaries.

Asset management objectives are to maximize plan returns at an acceptable level
of risk such that the plan will be able to pay retirement benefits to plan
participants while minimizing cash contributions from the Company over the life
of the plan. Investment risk is measured and monitored on an ongoing basis
through quarterly investment reviews. Additionally, the asset allocations are
reviewed annually using projected benefit payments and long-term historical
returns by asset class to determine the optimal allocation for meeting the
long-term strategy.

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The reviews are generally conducted by the plans investment advisors and are
reviewed by the plans actuaries and other experts. The investment and asset
allocation policies of the plans prohibit concentrations greater than 10% in
any single equity security, prohibit the use of derivative instruments and do
not allow investments in hedge funds.

Target investment allocations, along with the actual weighted-average asset
allocations of the collective pension plan assets are as follows:

Target
    
    Percentage of Plan AssetsAllocation
    
    August 31,August 31, 2004
    
    2004
    
    2003Equity securities
    
    
    53
    %
    
    
    55
    %
    
    
    65
    %Debt securities
    
    
    47
    %
    
    
    45
    %
    
    
    35
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %


Plan Contributions and Potential Funding Requirements

The Company, collectively with all of its wholly-owned U.S. subsidiaries,
including Greyhound, are party to an agreement with the Pension Benefit
Guaranty Corporation (PBGC) regarding the funding levels of the Greyhound
U.S. Plans (the PBGC Agreement). Under the PBGC Agreement, the Company made
two $50 million cash contributions to the Greyhound U.S. Plans in both June
2004 and June 2003. Additionally, the Company issued 3.8 million shares of
common stock to a trust formed for the benefit of the Greyhound U.S. Plans (the
Pension Plan Trust). The voting privilege of these shares is at the
discretion of the Companys board of directors. The fair value of the common
stock was estimated to be $50 million based upon third party valuations
provided to the Company in connection with the bankruptcy proceedings. The
trustee of the Pension Plan Trust will sell the stock at the Companys
direction, but in no event later than December 31, 2004. All net proceeds from
the stock sales will be contributed directly to the Greyhound U.S. Plans. If
the proceeds from the stock sales exceed $50 million, the excess amount may be
credited against any future required minimum funding obligations. If the
proceeds from the stock sales are less than $50 million, the Laidlaw Group will
be required to contribute the amount of the shortfall in cash to the pension
plans by December 31, 2004.

At August 31, 2004, all 3.8 million shares of common stock of the Company
remained in the Pension Plan Trust. Based upon the closing price of the common
stock on the New York Stock Exchange, the shares had an aggregate market value
of $63.3 million at November 1, 2004. The 3.8 million common shares held in
the Pension Plan Trust have been accounted for as treasury shares. The PBGC
has a second priority lien on the assets of the Companys U.S. operating
subsidiaries (other than Greyhound) to secure the Companys funding obligations
under the PBGC Agreement.

The ATU Plan represents approximately 70% of the total plan assets and benefit
obligation as of August 31, 2004. Based upon current regulations and plan
asset values at August 31, 2004, and assuming annual investment returns exceed
3% and that the contributions required under the PBGC Agreement are made along
the timeframe outlined above, the Company does not anticipate any significant
additional minimum funding requirements for the ATU Plan over the next several
years. However, there is no assurance that the ATU Plan will be able to earn
the assumed rate of return, new regulations will not prescribe changes in
actuarial mortality tables and discount rates, or that there will be market
driven changes in the discount rates, which would result in the Laidlaw Group
being required to make significant additional minimum funding contributions in
the future.

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##### Table of Contents



The contributions under the PBGC Agreement are in addition to any minimum
funding obligations required under the current regulations. Accordingly, the
Company expects to contribute an additional $13.7 million to all plans other
than the ATU Plan (which currently has no minimum funding requirements), for
the year ended August 31, 2005.

Expected future Payments

Based on current estimates, the future benefit payments under the Companys
defined benefit pension plans over the next ten years are expected to be as
follows ($ in millions):

Year ending August 31,2005
    
    $
    81.62006
    
    
    80.22007
    
    
    78.92008
    
    
    78.12009
    
    
    77.4Fiscal years 2010 through 2014
    
    
    374.1


Note 12  Other long-term liabilities

The components of other long-term liabilities are as follows:

August 31,
    
    August 31,($ in millions)
    
    2004
    
    2003Claims liabilities and professional liability
reserves
    
    $
    492.2
    
    
    $
    488.9Other
    
    
    47.4
    
    
    
    66.5Total other long-term liabilities
    
    $
    539.6
    
    
    $
    555.4


The Companys $696.4 million of claims liabilities and professionally liability
reserves represents the total of the non-current portion ($492.2 million) and
current portion ($204.2 million) of the Companys discounted reserves for auto,
general liability, workers compensation and professional liability at August
31, 2004. The non-discounted amount of the total claims liability and
professional liability reserves is $752.0 million at August 31, 2004. See
Note 3 for more information concerning the companys accounting for claims
liabilities and professional liability reserves.

Note 13  Stock awards and options

The Companys 2003 Equity and Performance Incentive Plan (the 2003 Plan)
provides for the grant of stock options, stock appreciation rights, restricted
shares, deferred shares, performance shares, and performance units to officers
and employees of the Company. The 2003 Plan also provides for the grant of
option rights and restricted stock to non-employee directors. There are
5,000,000 Common Shares available under the 2003 Plan. In any calendar year,
no participant may be granted more than 500,000 option rights, appreciation
rights, deferred shares or restricted shares, or more than $1.0 million worth
of performance shares or performance units. The 2003 Plan is administered by
the Board of Directors unless it delegates such authority to a
committee. The administrator of the plan, has the authority to select plan participants, grant
awards, and determine the terms and conditions of such awards.

In fiscal 2004, the Company issued stock based compensation to various
employees and non-employee directors. No stock based compensation was issued
for the three month period ended August 31, 2003 or for the Predecessor
Companys nine months ended May 31, 2003 or the year ended August 31, 2002.

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##### Table of Contents



Information concerning the issuance of stock based compensation during the year
ended August 31, 2004 is as follows:

Stock
    
    Restricted
    
    DeferredYear ended August 31, 2004 activity
    
    Options
    
    Shares
    
    SharesNumber of shares:Granted
    
    
    501,375
    
    
    
    28,688
    
    
    
    845,300Forfeited
    
    
    (3,000
    )
    
    
    
    
    
    
    (19,750
    )Outstanding at year end
    
    
    498,375
    
    
    
    28,688
    
    
    
    825,550Exercisable at year end
    
    
    
    
    
    
    
    
    
    
    Weighted average exercise price:Shares granted
    
    $
    12.90
    
    
    $
    10.33
    
    
    $
    13.09Shares forfeited
    
    $
    14.66
    
    
    NA
    
    $
    13.17Shares outstanding at year end
    
    $
    12.89
    
    
    $
    10.33
    
    
    $
    13.09Weighted average remaining life (years)
    
    
    9.3


Stock options The stock options have a ten-year life and vest ratably over
three years beginning on the first anniversary of the date of the grant. The
stock options issued during the year ended August 31, 2004 had a grant price of
between $10.33 and $14.66. The grant prices were equal to the market prices at
date of grant. The Company has elected to record the expense of the stock
options over the period in which the options vest. The weighted average fair
value of options was estimated to be $4.89 per share using the Black-Scholes
option-pricing model at the date of grant. Value was estimated using a
weighted average expected life of 6 years, volatility of 32%, risk free
interest rate of 3.6% and no expected dividends.

Restricted shares The restricted common stock vest at the end of a three-year
period. During the vesting period the participant has the rights of a
shareholder in terms of voting and dividend rights but is restricted from
transferring the shares. The restricted shares were valued at the price of the
common stock on the date of grant.

Deferred shares The deferred shares vest ratably over a four-year period
beginning on the first anniversary of the date of the grant. On each vesting
date the employee will receive common stock of the Company equal in number to
the deferred shares that have vested. Upon delivery of the Company common
stock an equal number of deferred shares are terminated. The participants have
no voting rights with the deferred shares. The deferred shares were valued at
the price of the common stock on the date of grant.

During the year ended August 31, 2004, the Company recorded an expense of
approximately $2.6 million related to grants made pursuant to the 2003 Plan.

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##### Table of Contents



Note 14  Shareholders equity



|(1) |  | Capital stock
|--- |  | -------------



| | (a) |  | Authorized                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | 500 million Common Shares, par value $0.01 per share, and 50 million

Series A Junior Participating Preferred Shares, par value $0.01 per
share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (b) |  | Shareholder Rights Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | In connection with the Plan of Reorganization, the Companys board of
directors adopted 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 in 2013 unless they
are earlier redeemed, exchanged 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 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.
|
| |     |  | If a person or group acquires beneficial ownership of 15% or more, with
certain exceptions, of the common shares, or if the Company is acquired
in a merger or other business combination, each right then exercisable
would entitle its holder to purchase, at the exercise price of $75.00 per
right, common shares, or the surviving companys shares if the Company is
not the surviving company, with a market value equal to twice the rights
exercise price.                                                                                                                                                   
|
| |     |  | 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) |  | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |     |  | Under the terms of the Exit Facility, the Company is not permitted to
declare or pay any cash dividends during the term of the Exit Facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



|(2) |  | Accumulated other comprehensive income (loss)                               
|--- |  | ----------------------------------------------------------------------------
|   
|    |  | Accumulated other comprehensive income (loss) is comprised of the
following:

August 31,
    
    August 31,($ in millions)
    
    2004
    
    2003Unrealized loss on available for sale
securities
    
    $
    (2.5
    )
    
    $
    (10.0
    )Unrealized loss on interest rate swap
    
    
    (0.5
    )
    
    
    Foreign currency items
    
    
    14.8
    
    
    
    (2.6
    )Deferred tax
    
    
    1.0
    
    
    
    3.5Total
    
    $
    12.8
    
    
    $
    (9.1
    )


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##### Table of Contents



Note 15  Fair value of financial instruments

The following methods and assumptions were used to estimate the fair value
disclosures of the Companys financial instruments as required by SFAS No. 107,
Disclosures About Fair Value of Financial Instruments.

For cash and cash equivalents, restricted cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities (other than claims
liabilities and professional liability reserves), other long-term liabilities
(other than claims liabilities and professional liability reserves) the
carrying amounts reported in the consolidated balance sheets approximate fair
value. The fair values of the short-term deposits and marketable securities
and long-term investments are based upon quoted market prices at August 31,
2004 and 2003, where available. For the portion of short-term deposits and
marketable securities and long-term investments where no quoted market price is
available, the carrying amounts approximate fair value. For long-term debt,
the fair values are estimated using discounted cash flow analysis, based upon
the Companys incremental borrowing rates for similar types of borrowing
arrangements, or using quoted market values.

