##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended August 31, 2006
 Commission File Number 000-10657
 LAIDLAW INTERNATIONAL, INC.
  DELAWARE
    
    98-0390488(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 55 SHUMAN BOULEVARD, SUITE 400
NAPERVILLE, ILLINOIS 60563    (630) 848-3000
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.01 par value
    
    New York Stock Exchange
 
 þ o
 o þ
 þ o
 þ
  þ o o
 o þ
  
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    Economic and other market factors, including competitive pressures and changes
in pricing policies;
    
    The ability to implement initiatives designed to increase operating
efficiencies or improve results;
    
    Costs and risks associated with litigation and indemnification obligations;
    
    Changes in interpretations of existing, or the adoption of new, legislation,
regulations or other laws;
    
    The potential for rising labor costs and actions taken by organized labor unions;
    
    Continued increases in prices of fuel and potential shortages;
    
    Control of costs related to accident and other risk management claims;
    
    Terrorism and other acts of violence;
    
    The ability to produce sufficient future taxable income to allow us to recover
our deferred tax assets;
    
    The ability to repurchase the Companys stock or pay dividends to shareholders;
    
    Potential changes in the mix of businesses we operate; and
    
    The inability to earn sufficient returns on pension plan assets thus requiring
increased funding.
  2




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##### 



LAIDLAW INTERNATIONAL, INC.
FORM 10-K INDEX
 Item No.
    
    
    
    Page No.PART IItem 1.
    
    BusinessBackground and parent company restructuring
    
    4Business segments:Education services
    
    5Greyhound
    
    8Public transit
    
    12Available information
    
    14Item 1A.
    
    Risk factors
    
    14Item 1B.
    
    Unresolved Staff Comments
    
    17Item 2.
    
    Properties
    
    17Item 3.
    
    Legal Proceedings
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    19Item 4A.
    
    Executive Officers of the Registrant
    
    19PART IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder
Matters
    
    21Item 6.
    
    Selected Financial Data
    
    23Item 7.
    
    Managements Discussion and Analysis of Financial Condition
and Results of OperationsOverview
    
    24Year in review
    
    24Results of operations
    
    26Liquidity and capital resources
    
    31Off-balance sheet arrangements
    
    33Critical accounting policies
    
    33Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    35Item 8.
    
    Financial Statements and Supplementary Data
    
    36Item 9.
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    36Item 9A.
    
    Controls and Procedures
    
    36Item 9B.
    
    Other Information
    
    36PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    38Item 11.
    
    Executive Compensation
    
    38Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    38Item 13.
    
    Certain Relationships and Related Transactions
    
    38Item 14.
    
    Principal Accountant Fees and Services
    
    38PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    39Signatures
    
    42Amendment to Amended and Restated Equity and Performance Incentive PlanEmployment AgreementNon-Employee Director Compensation PolicySubsidiaries of the RegistrantConsentPower of AttorneyCertificationCertificationCertification
  3




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PART I
 
 ITEM 1.
    
    BUSINESS
  
    
    Our education services segment is the largest provider of school bus transportation
throughout the United States and Canada (50% of revenue);
    
    Our Greyhound segment is the largest provider of intercity bus transportation in the
United States and Canada. Greyhound also provides charter bus services and package
delivery services (40% of revenue); and
    
    Our public transit segment is a leading operator of out-sourced municipal and
paratransit bus transportation within the United States (10% of revenue).
  
 BACKGROUND AND PARENT COMPANY RESTRUCTURING
     4




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EDUCATION SERVICES SEGMENT
 Services Provided
  (i)
    
    Home-to-school:Regularly scheduled transportation of students to and from school, based on
the negotiated terms of contracts with school districts (87% of revenue);(ii)
    
    Extra-curricular:Non-regularly scheduled transportation of students on field trips, to
athletic events or for other extra-curricular activities (5% of revenue);(iii)
    
    Charter & transit:Transportation service provided to non-school customers (5% of revenue);
and(iv)
    
    Other:Leasing or sale of transportation equipment, logistical support, maintenance
agreements and other support services (3% of revenue).
 Competitive Environment
     Operations
  5




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
    
    Strengthen leading safety record  We are committed to the highest safety standards
and have been a leader in the development of safety technology. The historical safety
trends for our operations, reflecting reductions in the frequency of accidents, have
resulted in lowering risk management costs.
    
    Grow operating margins and return on assets  In addition to our efforts to improve
the profitability of our contracted revenue, we are taking steps to modify our operations
in order to increase operating margins.
    
    
    Focus on growth  Through targeted business development efforts, acquisitions and
increased charter services, we believe we will be able to enhance our ability to grow our
traditional transportation offerings. Additionally, improved and scaleable information
systems may give us an opportunity to market our core competencies to school districts that
do not contract out bus transportation.
  Seasonality
  Employees
  6




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




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Regulation
   
 GREYHOUND SEGMENT
 Services Provided
  (i)
    
    Passenger service:Greyhound provides inter-city bus transportation to cities and towns in
urban and rural areas throughout the U.S. and Canada. Additionally, interline agreements and
alliances with other bus carriers provide access to smaller towns in the U.S. and Canada and
cross-border transportation to and from Mexico that are complementary to our existing service
schedules (80% of revenue);(ii)
    
    Package express:Our package express service targets commercial shippers and delivery
companies that require rapid delivery of small parcels, typically to locations within 100 to
300 miles. Our services include standard delivery, which is a value priced
terminal-to-terminal delivery service, as well as priority and same day delivery, which is a
premium priced product where parcels are typically delivered door-to-door (9% of revenue);(iii)
    
    Charter:We offer charter services whereby a group of individuals can reserve a bus and
driver for transportation to and from specific events, such as concerts, sporting events,
casinos and conventions (5% of revenue); and(iv)
    
    Food service and other:We offer food service and travel and logo items for purchase in many
of our terminal locations (6% of revenue).
 Trademarks
  Competitive Environment
 Passenger service
  8




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Package express
  Charter
  Food service
  Operations
  9




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
    
    Enhance revenue per mile- In 2006, Greyhound completed a multi-year program to
transform its network into a simpler, more regional structure that is short and medium haul
focused and offers a better service pattern for customers. Through the elimination of
unprofitable routes and low demand stops, Greyhound has been able to increase revenue per
mile while offering faster, more convenient service. We will continue to look for
opportunities to increase profitability through adjustments to frequency and pricing to
match changing demand patterns.
    