The carrying amounts and fair values of the Companys financial instruments are
as follows:

August 31, 2004
    
    August 31, 2003Carrying
    
    Fair
    
    Carrying
    
    Fair($
millions)
    
    Amount
    
    Value
    
    Amount
    
    ValueShort-term deposits
and marketable
securities
    
    $
    17.4
    
    
    $
    17.4
    
    
    $
    42.0
    
    
    $
    42.0Long-term investments
    
    
    608.6
    
    
    
    608.6
    
    
    
    612.1
    
    
    
    612.1Total debt
    
    
    1,150.6
    
    
    
    1,253.4
    
    
    
    1,214.5
    
    
    
    1,223.2


Note 16  Other income (expenses), net

Other income (expenses), net for the year ended August 31, 2004 was primarily
related to reimbursements of legal fees expensed in previous periods to defend
former directors and officers of the Predecessor Company.

Other income (expenses), net in the Predecessor Companys nine month period
ending May 31, 2003 and the year ended August 31, 2002 were mostly due to
financing, accounting, legal and consulting services incurred by the
Predecessor Company during the reorganization process.

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##### Table of Contents



Note 17  Income taxes

Income (loss) before income taxes and cumulative effect of change in accounting
principle by geographic area is as follows:

Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    Ended($
in millions)
    
    August 31, 2004
    
    August 31, 2003
    
    
    May 31, 2003
    
    August 31, 2002United States
    
    $
    65.0
    
    
    $
    (33.4
    )
    
    
    $
    2,608.2
    
    
    $
    (77.9
    )Canada
    
    
    29.0
    
    
    
    2.2
    
    
    
    
    1,414.3
    
    
    
    41.0Other
    
    
    
    
    
    
    11.3
    
    
    
    
    (3,025.4
    )
    
    
    42.0$
    94.0
    
    
    $
    (19.9
    )
    
    
    $
    997.1
    
    
    $
    5.1


Income tax expense (benefit) by geographic area is as follows:

Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    Ended($
in millions)
    
    August 31, 2004
    
    August 31, 2003
    
    
    May 31, 2003
    
    August 31, 2002Current income tax expense (benefit)United States
    
    $
    2.2
    
    
    $
    
    
    
    
    $
    3.1
    
    
    $
    (11.3
    )Canada
    
    
    0.6
    
    
    
    
    
    
    
    
    1.2
    
    
    
    1.0Other
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.5$
    2.8
    
    
    $
    
    
    
    
    $
    4.5
    
    
    $
    (9.8
    )Deferred income tax expense (benefit)United States
    
    $
    25.2
    
    
    $
    (11.0
    )
    
    
    $
    
    
    
    $
    Canada
    
    
    4.3
    
    
    
    1.0
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    29.5
    
    
    $
    (10.0
    )
    
    
    $
    
    
    
    $
    Total income tax expense (benefit)United States
    
    $
    27.4
    
    
    $
    (11.0
    )
    
    
    $
    3.1
    
    
    $
    (11.3
    )Canada
    
    
    4.9
    
    
    
    1.0
    
    
    
    
    1.2
    
    
    
    1.0Other
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.5$
    32.3
    
    
    $
    (10.0
    )
    
    
    $
    4.5
    
    
    $
    (9.8
    )


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##### Table of Contents



The effective income tax rates on income from continuing operations before
income taxes and cumulative effect of change in accounting principle differs
from the statutory rates as follows:

Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,($ in millions)
    
    2004
    
    2003
    
    
    2003
    
    2002Income tax expense (benefit) at the statutory rate
    
    $
    32.9
    
    
    $
    (7.0
    )
    
    
    $
    359.0
    
    
    $
    2.0Decrease (increase) resulting from:Tax rate differentials in other jurisdictions
    
    
    4.6
    
    
    
    (3.9
    )
    
    
    
    (5.3
    )
    
    
    (3.0
    )Canadian tax rate change
    
    
    (6.6
    )
    
    
    
    
    
    
    
    
    
    
    
    Non-deductible goodwill and other amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34.1Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    
    (314.4
    )
    
    
    Foreign loss carry-back realized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.2
    )Change in valuation allowance
    
    
    
    
    
    
    
    
    
    
    
    (50.6
    )
    
    
    (34.3
    )Non-deductible restructuring expenses
    
    
    
    
    
    
    
    
    
    
    
    5.4
    
    
    
    3.9Other
    
    
    1.4
    
    
    
    0.9
    
    
    
    
    10.4
    
    
    
    0.7Income tax expense (benefit)
    
    $
    32.3
    
    
    $
    (10.0
    )
    
    
    $
    4.5
    
    
    $
    (9.8
    )


The deferred income tax assets and liabilities contain the following temporary
differences:

August 31,
    
    August 31,($ in millions)
    
    2004
    
    2003Deferred income tax assets:Net operating loss and credit carryforwards
    
    $
    246.0
    
    
    $
    213.3Trade receivables
    
    
    17.3
    
    
    
    37.2Tax over book depreciation/amortization
    
    
    50.0
    
    
    
    48.5Interest deduction carryforwards
    
    
    253.1
    
    
    
    250.7Claims liabilities
    
    
    120.5
    
    
    
    86.6Pension liability
    
    
    71.6
    
    
    
    85.8Other accrued liabilities
    
    
    41.8
    
    
    
    45.0Total deferred income tax assets
    
    $
    800.3
    
    
    $
    767.1Deferred income tax liabilities:Book over tax depreciation/amortization
    
    $
    174.7
    
    
    $
    144.6Other
    
    
    16.5
    
    
    
    19.5Total deferred income tax liabilities
    
    $
    191.2
    
    
    $
    164.1Net deferred income tax asset:Net deferred income tax assets before valuation allowance
    
    $
    609.1
    
    
    $
    603.0Valuation allowance
    
    
    (305.1
    )
    
    
    (313.6
    )Net deferred income tax assets
    
    $
    304.0
    
    
    $
    289.4






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##### Table of Contents



company operates, tax planning strategies and the length of NOL and interest
deduction carryforward periods. Furthermore, the weight given to the potential
effect of negative and positive evidence should be commensurate with the extent
to which it can be objectively verified.

Upon emergence from bankruptcy, management concluded that it was more likely
than not that $276.4 million of deferred tax assets would be realized and, as
part of its fresh start adjustment at June 1, 2003, recorded a valuation
allowance for $313.6 million. As a result of filing the tax returns that
included the emergence from bankruptcy, the deferred tax asset available at
emergence was increased by $36 million for changes in NOLs utilized and for
other deferred tax assets. As these items would not have increased
managements assessment of the total amount of deferred tax assets the Company
was likely to recover, the increase was offset by an increase in the valuation
allowance for the same amount.

As a result of the Companys improved financial performance during fiscal 2004,
management reduced the deferred tax valuation allowance by $44 million during
the year ended August 31, 2004. As required under fresh start accounting this
change also resulted in a corresponding reduction in goodwill. Certain future
events may result in a further reduction of the valuation allowance. Any
further reduction would reduce goodwill and other intangibles in existence at
fresh start and, thereafter, would be reported as an addition to additional
paid in capital.

Availability and Amount of NOLs and Other Built in Losses

As a result of the reorganization, the Company underwent an ownership change
within the meaning of Section 382 of the Internal Revenue Code (IRC). As a
result, the Company is subject to an annual limitation of approximately $58
million on the amount of NOL and credit carryforwards and other built in
losses, consisting principally of the interest deduction carryover, pension,
claims reserves, and bad debt reserves which the Company may utilize in the
U.S. In addition, due to the ownership change that occurred upon the
Predecessor Companys acquisition of Greyhound, $123.0 million of the NOLs
remain subject to an annual limitation of approximately $22 million.

The Company has NOL carryforwards of $568.4 million in the U.S. that expire in
varying amounts in the years 2005 to 2024. In Canada, NOL carryforwards of
$59.1 million expire in varying amounts in the years 2005 to 2011.

In the U.S., the Company has approximately $697 million of interest deduction
carryforwards, under IRC Section 163(j), which have no expiration date, but are
subject to the annual limitation. In addition, the Company has tax credits of
$10.0 million in the U.S., which expire between 2018 and 2024, subject to the
annual limitation.

The Company has not provided U.S. income or withholding taxes on approximately
$13.7 million of undistributed earnings of its foreign subsidiaries as these
earnings are considered indefinitely reinvested. If such earnings were not
indefinitely invested, deferred U.S. income taxes of $4.8 million and no
withholding taxes would have been provided.

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Note 18  Earnings (loss) per share

The earnings (loss) per share figures are calculated using the weighted average
number of shares outstanding during the respective periods.

Information required to calculate the basic and diluted earnings per share is
as follows:

Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,($ in millions except per share amounts)
    
    2004
    
    2003
    
    
    2003
    
    2002Income (loss) available to common
shareholders before cumulative effect
of a change in accounting principle
    
    $
    61.7
    
    
    $
    (9.9
    )
    
    
    $
    992.6
    
    
    $
    14.9Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    (2,205.4
    )
    
    
    Net income (loss) available to common
shareholders
    
    
    61.7
    
    
    
    (9.9
    )
    
    
    
    (1,212.8
    )
    
    
    14.9Weighted average number of common
shares outstandingBasic
    
    
    100.0
    
    
    
    100.0
    
    
    
    
    325.9
    
    
    
    325.9Shares held in pension plan trust
    
    
    3.8
    
    
    
    3.8
    
    
    
    
    
    
    
    
    Diluted
    
    
    103.8
    
    
    
    103.8
    
    
    
    
    325.9
    
    
    
    325.9Net earnings (loss) per common shareBasicEarnings (loss) before cumulative
effect of a change in accounting
principle
    
    $
    0.62
    
    
    $
    (0.10
    )
    
    
    $
    3.05
    
    
    $
    0.05Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    (6.77
    )
    
    
    Net earnings (loss) available to
common shareholders
    
    $
    0.62
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )
    
    $
    0.05DilutedEarnings (loss) before cumulative
effect of a change in accounting
principle
    
    
    0.59
    
    
    $
    (0.10
    )
    
    
    $
    3.05
    
    
    $
    0.05Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    (6.77
    )
    
    
    Net earnings (loss) available to
common shareholders
    
    $
    0.59
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )
    
    $
    0.05


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Note 19  Statement of cash flows

The components of cash provided by (used in financing) other working capital
items are as follows:

Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,($ in millions)
    
    2004
    
    2003
    
    
    2003
    
    2002Accounts receivable
    
    $
    (18.4
    )
    
    $
    138.1
    
    
    
    $
    (131.9
    )
    
    $
    24.1Parts and supplies
    
    
    
    
    
    
    0.8
    
    
    
    
    (8.8
    )
    
    
    (0.9
    )Other current assets
    
    
    13.9
    
    
    
    7.5
    
    
    
    
    0.1
    
    
    
    21.2Accounts payable and accrued liabilities
    
    
    7.8
    
    
    
    (16.7
    )
    
    
    
    5.1
    
    
    
    7.8$
    3.3
    
    
    $
    129.7
    
    
    
    $
    (135.5
    )
    
    $
    52.2


During the year ended August 31, 2004 the Company purchased $3.7 million of
vehicles that were financed by debt (for the period June 1, 2003 through August
31, 2003  $4.4 million, Predecessor Company  period September 1, 2002 through
May 31, 2003  $21.1 million, year ended August 31, 2002  $31.3 million).

Supplemental cash flow information is as follows:

Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,($ in millions)
    
    2004
    
    2003
    
    
    2003
    
    2002Cash paid (received) during the period for:Interest
    
    $
    117.0
    
    
    $
    12.3
    
    
    
    $
    25.0
    
    
    $
    31.9Income taxes
    
    $
    (9.7
    )
    
    $
    (8.3
    )
    
    
    $
    (4.4
    )
    
    $
    (10.4
    )


Note 20  Legal proceedings

Health Care

The Companys healthcare businesses are subject to the Medicare and Medicaid
fraud and abuse laws, which prohibit, among other things, any false claims, or
any bribe, kick-back or rebate in return for the referral of Medicare and
Medicaid patients. Violation of these prohibitions may result in civil and
criminal penalties and exclusion from participation in the Medicare and
Medicaid programs. Management has implemented policies and procedures that
management believes will assure that the Company is in substantial compliance
with these laws. Laidlaw or its subsidiaries continually undergo
investigations by certain government agencies regarding compliance with
Medicare fraud and abuse statutes. The Company is cooperating with the
government agencies conducting these investigations and is providing requested
information to the government agencies. Other than the investigations
described in the following two paragraphs, management believes that the outcome
of any of these investigations would not have a material adverse effect on the
Company.

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On May 9, 2002, AMR received a subpoena duces tecum from the Office of
Inspector General for the United States Department of Health and Human Services
(HHS). The subpoena requested copies of documents for the period from
January 1993 through May 2002. The subpoena required AMR to produce a broad
range of documents relating to Huguley Hospital and Regional Emergency Services
contracts in Texas, Georgia and Colorado. The claims in Texas have been
resolved pursuant to the $20 million settlement agreement described below. The
government investigations in Georgia and Colorado are continuing.

During the first quarter of fiscal 2004, AMR was advised by the U.S. Department
of Justice (DOJ), that it was investigating certain business practices at
AMR. The specific practices at issue were (1) whether ambulance transports
involving Medicare eligible patients complied with the medically necessary
requirement imposed by Medicare regulations, (2) whether patient signatures,
when required, were properly obtained from Medicare eligible patients; and (3)
whether discounts in violation of the Federal Anti-Kickback Act were provided
by AMR in exchange for referrals involving Medicare eligible patients. At this
juncture, it is not possible to predict the ultimate conclusion of the
investigations described in this and the preceding paragraph, nor is it
possible to calculate any possible financial exposure to the Company.

From August 1998 until August 2000, American Medical Response West (AMR
West), a subsidiary of AMR, received six subpoenas duces tecum from the United
States Attorneys Office. These subpoenas related to billing matters for
emergency transports and specialized services. AMR West has entered into a
settlement agreement with the United States Attorneys Office pursuant to which
it has paid $3.5 million and agreed to enter into a five year Corporate
Integrity Agreement with the HHS in settlement of these matters.

In June 1999, the DOJ began an investigation of the billing processes of
Regional Emergency Services, a subsidiary of AMR, and of Florida Hospital
Waterman. Regional Emergency Services managed the ambulance services for
Florida Hospital Waterman. The DOJ reviewed the billing processes of the
companies from October 1992 to May 2002. The DOJ alleged violations by the
companies of the False Claims Act based on the absence of certificates of
medical necessity and other non-compliant billing practices. The parties have
entered into a settlement agreement for an aggregate of $20 million, of which
AMR has contributed a total of $5 million.

Greyhound Default Judgment

On September 20, 2004, Greyhound responded to proceedings brought in Georgia
state court in August 2004 (August Proceedings) seeking to enforce a default
garnishment judgment on funds in a Greyhound bank account. While this action
has since been dismissed, it stemmed from an October 1995 default judgment in
the amount of approximately $7 million (1995 Judgment) against Gary Jones, a
former consultant to Greyhound. More than four years later, in October 2000,
the plaintiff who obtained the 1995 Judgment (Plaintiff) began garnishment
proceedings against Greyhound in Georgia state court seeking to recover amounts
owed to Gary Jones, who then allegedly owed the Plaintiff the amount of
approximately $11 million based on the 1995 Judgment plus post-judgment
interest. On May 2, 2001, a default judgment for $11 million (Default
Judgment) was entered by the Georgia state court against Greyhound. Greyhound
first learned of the Default Judgment through the August Proceedings and,
therefore, was unaware of the garnishment and the Default Judgment and
inadvertently failed to contest it. Had the garnishment been timely answered,
Greyhound believes that the amount due in response to the garnishment summons
would not have exceeded $1,500.

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It is now alleged that Greyhound is liable to the Plaintiff in the amount of
$15 million, based on the $11 million Default Judgment plus post-judgment
interest. Greyhound has filed a Motion to Vacate the Default Judgment in the
Court where such judgment was rendered. Based on several legal grounds,
Greyhound believes that the Default Judgment is null and void and not
enforceable. Greyhound intends to vigorously defend its interests in the
litigation. Also refer to the discussion of the potential impact of this
litigation on the Greyhound Facility included in Note 10  Long term debt.

Other

The Company is also a defendant in various lawsuits arising in the ordinary
course of business, primarily cases involving personal injury, property damage
or employment related claims. Some of these actions are covered to varying
degrees by insurance policies. Based on an assessment of known claims and our
historical claims payout pattern, management believes that there is no
proceeding either threatened or pending against us relating to personal injury
and/or property damage claims and/or employment related claims that would have
a material adverse effect on the Company.

Note 21  Commitments and contingencies

Lease commitments

The Company leases certain operating vehicles. The leases generally provide
for the lessee to pay taxes, maintenance, insurance and certain other operating
costs of the leased property. Rental expense incurred under operating leases
was $141.9 for the year ended August 31, 2004, $34.5 million for the period
June 1, 2003 through August 31, 2003, $103.7 million, for the period September
1, 2002 through May 31, 2003 and $148.3 million for fiscal 2002.

The leases on most of the operating vehicles contain certain purchase
provisions or residual value guarantees and have lease terms of typically seven
years. Of those leases that contain residual value guarantees, the aggregate
residual value at lease expiration is $134.3 million of which the Company has
guaranteed $84.6 million. The Company has the right to exercise a purchase
option with respect to the leased equipment or the equipment can be sold to a
third party. At August 31, 2004, management estimates that the residual value
on certain leases will exceed the projected fair market value of the underlying
buses by $3.9 million and has established appropriate reserves for this
estimated liability.

At August 31, 2004, future minimum operating lease payments for premises and
equipment, excluding the effect of any residual value guarantees, are as
follows (in millions):

Year ending August 31,2005
    
    $
    132.32006
    
    
    87.82007
    
    
    64.22008
    
    
    44.42009
    
    
    25.1Thereafter
    
    
    64.9Total rentals payable
    
    $
    418.7


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Letters of credit

At August 31, 2004, the Company had $207.1 million (August 31, 2003  $262.1
million) in outstanding letters of credit.

Environmental matters

The Companys operations are subject to various federal, state, local and
foreign laws and regulations relating to environmental matters, including those
concerning emissions to the air; waste water discharges; storage, treatment and
disposal of waste and remediation of soil and ground water contamination. The
Company has incurred, and expects to incur, costs for our operations to comply
with these legal requirements, and these costs could increase in the future.
In particular, the Company has been named as a potentially responsible party
under the United States Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, at various third-party sites at which our
waste was allegedly disposed. In addition, management is investigating or
engaged in remediation of past contamination at other sites used in the
businesses. The Company records liabilities when environmental liabilities are
either known or considered probable and can be reasonably estimated. On an
ongoing basis, management assesses and evaluates environmental risk and, when
necessary, conducts appropriate corrective measures. As of the date of this
report, management believes that adequate accruals have been made related to
all known environmental matters, however actual environmental liabilities could
differ significantly from these estimates.

Income tax matters

The respective tax authorities, in the normal course, audit previous tax
filings. It is not possible at this time to predict the final outcome of these
audits or to establish a reasonable estimate of possible additional taxes
owing, if any.

Fuel purchase commitments

Historically, fuel costs represent approximately 3% to 5% of revenue. Due to
the significance of fuel expenses, particularly diesel fuel, to the operations
of the Company and the historical volatility of fuel prices, the Company has a
program to help minimize the fluctuations in the price of its diesel fuel
purchases. The intent of the program is to mitigate the short-term impact of
fuel price changes on the Companys operating margins and overall profitability
by entering into forward supply contracts (FSCs) with certain vendors. At
August 31, 2004, the Company had FSCs to buy 11.8 million gallons of fuel at an
average price of $0.96. The FSCs generally stipulate set bulk delivery volumes
at prearranged prices for a set period. The volumes agreed to be purchased by
the Company are well below the forecasted total bulk fuel needs for any given
location. Therefore, the risk of being forced to purchase fuel through the
FSCs that is not required by the Company is minimal. Also, to the extent that
the Company enters FSCs for portions of its total fuel needs, it may not
realize the benefit of decreases in fuel prices. Conversely, to the extent
that the Company does not enter into FSCs for portions of its total fuel needs,
it may be adversely affected by increases in fuel prices.

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##### Table of Contents



Contingent bonuses

The Company and two of its subsidiaries, American Medical Response, Inc.
(AMR) and EmCare Holdings, Inc. (EmCare) are parties to an employment
agreement effective October 1, 2002 with William A. Sanger under which Mr.
Sanger serves as President and Chief Executive Officer of AMR and as Chief
Executive Officer of EmCare. Pursuant to the agreement, Mr. Sanger is entitled
to a bonus payment upon a sale, or an initial public offering, of the stock of
AMR and/or EmCare. This bonus is also payable if Mr. Sanger remains employed
on October 1, 2007 and neither a sale nor an initial public offering has
occurred. With respect to AMR, the bonus is equal to 5% of the enterprise
value of AMR in excess of $410 million at the time of the event that entitles
Mr. Sanger to the payment. With respect to EmCare, the bonus is equal to 5% of
the enterprise value of EmCare in excess of $125 million at the time of the
event that entitles Mr. Sanger to the payment.

EmCare Holdings, Inc. is party to an employment agreement effective April 1,
2003 with Don S. Harvey under which Mr. Harvey serves as President and Chief
Operating Officer of EmCare. Pursuant to the agreement, Mr. Harvey is entitled
to a bonus payment upon a sale of, or an initial public offering of, the stock
of EmCare, provided Mr. Harvey remains employed under the agreement upon the
occurrence of such event. The bonus is equal to 2% of the enterprise value of
EmCare in excess of $125 million at the time of the event that entitles Mr.
Harvey to the payment.

Director and Officer Claim Treatment Letter

Pursuant to the terms of the Directors and Officer Treatment letter dated June
27, 2001, the Company established a $10 million Defense Trust to cover claims
against the Predecessor Companys Directors and Officers that are not covered
by insurance. Under the agreement the Company is obligated to contribute up to
an additional $10 million. As of August 31, 2004, the trust balance was $13.5
million and our maximum exposure to funding the trust in the future is $7.0
million. Any amounts paid from the trust will be recognized as an expense by
the Company when the costs are incurred. The unexpended balance in the Trust,
if any, will revert to the Company on June 23, 2013.

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##### Table of Contents



Note 22  Segmented information

The Company has five reportable segments: education services, public transit
services, Greyhound, healthcare transportation services and emergency
management services. The education services segment provides school bus
transportation throughout Canada and the United States. Public transit
services provide municipal and paratransit bus transportation within the United
States. The Greyhound segment provides intercity and tourism bus
transportation throughout North America. Healthcare transportation services
provides ambulance and wheelchair transport services throughout the United
States. The emergency management services segment provides outsourced
emergency room management services in the United States.

The Company evaluates performance and allocates resources based on income from
operations before depreciation and amortization. The Companys reportable
segments are business units that offer different services and are each managed
separately.

Business Segments

Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,($ in millions)
    
    2004
    
    2003
    
    
    2003
    
    2002Education ServicesRevenue
    
    $
    1,495.8
    
    
    $
    184.9
    
    
    
    $
    1,314.8
    
    
    $
    1,479.7EBITDA
    
    
    286.7
    
    
    
    (21.7
    )
    
    
    
    302.0
    
    
    
    272.7Total identifiable assets
    
    
    1,222.8
    
    
    
    1,309.6
    
    
    
    
    1,429.4
    *
    
    
    1,768.1Capital expenditures
    
    
    133.3
    
    
    
    60.9
    
    
    
    
    110.3
    
    
    
    163.8Public Transit ServicesRevenue
    
    $
    300.5
    
    
    $
    71.0
    
    
    
    $
    212.1
    
    
    $
    309.5EBITDA
    
    
    8.0
    
    
    
    9.2
    
    
    
    
    7.3
    
    
    
    (1.7
    )Total identifiable assets
    
    
    104.5
    
    
    
    97.8
    
    
    
    
    98.5
    *
    
    
    217.5Capital expenditures
    
    
    13.2
    
    
    
    6.0
    
    
    
    
    3.8
    
    
    
    5.0GreyhoundRevenue
    
    $
    1,230.5
    
    
    $
    356.7
    
    
    
    $
    847.5
    
    
    $
    1,223.7EBITDA
    
    
    87.4
    
    
    
    61.2
    
    
    
    
    5.8
    
    
    
    53.6Total identifiable assets
    
    
    898.0
    
    
    
    883.1
    
    
    
    
    857.0
    *
    
    
    1,195.8Capital expenditures
    
    
    35.5
    
    
    
    7.7
    
    
    
    
    81.1
    
    
    
    83.1Healthcare Transportation ServicesRevenue
    
    $
    1,054.8
    
    
    $
    255.9
    
    
    
    $
    759.3
    
    
    $
    987.9EBITDA
    
    
    86.6
    
    
    
    7.6
    
    
    
    
    55.8
    
    
    
    76.0Total identifiable assets
    
    
    586.5
    
    
    
    603.7
    
    
    
    
    607.4
    *
    
    
    1,813.5Capital expenditures
    
    
    38.6
    
    
    
    15.4
    
    
    
    
    30.9
    
    
    
    27.0Emergency Management ServicesRevenue
    
    $
    549.8
    
    
    $
    128.6
    
    
    
    $
    352.0
    
    
    $
    431.3EBITDA
    
    
    36.0
    
    
    
    7.3
    
    
    
    
    21.9
    
    
    
    20.4Total identifiable assets
    
    
    338.0
    
    
    
    341.3
    
    
    
    
    338.6
    *
    
    
    713.0Capital expenditures
    
    
    4.3
    
    
    
    0.5
    
    
    
    
    4.0
    
    
    
    4.4


* Total identifiable assets of the Company on June 1, 2003

F-38



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##### Table of Contents



Geographic

Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,($ in millions)
    
    2004
    
    2003
    
    
    2003
    
    2002United StatesRevenue
    
    $
    4,219.0
    
    
    $
    911.9
    
    
    
    $
    3,215.8
    
    
    $
    4,089.9EBITDA
    
    
    442.7
    
    
    
    54.7
    
    
    
    
    352.3
    
    
    
    367.7Total long-lived assets
    
    
    1,713.1
    
    
    
    1,806.2
    
    
    
    
    1,774.8
    *
    
    
    4,225.8CanadaRevenue
    
    $
    412.4
    
    
    $
    85.2
    
    
    
    $
    269.9
    
    
    $
    342.2EBITDA
    
    
    62.0
    
    
    
    8.9
    
    
    
    
    40.5
    
    
    
    53.3Total long-lived assets
    
    
    310.8
    
    
    
    275.5
    
    
    
    
    270.2
    *
    
    
    428.7


* Total long-lived assets of the Company on June 1, 2003

Consolidated

Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,($ in millions)
    
    2004
    
    2003
    
    
    2003
    
    2002Revenue
    
    $
    4,631.4
    
    
    $
    997.1
    
    
    
    $
    3,485.7
    
    
    $
    4,432.1EBITDA
    
    
    504.7
    
    
    
    63.6
    
    
    
    
    392.8
    
    
    
    421.0Depreciation and amortization
    
    
    (283.5
    )
    
    
    (52.1
    )
    
    
    
    (229.3
    )
    
    
    (358.8
    )Operating income
    
    
    221.2
    
    
    
    11.5
    
    
    
    
    163.5
    
    
    
    62.2Interest expense, net
    
    
    (129.6
    )
    
    
    (31.5
    )
    
    
    
    (19.6
    )
    
    
    (27.7
    )Gain on discharge of debt
    
    
    
    
    
    
    
    
    
    
    
    1,482.8
    
    
    
    Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    
    (609.6
    )
    
    
    Other income (expense), net
    
    
    2.4
    
    
    
    0.1
    
    
    
    
    (20.0
    )
    
    
    (29.4
    )Income tax benefit (expense)
    
    
    (32.3
    )
    
    
    10.0
    
    
    
    
    (4.5
    )
    
    
    9.8Income (loss) before cumulative effect
of a change in accounting principle
    
    $
    61.7
    
    
    $
    (9.9
    )
    
    
    $
    992.6
    
    
    $
    14.9AssetsTotal identifiable assets of segments
    
    $
    3,149.8
    
    
    $
    3,235.5
    
    
    
    $
    3,330.9
    *
    
    $
    5,707.9Corporate assets
    
    
    755.4
    
    
    
    675.8
    
    
    
    
    623.0
    *
    
    
    568.0Total assets
    
    $
    3,905.2
    
    
    $
    3,911.3
    
    
    
    $
    3,953.9
    
    
    $
    6,275.9Capital expenditures
    
    
    224.9
    
    
    $
    90.5
    
    
    
    $
    230.1
    
    
    $
    283.3


* Total identifiable assets
of the segments and corporate assets on June 1, 2003

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##### Table of Contents



Note 23  Quarterly financial information(unaudited)

Selected unaudited quarterly financial data for the year ended August 31, 2004,
the quarter ended August 31, 2003 and the Predecessor three quarters ended May
31, 2003 are as follows:

2004($ in millions except per share amounts)
    
    4th Qtr.
    
    3rd Qtr.
    
    2nd Qtr.
    
    1st Qtr.Revenue
    
    $
    1,019.0
    
    
    $
    1,239.6
    
    
    $
    1,162.5
    
    
    $
    1,210.3Operating income
    
    
    20.8
    
    
    
    89.5
    
    
    
    41.4
    
    
    
    69.5Net income (loss)
    
    
    (2.7
    )
    
    
    34.6
    
    
    
    7.2
    
    
    
    22.6Earnings
(loss) per shareBasic
    
    $
    (0.03
    )
    
    $
    0.35
    
    
    $
    0.07
    
    
    $
    0.23Diluted
    
    $
    (0.03
    )
    
    $
    0.33
    
    
    $
    0.07
    
    
    $
    0.22


Predecessor Company2003
    
    
    2003($ in millions except per share amounts)
    
    4th Qtr.
    
    
    3rd Qtr.*
    
    2nd Qtr.
    
    1st Qtr.Revenue
    
    $
    997.1
    
    
    
    $
    1,202.8
    
    
    $
    1,120.7
    
    
    $
    1,162.2Operating income
    
    
    11.5
    
    
    
    
    73.7
    
    
    
    34.1
    
    
    
    55.7Income (loss) before cumulative effect
of change in accounting principle
    
    
    (9.9
    )
    
    
    
    62.2
    
    
    
    16.2
    
    
    
    41.0Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,205.4
    )Net income (loss)
    
    
    (9.9
    )
    
    
    
    62.2
    
    
    
    16.2
    
    
    
    (2,164.4
    )Earnings (loss) per shareBasicEarnings (loss) before cumulative
effect of change in accounting
principle
    
    $
    (0.10
    )
    
    
    $
    0.19
    
    
    $
    0.05
    
    
    $
    0.13Net earnings (loss) per share
    
    $
    (0.10
    )
    
    
    $
    0.19
    
    
    $
    0.05
    
    
    $
    (6.64
    )DilutedEarnings (loss) before cumulative
effect of change in accounting
principle
    
    $
    (0.10
    )
    
    
    $
    0.19
    
    
    $
    0.05
    
    
    $
    0.13Net earnings (loss) per share
    
    $
    (0.10
    )
    
    
    $
    0.19
    
    
    $
    0.05
    
    
    $
    (6.64
    )


* Does not reflect fresh
start accounting adjustments or the gain on discharge of debt

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##### Table of Contents



Note 24  Condensed financial statements of restricted subsidiaries

Pursuant to the terms of the Companys $406.0 million Senior Notes, the
condensed consolidated financial statements for the Restricted Subsidiaries and
the Unrestricted Subsidiaries are as follows:

Condensed Consolidated Statement of Operations
Year Ended August 31, 2004

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsRevenue
    
    $
    3,648.1
    
    
    $
    983.3
    
    
    $
    4,631.4Compensation expense
    
    
    2,265.1
    
    
    
    412.9
    
    
    
    2,678.0Accident claims and professional
liability expenses
    
    
    214.6
    
    
    
    73.7
    
    
    
    288.3Vehicle related costs
    
    
    146.0
    
    
    
    133.3
    
    
    
    279.3Occupancy costs
    
    
    122.2
    
    
    
    81.2
    
    
    
    203.4Fuel expense
    
    
    118.1
    
    
    
    64.0
    
    
    
    182.1Depreciation
    
    
    221.2
    
    
    
    43.9
    
    
    
    265.1Amortization
    
    
    18.3
    
    
    
    0.1
    
    
    
    18.4Other operating expenses
    
    
    343.1
    
    
    
    152.5
    
    
    
    495.6Operating income
    
    
    199.5
    
    
    
    21.7
    
    
    
    221.2Interest expense
    
    
    (97.2
    )
    
    
    (32.4
    )
    
    
    (129.6
    )Other income (expenses), net

    
    
    2.9
    
    
    
    (0.5
    )
    
    
    2.4Income (loss) before income taxes
    
    
    105.2
    
    
    
    (11.2
    )
    
    
    94.0Income tax benefit (expense)
    
    
    (36.8
    )
    
    
    4.5
    
    
    
    (32.3
    )Net income (loss)
    
    $
    68.4
    
    
    $
    (6.7
    )
    
    $
    61.7


Condensed Consolidated Statement of Operations
For the period June 1, 2003 through August 31, 2003

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsRevenue
    
    $
    704.8
    
    
    $
    292.3
    
    
    $
    997.1Compensation expense
    
    
    468.7
    
    
    
    113.0
    
    
    
    581.7Accident claims and professional
liability expenses
    
    
    45.9
    
    
    
    17.0
    
    
    
    62.9Vehicle related costs
    
    
    39.8
    
    
    
    35.0
    
    
    
    74.8Occupancy costs
    
    
    30.0
    
    
    
    21.4
    
    
    
    51.4Fuel expense
    
    
    20.5
    
    
    
    16.2
    
    
    
    36.7Depreciation
    
    
    37.1
    
    
    
    10.6
    
    
    
    47.7Amortization
    
    
    4.4
    
    
    
    
    
    
    
    4.4Other operating expenses
    
    
    85.4
    
    
    
    40.6
    
    
    
    126.0Operating income (loss)
    
    
    (27.0
    )
    
    
    38.5
    
    
    
    11.5Interest expense
    
    
    (23.1
    )
    
    
    (8.4
    )
    

    
    (31.5
    )Other income (expenses), net
    
    
    0.3
    
    
    
    (0.2
    )
    
    
    0.1Income (loss) before income taxes
    
    
    (49.8
    )
    
    
    29.9
    
    
    
    (19.9
    )Income tax benefit (expense)
    
    
    20.0
    
    
    
    (10.0
    )
    
    
    10.0Net income (loss)
    
    $
    (29.8
    )
    
    $
    19.9
    
    
    $
    (9.9
    )


F-41



---



##### Table of Contents



Predecessor Company
Condensed Consolidated Statement of Operations
For the period September 1, 2002 through May 31, 2003

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsRevenue
    
    $
    2,786.2
    
    
    $
    699.5
    
    
    $
    3,485.7Compensation expense
    
    
    1,670.0
    
    
    
    331.1
    
    
    
    2,001.1Accident claims and professional
liability expenses
    
    
    190.9
    
    
    
    50.5
    
    
    
    241.4Vehicle related costs
    
    
    103.8
    
    
    
    98.6
    
    
    
    202.4Occupancy costs
    
    
    91.3
    
    
    
    59.1
    
    
    
    150.4Fuel expense
    
    
    88.8
    
    
    
    44.6
    
    
    
    133.4Depreciation
    
    
    192.4
    
    
    
    36.0
    
    
    
    228.4Amortization
    
    
    0.8
    
    
    
    0.1
    
    
    
    0.9Other operating expenses
    
    
    249.5
    
    
    
    114.7
    
    
    
    364.2Operating income (loss)
    
    
    198.7
    
    
    
    (35.2
    )
    
    
    163.5Interest expense
    
    
    (3.8
    )
    
    
    (15.8
    )
    
    
    (19.6
    )Gain on discharge of debt
    
    
    1,482.8
    
    
    
    
    
    
    
    1,482.8Fresh start accounting adjustments
    
    
    (514.8
    )
    
    
    (94.8
    )
    
    
    (609.6
    )Other income (expenses), net
    
    
    (21.5
    )
    
    
    1.5
    
    
    
    (20.0
    )Income (loss) before income taxes
and cumulative effect of change
in accounting principle
    
    
    1,141.4
    
    
    
    (144.3
    )
    
    
    997.1Income tax expense
    
    
    (3.4
    )
    
    
    (1.1
    )
    
    
    (4.5
    )Income (loss) before cumulative
effect of a change in accounting
principle
    
    
    1,138.0
    
    
    
    (145.4
    )
    
    
    992.6Cumulative effect of a change in
accounting principle
    
    
    (1,775.9
    )
    
    
    (429.5
    )
    
    
    (2,205.4
    )Net loss
    
    $
    (637.9
    )
    
    $
    (574.9
    )
    
    $
    (1,212.8
    )


Predecessor Company
Condensed Consolidated Statement of Operations
Year Ended August 31, 2002

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsRevenue
    
    $
    3,412.2
    
    
    $
    1,019.9
    
    
    $
    4,432.1Compensation expense
    
    
    2,077.2
    
    
    
    445.8
    
    
    
    2,523.0Accident claims and professional
liability expenses
    
    
    255.9
    
    
    
    69.9
    
    
    
    325.8Vehicle related costs
    
    
    143.2
    
    
    
    129.3
    
    
    
    272.5Occupancy costs
    
    
    119.4
    
    
    
    82.8
    
    
    
    202.2Fuel expense
    
    
    107.0
    
    
    
    56.0
    
    
    
    163.0Depreciation
    
    
    224.5
    
    
    
    46.1
    
    
    
    270.6Amortization
    
    
    76.1
    
    
    
    12.1
    
    
    
    88.2Other operating expenses
    
    
    355.3
    
    
    
    169.3
    
    
    
    524.6Operating income
    
    
    53.6
    
    
    
    8.6
    
    
    
    62.2Interest expense
    
    
    (6.1
    )
    
    
    (21.6
    )
    
    
    (27.7
    )Other income (expenses), net
    
    
    (29.6
    )
    
    
    0.2
    
    
    
    (29.4
    )Income (loss) before income taxes
    
    
    17.9
    
    
    
    (12.8
    )
    
    
    5.1Income tax benefit
    
    
    9.1
    
    
    
    0.7
    
    
    
    9.8Net income (loss)
    
    $
    27.0
    
    
    $
    (12.1
    )
    
    $
    14.9


F-42



---



##### Table of Contents



Condensed Consolidated Statement of Cash Flows
Year ended August 31, 2004

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsNet cash provided by operating activities
    
    $
    300.0
    
    
    $
    90.0
    
    
    $
    390.0Cash flows from investing activities:Purchase of property and equipment
    
    $
    (197.7
    )
    
    $
    (27.2
    )
    
    $
    (224.9
    )Proceeds from sale of property and equipment
    
    
    13.8
    
    
    
    2.0
    
    
    
    15.8Expended on acquisitions
    
    
    (3.4
    )
    
    
    
    
    
    
    (3.4
    )Net increase in investments
    
    
    (14.0
    )
    
    
    (14.9
    )
    
    
    (28.9
    )Net increase in other assets
    
    
    (1.3
    )
    
    
    
    
    
    
    (1.3
    )Net cash used in investing activities
    
    $
    (202.6
    )
    
    $
    (40.1
    )
    
    $
    (242.7
    )Cash flows from financing activitiesProceeds from issue of long-term debt
    
    $
    153.1
    
    
    $
    86.3
    
    
    $
    239.4Repayments of long-term debt
    
    
    (189.2
    )
    
    
    (121.4
    )
    
    
    (310.6
    )Payment of financing fees
    
    
    (4.3
    )
    
    
    (1.0
    )
    
    
    (5.3
    )Change in other non-current liabilities
    
    
    (14.1
    )
    
    
    1.0
    
    
    
    (13.1
    )Net cash used in financing activities
    
    $
    (54.5
    )
    
    $
    (35.1
    )
    
    $
    (89.6
    )Net increase in cash and cash equivalents
    
    $
    42.9
    
    
    $
    14.8
    
    
    $
    57.7Cash and cash equivalents at:Beginning of period
    
    
    55.1
    
    
    
    45.2
    
    
    
    100.3End of period
    
    $
    98.0
    
    
    $
    60.0
    
    
    $
    158.0


Condensed Consolidated Statement of Cash Flows
For the period June 1, 2003 through August 31, 2003

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsNet cash provided by operating activities
    
    $
    132.8
    
    
    $
    54.2
    
    
    $
    187.0Cash flows from investing activities:Purchase of property and equipment
    
    $
    (84.9
    )
    
    $
    (5.6
    )
    
    $
    (90.5
    )Proceeds from sale of property and equipment
    
    
    3.8
    
    
    
    0.6
    
    
    
    4.4Expended on acquisitions
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Net decrease (increase) in investments
    
    
    11.9
    
    
    
    (0.6
    )
    
    
    11.3Net increase in other assets
    
    
    (0.7
    )
    
    
    (0.4
    )
    
    
    (1.1
    )Net cash used in investing activities
    
    $
    (70.0
    )
    
    $
    (6.0
    )
    
    $
    (76.0
    )Cash flows from financing activities:Proceeds from issue of long-term debt
    
    $
    
    
    
    $
    17.3
    
    
    $
    17.3Repayments of long-term debt
    
    
    (9.6
    )
    
    
    (35.9
    )
    
    
    (45.5
    )Payment of financing fees
    
    
    (3.8
    )
    
    
    
    
    
    
    (3.8
    )Change in other non-current liabilities
    
    
    (1.8
    )
    
    
    (0.3
    )
    
    
    (2.1
    )Net cash used in financing activities
    
    $
    (15.2
    )
    
    $
    (18.9
    )
    
    $
    (34.1
    )Net increase in cash and cash equivalents
    
    $
    47.6
    
    
    $
    29.3
    
    
    $
    76.9Cash and cash equivalents at:Beginning of period
    
    
    7.5
    
    
    
    15.9
    
    
    
    23.4End of period
    
    $
    55.1
    
    
    $
    45.2
    
    
    $
    100.3


F-43



---



##### Table of Contents



Predecessor Company
Condensed Consolidated Statement of Cash Flows
For the period September 1, 2002 through May 31, 2003

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsNet cash
provided by (used in) operating activities
    
    $
    263.4
    
    
    $
    (54.9
    )
    
    $
    208.5Cash flows from investing activities:Purchase of property and equipment
    
    $
    (170.0
    )
    
    $
    (60.1
    )
    
    $
    (230.1
    )Proceeds from sale of property and equipment
    
    
    7.9
    
    
    
    16.7
    
    
    
    24.6Expended on acquisitions
    
    
    (4.6
    )
    
    
    
    
    
    
    (4.6
    )Net increase in investments
    
    
    (150.9
    )
    
    
    (0.4
    )
    
    
    (151.3
    )Net decrease (increase) in other assets
    
    
    (4.0
    )
    
    
    0.8
    
    
    
    (3.2
    )Net cash used in investing activities
    
    $
    (321.6
    )
    
    $
    (43.0
    )
    
    $
    (364.6
    )Cash flows from financing activitiesProceeds from issue of long-term debt
    
    $
    1,025.6
    
    
    $
    182.2
    
    
    $
    1,207.8Repayments of long-term debt
    
    
    (51.3
    )
    
    
    (96.7
    )
    
    
    (148.0
    )Payment of financing fees
    
    
    (37.5
    )
    
    
    
    
    
    
    (37.5
    )Change in other non-current liabilities
    
    
    (9.9
    )
    
    
    8.6
    
    
    
    (1.3
    )Repayment of liabilities subject to compromise
    
    
    (1,185.0
    )
    
    
    
    
    
    
    (1,185.0
    )Net cash provided by (used in) financing activities
    
    $
    (258.1
    )
    
    $
    94.1
    
    
    $
    (164.0
    )Net decrease in cash and cash equivalents
    
    $
    (316.3
    )
    
    $
    (3.8
    )
    
    $
    (320.1
    )Cash and cash equivalents at:Beginning of period
    
    
    323.8
    
    
    
    19.7
    
    
    
    343.5End of period
    
    $
    7.5
    
    
    $
    15.9
    
    
    $
    23.4


Predecessor Company
Condensed Consolidated Statement of Cash Flows
Year ended August 31, 2002

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsNet cash provided by operating activities
    
    $
    317.1
    
    
    $
    116.7
    
    
    $
    433.8Cash flows from investing activities:Purchase of property and equipment
    
    $
    (212.8
    )
    
    $
    (70.5
    )
    
    $
    (283.3
    )Proceeds from sale of property and equipment
    
    
    21.9
    
    
    
    23.6
    
    
    
    45.5Expended on acquisitions
    
    
    (3.6
    )
    
    
    
    
    
    
    (3.6
    )Net increase in investments
    
    
    (34.0
    )
    
    
    (3.1
    )
    
    
    (37.1
    )Net decrease (increase) in other assets
    
    
    3.7
    
    
    
    (0.9
    )
    
    
    2.8Net cash used in investing activities
    
    $
    (224.8
    )
    
    $
    (50.9
    )
    
    $
    (275.7
    )Cash flows from financing activitiesProceeds from issue of long-term debt
    
    $
    
    
    
    $
    172.2
    
    
    $
    172.2Repayments of long-term debt
    
    
    (27.2
    )
    
    
    (231.1
    )
    
    
    (258.3
    )Change in other non-current liabilities
    
    
    (8.1
    )
    
    
    (1.6
    )
    
    
    (9.7
    )Net cash used in financing activities
    
    $
    (35.3
    )
    
    $
    (60.5
    )
    
    $
    (95.8
    )Net increase in cash and cash equivalents
    
    $
    57.0
    
    
    $
    5.3
    
    
    $
    62.3Cash and cash equivalents at:Beginning of period
    
    
    266.8
    
    
    
    14.4
    
    
    
    281.2End of period
    
    $
    323.8
    
    
    $
    19.7
    
    
    $
    343.5


F-44



---



##### Table of Contents



Condensed Consolidated Balance Sheet
August 31, 2004

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsCurrent assetsCash and cash equivalents
    
    $
    98.0
    
    
    $
    60.0
    
    
    $
    158.0Restricted cash and cash equivalents
    
    
    95.0
    
    
    
    
    
    
    
    95.0Short-term deposits and marketable securities
    
    
    17.4
    
    
    
    
    
    
    
    17.4Accounts receivable
    
    
    558.1
    
    
    
    29.9
    
    
    
    588.0Parts and supplies
    
    
    40.8
    
    
    
    9.8
    
    
    
    50.6Deferred income tax assets
    
    
    52.6
    
    
    
    22.9
    
    
    
    75.5Other current assets
    
    
    37.7
    
    
    
    9.7
    
    
    
    47.4Total current assets
    
    
    899.6
    
    
    
    132.3
    
    
    
    1,031.9Long-term investments
    
    
    543.1
    
    
    
    65.5
    
    
    
    608.6Property and equipment
    
    
    1,277.8
    
    
    
    348.0
    
    
    
    1,625.8Goodwill
    
    
    139.1
    
    
    
    
    
    
    
    139.1Contracts and customer relationships
    
    
    203.0
    
    
    
    
    
    
    
    203.0Deferred income tax assets
    
    
    98.4
    
    
    
    130.1
    
    
    
    228.5Deferred charges and other assets
    
    
    59.3
    
    
    
    9.0
    
    
    
    68.3Total assets
    
    $
    3,220.3
    
    
    $
    684.9
    
    
    $
    3,905.2Current liabilitiesAccounts payable
    
    $
    88.5
    
    
    $
    26.5
    
    
    $
    115.0Accrued liabilities
    
    
    409.4
    
    
    
    125.8
    
    
    
    535.2Current portion of long-term debt
    
    
    34.0
    
    
    
    2.4
    
    
    
    36.4Total current liabilities
    
    
    531.9
    
    
    
    154.7
    
    
    
    686.6Long-term debt
    
    
    978.8
    
    
    
    135.4
    
    
    
    1,114.2Pension liability
    
    
    13.8
    
    
    
    174.5
    
    
    
    188.3Other long-term liabilities
    
    
    359.0
    
    
    
    180.6
    
    
    
    539.6Total liabilities
    
    
    1,883.5
    
    
    
    645.2
    
    
    
    2,528.7Shareholders equity
    
    
    1,336.8
    
    
    
    39.7
    
    
    
    1,376.5Total liabilities and shareholders equity
    
    $
    3,220.3
    
    
    $
    684.9
    
    
    $
    3,905.2


F-45



---



##### Table of Contents



Condensed Consolidated Balance Sheet
As of August 31, 2003

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsCurrent assetsCash and cash equivalents
    
    $
    55.1
    
    
    $
    45.2
    
    
    $
    100.3Restricted cash and cash equivalents
    
    
    39.4
    
    
    
    
    
    
    
    39.4Short-term deposits and marketable securities
    
    
    42.0
    
    
    
    
    
    
    
    42.0Accounts receivable
    
    
    528.8
    
    
    
    41.0
    
    
    
    569.8Parts and supplies
    
    
    38.2
    
    
    
    12.0
    
    
    
    50.2Deferred income tax assets
    
    
    76.1
    
    
    
    10.1
    
    
    
    86.2Other current assets
    
    
    50.1
    
    
    
    10.0
    
    
    
    60.1Total current assets
    
    
    829.7
    
    
    
    118.3
    
    
    
    948.0Long-term investments
    
    
    562.0
    
    
    
    50.1
    
    
    
    612.1Property and equipment
    
    
    1,291.2
    
    
    
    378.6
    
    
    
    1,669.8Goodwill
    
    
    183.1
    
    
    
    
    
    
    
    183.1Contracts and customer relationships
    
    
    216.9
    
    
    
    
    
    
    
    216.9Deferred income tax assets
    
    
    88.3
    
    
    
    114.9
    
    
    
    203.2Deferred charges and other assets
    
    
    66.9
    
    
    
    11.3
    
    
    
    78.2Total assets
    
    $
    3,238.1
    
    
    $
    673.2
    
    
    $
    3,911.3Current liabilitiesAccounts payable
    
    $
    87.7
    
    
    $
    31.7
    
    
    $
    119.4Accrued liabilities
    
    
    397.3
    
    
    
    108.7
    
    
    
    506.0Current portion of long-term debt
    
    
    35.7
    
    
    
    33.7
    
    
    
    69.4Total current liabilities
    
    
    520.7
    
    
    
    174.1
    
    
    
    694.8Long-term debt
    
    
    1,012.5
    
    
    
    132.6
    
    
    
    1,145.1Pension liability
    
    
    4.9
    
    
    
    220.8
    
    
    
    225.7Other long-term liabilities
    
    
    456.1
    
    
    
    99.3
    
    
    
    555.4Total liabilities
    
    
    1,994.2
    
    
    
    626.8
    
    
    
    2,621.0Shareholders equity
    
    
    1,243.9
    
    
    
    46.4
    
    
    
    1,290.3Total liabilities and shareholders equity
    
    $
    3,238.1
    
    

    $
    673.2
    
    
    $
    3,911.3


F-46



---



##### Table of Contents



Note 25  Guarantors of Senior Notes

The Companys $406.0 million Senior Notes are guaranteed by the Companys
subsidiaries, except for the Unrestricted Subsidiaries, the Companys Canadian
subsidiaries and any of the Companys insurance subsidiaries. The condensed
consolidated financial statements for the guarantors, the non-guarantors and
the parent company (reported as the Company and as the Predecessor Company for
historical purposes) are as follows:

Condensed Consolidated Statement of Operations
Year ended August 31, 2004

Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    TotalsRevenue
    
    $
    
    
    
    $
    3,235.7
    

    
    $
    1,395.7
    
    
    $
    
    
    
    $
    4,631.4Operating, selling, general and
administrative expenses
    
    
    1.6
    
    
    
    2,879.1
    
    
    
    1,246.0
    
    
    
    
    
    
    
    4,126.7Depreciation and amortization expense
    
    
    
    
    
    
    206.8
    
    
    
    76.7
    
    
    
    
    
    
    
    283.5Intercompany management fees (income)
    
    
    
    
    
    
    (9.1
    )
    
    
    9.1
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    (1.6
    )
    
    
    158.9
    
    
    
    63.9
    
    
    
    
    
    
    
    221.2Interest expense
    
    
    (92.6
    )
    
    
    (6.8
    )
    
    
    (30.2
    )
    
    
    
    
    
    
    (129.6
    )Intercompany interest income (expense)
    
    
    
    
    
    
    2.5
    
    
    
    (2.5
    )
    
    
    
    
    
    
    Other income (expense), net
    
    
    1.8
    
    
    
    1.0
    
    
    
    (0.4
    )
    
    
    
    
    
    
    2.4Equity in earnings (loss) of
intercompany investments
    
    
    122.3
    
    
    
    (6.7
    )
    
    
    
    
    
    
    (115.6
    )
    
    
    Income (loss) before income taxes
    
    
    29.9
    
    
    
    148.9
    
    
    
    30.8
    
    
    
    (115.6
    )
    
    
    94.0Income tax benefit (expense)
    
    
    31.8
    
    
    
    (53.5
    )
    
    
    (10.6
    )
    
    
    
    
    
    
    (32.3
    )Net income (loss)
    
    $
    61.7
    
    
    $
    95.4
    
    
    $
    20.2
    
    
    $
    (115.6
    )
    
    $
    61.7


Condensed Consolidated Statement of Operations
For the period June 1, 2003 through August 31, 2003

Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    TotalsRevenue
    
    $
    
    
    
    $
    619.7
    
    
    $
    377.4
    
    
    $
    
    
    
    $
    997.1Operating, selling, general and
administrative expenses
    
    
    
    
    
    
    615.6
    
    
    
    317.9
    
    
    
    
    
    
    
    933.5Depreciation and amortization expense
    
    
    
    
    
    
    35.4
    
    
    
    16.7
    
    
    
    
    
    
    
    52.1Intercompany management fees (income)
    
    
    
    
    
    
    (1.5
    )
    
    
    1.5
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    
    
    
    
    (29.8
    )
    
    
    41.3
    
    
    
    
    
    
    
    11.5Interest expense
    
    
    (22.1
    )
    
    
    (1.0
    )
    
    
    (8.4
    )
    
    
    
    
    
    
    (31.5
    )Intercompany interest income (expense)
    
    
    (0.8
    )
    
    
    1.3
    
    
    
    (0.5
    )
    
    
    
    
    
    
    Other income (expense), net
    
    
    0.3
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    0.1Equity in earnings (loss) of
intercompany investments
    
    
    (7.6
    )
    
    
    23.1
    
    
    
    
    
    
    
    (15.5
    )
    
    
    Income (loss) before income taxes
    
    
    (30.2
    )
    
    
    (6.5
    )
    
    
    32.3
    
    
    
    (15.5
    )
    
    
    (19.9
    )Income tax benefit (expense)
    
    
    21.1
    
    
    
    6.6
    
    
    
    (17.7
    )
    
    
    
    
    
    
    10.0Net income (loss)
    
    $
    (9.1
    )
    
    $
    0.1
    
    
    $
    14.6
    
    
    $
    (15.5
    )
    
    $
    (9.9
    )


F-47



---



##### Table of Contents



Predecessor Company
Condensed Consolidated Statement of Operations
For the period September 1, 2002 through May 31, 2003

Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    TotalsRevenue
    
    $
    
    
    
    $
    2,516.3
    
    
    $
    969.4
    
    
    $
    
    
    
    $
    3,485.7Operating, selling, general and
administrative expenses
    
    
    11.1
    
    
    
    2,146.9
    
    
    
    934.9
    
    
    
    
    
    
    
    3,092.9Depreciation and amortization expense
    
    
    0.1
    
    
    
    165.0
    
    
    
    64.2
    
    
    
    
    
    
    
    229.3Intercompany management fees (income)
    
    
    (25.7
    )
    
    
    17.5
    
    
    
    8.2
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    14.5
    
    
    
    186.9
    
    
    
    (37.9
    )
    
    
    
    
    
    
    163.5Interest expense
    
    
    (0.1
    )
    
    
    (3.6
    )
    
    
    (15.9
    )
    
    
    
    
    
    
    (19.6
    )Intercompany interest income (expense)
    
    
    
    
    
    
    1.6
    
    
    
    (1.6
    )
    
    
    
    
    
    
    Gain on discharge of debt
    
    
    1,410.5
    
    
    
    72.3
    
    
    
    
    
    
    
    
    
    
    
    1,482.8Fresh start accounting adjustments
    
    
    (100.0
    )
    
    
    (494.6
    )
    
    
    (15.0
    )
    
    
    
    
    
    
    (609.6
    )Other income (expense), net
    
    
    (16.3
    )
    
    
    (5.2
    )
    
    
    1.5
    
    
    
    
    
    
    
    (20.0
    )Equity in
loss of
intercompany investments
    
    
    (315.6
    )
    
    
    (73.6
    )
    
    
    
    
    
    
    389.2
    
    
    
    Income (loss) before income taxes and
cumulative effect of a change in
accounting principle
    
    
    993.0
    
    
    
    (316.2
    )
    
    
    (68.9
    )
    
    
    389.2
    
    
    
    997.1Income tax expense
    
    
    (0.4
    )
    
    
    (2.1
    )
    
    
    (2.0
    )
    
    
    
    
    
    
    (4.5
    )Income (loss) before cumulative
effect of a change in accounting
principle
    
    
    992.6
    
    
    
    (318.3
    )
    
    
    (70.9
    )
    
    
    389.2
    
    
    
    992.6Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    (1,668.0
    )
    
    
    (537.4
    )
    
    
    
    
    
    
    (2,205.4
    )Equity in loss from cumulative effect
of a change in accounting principle
of intercompany investments
    
    
    (2,205.4
    )
    
    
    (429.5
    )
    
    
    
    
    
    
    2,634.9
    
    
    
    Net income (loss)
    
    $
    (1,212.8
    )
    
    $
    (2,415.8
    )
    
    $
    (608.3
    )
    
    $
    3,024.1
    
    
    $
    (1,212.8
    )


Predecessor Company
Condensed Consolidated Statement of Operations
Year ended August 31, 2002

Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    TotalsRevenue
    
    $
    
    
    
    $
    3,070.0
    
    
    $
    1,362.1
    
    
    $
    
    
    
    $
    4,432.1Operating, selling, general and
administrative expenses
    
    
    11.7
    
    
    
    2,756.4
    
    
    
    1,243.0
    
    
    
    
    
    
    
    4,011.1Depreciation and amortization expense
    
    
    0.2
    
    
    
    265.6
    
    
    
    93.0
    
    
    
    
    
    
    
    358.8Intercompany management fees (income)
    
    
    (72.9
    )
    
    
    58.1
    
    
    
    14.8
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    61.0
    
    
    
    (10.1
    )
    
    
    11.3
    
    
    
    
    
    
    
    62.2Interest expense
    
    
    
    
    
    
    (5.8
    )
    
    
    (21.9
    )
    
    
    
    
    
    
    (27.7
    )Intercompany interest income (expense)
    
    
    (5.2
    )
    
    
    2.6
    
    
    
    2.6
    
    
    
    
    
    
    
    Other income (expense), net
    
    
    (30.8
    )
    
    
    (2.6
    )
    
    
    4.0
    
    
    
    
    
    
    
    (29.4
    )Equity in earnings (loss) of
intercompany investments
    
    
    (10.1
    )
    
    
    (13.9
    )
    
    
    
    
    
    
    24.0
    
    
    
    Income (loss) before income taxes
    
    
    14.9
    
    
    
    (29.8
    )
    
    
    (4.0
    )
    
    
    24.0
    
    
    
    5.1Income tax benefit (expense)
    
    
    
    
    
    
    10.1
    
    
    
    (0.3
    )
    
    
    
    
    
    
    9.8Net income (loss)
    
    $
    14.9
    
    
    $
    (19.7
    )
    
    $
    (4.3
    )
    
    $
    24.0
    
    
    $
    14.9


F-48



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##### Table of Contents



Condensed Consolidated Statement of Cash Flows
Year ended August 31, 2004

Parent
    
    
    
    
    
    Non-
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Guarantors
    
    TotalsNet cash provided by (used in) operating activities
    
    $
    (35.9
    )
    
    $
    391.1
    
    
    $
    34.8
    
    
    $
    390.0Cash flows from investing activities:Purchases of property and equipment
    
    $
    
    
    
    $
    (152.7
    )
    
    $
    (72.2
    )
    
    $
    (224.9
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    12.1
    
    
    
    3.7
    
    
    
    15.8Expended on acquisitions
    
    
    
    
    
    
    
    
    
    
    (3.4
    )
    
    
    (3.4
    )Net decrease (increase) in investments
    
    
    (4.7
    )
    
    
    73.2
    
    
    
    (97.4
    )
    
    
    (28.9
    )Net increase in other assets
    
    
    
    
    
    
    (1.3
    )
    
    
    
    
    
    
    (1.3
    )Net cash used in investing activities
    
    $
    (4.7
    )
    
    $
    (68.7
    )
    
    $
    (169.3
    )
    
    $
    (242.7
    )Cash flows from financing activities:Proceeds from issue of long-term debt
    
    $
    150.0
    
    
    $
    0.1
    
    
    $
    89.3
    
    
    $
    239.4Repayments of long-term debt
    
    
    (175.0
    )
    
    
    (9.4
    )
    
    
    (126.2
    )
    
    
    (310.6
    )Payment of financing fees
    
    
    (4.3
    )
    
    
    
    
    
    
    (1.0
    )
    
    
    (5.3
    )Net decrease in non-current liabilities
    
    
    (2.9
    )
    
    
    (8.0
    )
    
    
    (2.2
    )
    
    
    (13.1
    )Net increase (decrease) in intercompany advances
    
    
    103.5
    
    
    
    (300.6
    )
    
    
    197.1
    
    
    
    Net cash provided by (used in) financing activities
    
    $
    71.3
    
    
    $
    (317.9
    )
    
    $
    157.0
    
    
    $
    (89.6
    )Net increase (decrease) in cash and cash equivalents
    
    $
    30.7
    
    
    $
    4.5
    
    
    $
    22.5
    
    
    $
    57.7Cash and cash equivalents at:Beginning of period
    
    
    40.8
    
    
    
    3.8
    
    
    
    55.7
    
    
    
    100.3End of period
    
    $
    71.5
    
    
    $
    8.3
    
    
    $
    78.2
    
    
    $
    158.0


Condensed Consolidated Statement of Cash Flows
For the period June 1, 2003 through August 31, 2003

Parent
    
    
    
    
    
    Non-
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Guarantors
    
    TotalsNet cash provided by operating activities
    
    $
    71.2
    
    
    $
    60.5
    
    
    $
    55.3
    
    
    $
    187.0Cash flows from investing activities:Purchases of property and equipment
    
    $
    
    
    
    $
    (70.9
    )
    
    $
    (19.6
    )
    
    $
    (90.5
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    3.3
    
    
    
    1.1
    
    
    
    4.4Expended on acquisitions
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )Net decrease (increase) in investments
    
    
    0.7
    
    
    
    (4.9
    )
    
    
    15.5
    
    
    
    11.3Net increase in other assets
    
    
    
    
    
    
    (0.7
    )
    
    
    (0.4
    )
    
    
    (1.1
    )Net cash provided by (used in) investing activities
    
    $
    0.7
    
    
    $
    (73.2
    )
    
    $
    (3.5
    )
    
    $
    (76.0
    )Cash flows from financing activities:Proceeds from issue of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    17.3
    
    
    $
    17.3Repayments of long-term debt
    
    
    
    
    
    
    (2.2
    )
    
    
    (43.3
    )
    
    
    (45.5
    )Payment of financing fees
    
    
    (3.8
    )
    
    
    
    
    
    
    
    
    
    
    (3.8
    )Net decrease (increase) in non-current liabilities
    
    
    (6.2
    )
    
    
    1.8
    
    
    
    2.3
    
    
    
    (2.1
    )Net cash used in financing activities
    
    $
    (10.0
    )
    
    $
    (0.4
    )
    
    $
    (23.7
    )
    
    $
    (34.1
    )Net increase (decrease) in cash and cash equivalents
    
    $
    61.9
    
    
    $
    (13.1
    )
    
    $
    28.1
    
    
    $
    76.9Cash and cash equivalents at:Beginning of period
    
    
    (21.1
    )
    
    
    16.9
    
    
    
    27.6
    
    
    
    23.4End of period
    
    $
    40.8
    
    
    $
    3.8
    
    
    $
    55.7
    
    
    $
    100.3


F-49



---



##### Table of Contents



Predecessor Company
Condensed Consolidated Statement of Cash Flows
For the period September 1, 2002 through May 31, 2003

Parent
    
    
    
    
    
    Non-
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    TotalsNet cash provided by operating
activities
    
    $
    102.0
    
    
    $
    100.0
    
    
    $
    6.5
    
    
    $
    
    
    
    $
    208.5Cash flows from investing activities:Purchases of property and equipment
    
    $
    
    
    
    $
    (129.5
    )
    
    $
    (100.6
    )
    
    $
    
    
    
    $
    (230.1
    )Proceeds from sale of property and
equipment
    
    
    
    
    
    
    6.8
    
    
    
    17.8
    
    
    
    
    
    
    
    24.6Expended on acquisitions
    
    
    
    
    
    
    (4.6
    )
    
    
    
    
    
    
    
    
    
    
    (4.6
    )Net increase in investments
    
    
    (99.2
    )
    
    
    (24.0
    )
    
    
    (28.1
    )
    
    
    
    
    
    
    (151.3
    )Net decrease (increase) in other assets
    
    
    (1.3
    )
    
    
    (2.6
    )
    
    
    0.7
    
    
    
    
    
    
    
    (3.2
    )Increase (decrease) in
 intercompany investments
    
    
    (50.0
    )
    
    
    
    
    
    
    
    
    
    
    50.0
    
    
    
    Net cash provided by (used in) investing
activities
    
    $
    (150.5
    )
    
    $
    (153.9
    )
    
    $
    (110.2
    )
    
    $
    50.0
    
    
    $
    (364.6
    )Cash flows from financing activities:Proceeds from issue of long-term debt
    
    $
    1,025.6
    
    
    $
    
    
    
    $
    182.2
    
    
    $
    
    
    
    $
    1,207.8Repayments of long-term debt
    
    
    
    
    
    
    (7.6
    )
    
    
    (140.4
    )
    
    
    
    
    
    
    (148.0
    )Payment of financing fees
    
    
    (37.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37.5
    )Net decrease in non-current liabilities
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.7
    )
    
    
    
    
    
    
    (1.3
    )Repayment of
liabilities subject to compromise
    
    
    (972.7
    )
    
    
    (212.3
    )
    
    
    
    
    
    
    
    
    
    
    (1,185.0
    )Issue intercompany capital
    
    
    
    
    
    
    
    
    
    
    50.0
    
    
    
    (50.0
    )
    
    
    Net cash provided by (used in) financing
activities
    
    $
    15.4
    
    
    $
    (220.5
    )
    
    $
    91.1
    
    
    $
    (50.0
    )
    
    $
    (164.0
    )Net decrease in cash and cash equivalents
    
    $
    (33.1
    )
    
    $
    (274.4
    )
    
    $
    (12.6
    )
    
    $
    
    
    
    $
    (320.1
    )Cash and cash equivalents at:Beginning of period
    
    
    12.0
    
    
    
    291.3
    
    
    
    40.2
    
    
    
    
    
    
    
    343.5End of period
    
    $
    (21.1
    )
    
    $
    16.9
    
    
    $
    27.6
    
    
    $
    
    
    
    $
    23.4


Predecessor Company
Condensed Consolidated Statement of Cash Flows
Year ended August 31, 2002

Parent
    
    
    
    
    
    Non-
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    TotalsNet cash provided by operating
activities
    
    $
    36.9
    
    
    $
    286.2
    
    
    $
    110.7
    
    
    $
    
    
    
    $
    433.8Cash flows from investing activities:Purchases of property and equipment
    
    $
    (0.1
    )
    
    $
    (168.6
    )
    
    $
    (114.6
    )
    
    $
    
    
    
    $
    (283.3
    )Proceeds from sale of property and
equipment
    
    
    
    
    
    
    18.2
    
    
    
    27.3
    
    
    
    
    
    
    
    45.5Expended on acquisitions
    
    
    
    
    
    
    (1.2
    )
    
    
    (2.4
    )
    
    
    
    
    
    
    (3.6
    )Net decrease (increase) in investments
    
    
    2.4
    
    
    
    (26.2
    )
    
    
    (13.3
    )
    
    
    
    
    
    
    (37.1
    )Net decrease (increase) in other assets
    
    
    1.2
    
    
    
    (0.4
    )
    
    
    2.0
    
    
    
    
    
    
    
    2.8Increase
(decrease) in intercompany investments
    
    
    (40.0
    )
    
    
    (1.2
    )
    
    
    
    
    
    
    41.2
    
    
    
    Net cash provided by (used in) investing
activities
    
    $
    (36.5
    )
    
    $
    (179.4
    )
    
    $
    (101.0
    )
    
    $
    41.2
    
    
    $
    (275.7
    )Cash flows from financing activities:Proceeds from issue of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    172.2
    
    
    $
    
    
    
    $
    172.2Repayments of long-term debt
    
    
    
    
    
    
    (17.1
    )
    
    
    (241.2
    )
    
    
    
    
    
    
    (258.3
    )Net decrease (increase) in non-current liabilities
    
    
    
    
    
    
    (15.9
    )
    
    
    6.2
    
    
    
    
    
    
    
    (9.7
    )Issue intercompany capital
    
    
    
    
    
    
    
    
    
    
    41.2
    
    
    
    (41.2
    )
    
    
    Net cash used in financing activities
    
    $
    
    
    
    $
    (33.0
    )
    
    $
    (21.6
    )
    
    $
    (41.2
    )
    
    $
    (95.8
    )Net increase (decrease) in cash and cash
equivalents
    
    $
    0.4
    
    
    $
    73.8
    
    
    $
    (11.9
    )
    
    $
    
    
    
    $
    62.3Cash and cash equivalents at:Beginning of period
    
    
    11.6
    
    
    
    217.5
    
    
    
    52.1
    
    
    
    
    
    
    
    281.2End of period
    
    $
    12.0
    
    
    $
    291.3
    
    
    $
    40.2
    
    
    $
    
    
    
    $
    343.5


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##### Table of Contents



Condensed Consolidated Balance Sheet
As of August 31, 2004

Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    TotalsCurrent assets
    
    $
    74.9
    
    
    $
    644.5
    
    
    $
    312.5
    
    
    $
    
    
    
    $
    1,031.9Intercompany
receivables (payables) and investments
    
    
    2,144.6
    
    
    
    284.8
    
    
    
    (163.5
    )
    
    
    (2,265.9
    )
    
    
    Long-term investments
    
    
    114.7
    
    
    
    71.9
    
    
    
    422.0
    
    
    
    
    
    
    
    608.6Property and equipment
    
    
    
    
    
    
    969.1
    
    
    
    656.7
    
    
    
    
    
    
    
    1,625.8Goodwill
    
    
    
    
    
    
    139.1
    
    
    
    
    
    
    
    
    
    
    
    139.1Contracts and customer relationships
    
    
    
    
    
    
    200.8
    
    
    
    2.2
    
    
    
    
    
    
    
    203.0Long-term deferred income tax assets
    
    
    5.9
    
    
    
    27.3
    
    
    
    195.3
    
    
    
    
    
    
    
    228.5Deferred charges and other assets
    
    
    42.8
    
    
    
    16.5
    
    
    
    9.0
    
    
    
    
    
    
    
    68.3$
    2,382.9
    
    
    $
    2,354.0
    
    
    $
    1,434.2
    
    
    $
    (2,265.9
    )
    
    $
    3,905.2Current liabilities
    
    $
    35.7
    
    
    $
    315.6
    
    
    $
    335.3
    
    
    $
    
    
    
    $
    686.6Non-current liabilities
    
    
    970.7
    
    
    
    166.9
    
    
    
    704.5
    
    
    
    
    
    
    
    1,842.1Shareholders equity
    
    
    1,376.5
    
    
    
    1,871.5
    
    
    
    394.4
    
    
    
    (2,265.9
    )
    
    
    1,376.5$
    2,382.9
    
    
    $
    2,354.0
    
    
    $
    1,434.2
    
    
    $
    (2,265.9
    )
    
    $
    3,905.2


Condensed Consolidated Balance Sheet
As of August 31, 2003

Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    TotalsCurrent assets
    
    $
    44.0
    
    
    $
    662.7
    
    
    $
    241.3
    
    
    $
    
    
    
    $
    948.0Intercompany
receivables (payables) and investments
    
    
    2,083.4
    
    
    
    25.9
    
    
    
    18.8
    
    
    
    (2,128.1
    )
    
    
    Long-term investments
    
    
    110.3
    
    
    
    164.0
    
    
    
    337.8
    
    
    
    
    
    
    
    612.1Property and equipment
    
    
    
    
    
    
    1,015.7
    
    
    
    654.1
    
    
    
    
    
    
    
    1,669.8Goodwill
    
    
    
    
    
    
    183.1
    
    
    
    
    
    
    
    
    
    
    
    183.1Contracts and customer relationships
    
    
    
    
    
    
    216.8
    
    
    
    0.1
    
    
    
    
    
    
    
    216.9Long-term deferred income tax assets
    
    
    49.1
    
    
    
    
    
    
    
    183.9
    
    
    
    (29.8
    )
    
    
    203.2Deferred charges and other assets
    
    
    46.5
    
    
    
    20.2
    
    
    
    11.5
    
    
    
    
    
    
    
    78.2$
    2,333.3
    
    
    $
    2,288.4
    
    
    $
    1,447.5
    
    
    $
    (2,157.9
    )
    
    $
    3,911.3Current liabilities
    
    $
    44.1
    
    
    $
    296.7
    
    
    $
    354.0
    
    
    $
    
    
    
    $
    694.8Non-current liabilities
    
    
    998.9
    
    
    
    215.6
    
    
    
    741.5
    
    
    
    (29.8
    )
    
    
    1,926.2Shareholders equity
    
    
    1,290.3
    
    
    
    1,776.1
    
    
    
    352.0
    
    
    
    (2,128.1
    )
    
    
    1,290.3$
    2,333.3
    
    
    $
    2,288.4
    
    
    $
    1,447.5
    
    
    $
    (2,157.9
    )
    
    $
    3,911.3


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##### Table of Contents



Note 26  Valuation and qualifying accounts

Allowance for doubtful
accounts and deferred income tax valuation reserves were as follows:

($ in millions)
    
    
    
    
    
    
    
    
    
    
    Predecessor CompanyThree
    
    
    NineYear
    
    Months
    
    
    Months
    
    YearEnded
    
    Ended
    
    
    Ended
    
    EndedAugust 31,
    
    August 31,
    
    
    May 31,
    
    August 31,2004
    
    2003
    
    
    2003
    
    2002Allowance for doubtful accounts *Balance at beginning of Period
    
    $
    533.5
    
    
    $
    510.3
    
    
    
    $
    473.2
    
    
    $
    538.9Charged to costs and expenses
    
    
    2,029.7
    
    
    
    454.0
    
    
    
    
    794.0
    
    
    
    1,391.4Amounts written off net of recoveries
    
    
    (1,969.7
    )
    
    
    (430.8
    )
    
    
    
    (757.0
    )
    
    
    (1,457.1
    )Other **
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    Balance at end of period
    
    $
    593.5
    
    
    $
    533.5
    
    
    
    $
    510.3
    
    
    $
    473.2Deferred income tax asset valuation reserveBalance at beginning of Period
    
    $
    313.6
    
    
    $
    313.6
    
    
    
    $
    846.2
    
    
    $
    795.0Charged to costs and expenses
    
    
    35.5
    
    
    
    
    
    
    
    
    (50.6
    )
    
    
    (34.3
    )Reduction applied to goodwill
    
    
    (44.0
    )Amounts written off net of recoveries
    
    
    
    
    
    
    
    
    
    
    
    (482.0
    )
    
    
    85.5Balance at end of period
    
    $
    305.1
    
    
    $
    313.6
    
    
    
    $
    313.6
    
    
    $
    846.2




|* |  | Includes the allowance for uncompensated care and contractual
allowances of the Predecessor Companys and the Companys healthcare
businesses.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------



|** |  | Primarily represents the effect of exchange rate changes on asset
balances over the periods indicated.
|-- |  | ------------------------------------------------------------------------------------------------------

F-52