    Grow revenue- Greyhound has initiatives underway to rejuvenate its brand and increase
ridership by improving the passenger experience, updating the buses and terminals and
shifting the brand messaging away from low- price to one of a good travel experience at a
reasonable price. Its marketing program incorporates perception factors and purchase
criteria, and demographic targets derived from extensive consumer research.
    
    Improve operating efficiency- The network restructuring has improved Greyhounds bus
and driver utilization through the creation of regionally based fleets. We are focused on
further improving utilization and lowering per unit costs.
 Information Technology
  Seasonality
  Employees
   10




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Safety
  Vehicle Fleet
  Fuel
  Regulation
    11




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PUBLIC TRANSIT SEGMENT
 Services Provided
  (i)
    
    Paratransit:We provide transportation for the mobility challenged which complies with the
ADA. The ADA guarantees persons with disabilities full and equal access to the same services
and accommodations that are available to people without disabilities. Public transit
operators provide paratransit services to persons with disabilities that are comparable to the
level of fixed-route service provided. Our service offerings include curb-to-curb and
door-to-door group and individual dial-a-ride services (76% of revenue);(ii)
    
    Fixed-route:This service is comprised of public municipal transit bus systems providing
scheduled fixed-route transportation. We operate municipal transit bus systems, including the
recruitment, training and management of drivers, mechanics and support staff needed to provide
such services (23% of revenue); and(iii)
    
    Other:We provide other transportation services such as shuttle services for corporate
campuses (1% of revenue).
 Competitive Environment
     Operations
   12




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Employees
   Safety
  Vehicle Fleet
  Fuel
  Regulation
  13




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AVAILABLE INFORMATION
  
 ITEM 1A.
    
    RISK FACTORS
  Economic and other market factors, including competitive pressures and changes in pricing policies,
may adversely affect our future financial performance.
    The ability of management to implement initiatives designed to increase operating efficiencies or
improve results.
   14




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Costs and risks associated with litigation could materially affect our financial results.
  Changes in interpretations of existing, or the adoption of new, legislation, regulations or other
laws could adversely affect our operations.
  Rising labor costs and actions taken by organized labor unions could have a material adverse effect
on our financial condition and results of operations.
    15




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Rising fuel costs or potential shortages could have a material adverse affect on our business.
  Changes in estimated insurance reserves could have a material adverse effect on our financial
condition or results of operations.
  Terrorism and other acts of violence may have a material adverse effect on our business.
  Our Greyhound business is dependent on peak travel periods.
  Pension funding requirements could have a material adverse effect on our financial condition and
results of operations.
  16




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Other
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
     17




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ITEM 3.
    
    LEGAL PROCEEDINGS
 General Litigation and Other Disputes
 Contingent Liabilities Relating to Sale of AMR
    Other
  Environmental
   18




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ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 4A.
    
    EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionKevin E. Benson
    
    
    59
    
    
    Director, President and Chief Executive OfficerBeth Byster Corvino
    
    
    49
    
    
    Executive Vice President, General Counsel and
Corporate SecretaryMary B. Jordan
    
    
    47
    
    
    Executive Vice President, Human Resources and
Internal CommunicationsJeffrey W. Sanders
    
    
    44
    
    
    Vice President, Chief Financial OfficerJeffery A. McDougle
    
    
    50
    
    
    Vice President, Treasurer
  Kevin E. Benson
 19




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Beth Byster Corvino
 Mary B. Jordan
 Jeffrey W. Sanders
 Jeffery A. McDougle
 20




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
   HIGH
    
    LOWYear ended August 31, 2006:Fourth Quarter
    
    $
    27.35
    
    
    $
    24.10Third Quarter
    
    
    29.40
    
    
    
    24.30Second Quarter
    
    
    28.34
    
    
    
    21.42First Quarter
    
    
    25.68
    
    
    
    21.09Year ended August 31, 2005:Fourth Quarter
    
    $
    26.50
    
    
    $
    22.47Third Quarter
    
    
    23.43
    
    
    
    20.41Second Quarter
    
    
    23.00
    
    
    
    18.85First Quarter
    
    
    19.00
    
    
    
    15.37
   Summary of Equity Compensation Plans
  21




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Available forNumber of
    
    
    
    future issuanceshares to be issued
    
    Weighted-average
    
    under equityupon exercise 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
    
    2,087,738
    
    $18.15 *
    
    2,431,653Equity compensation
plans not approved
by shareholders
    
    None
    
    None
    
    NoneTotal
    
    2,087,738
    
    $18.15 *
    
    2,431,653
 *
    
    Weighted average exercise price of the 1,270,044 stock options outstanding on August 31,
2006. Purchases of Equity Securities by the Issuer
  Total number of shares
    
    Approximate dollar value ofpurchased as part of
    
    shares that may yet beTotal number of shares
    
    Average price paid
    
    publicly announced plans or
    
    purchased under the plansPeriod
    
    purchased
    
    per share
    
    programs
    
    or programs(in millions)June 1  June 30
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    123.2
    (1)July 1  July 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500.0
    (2)August 1 -
August 31 (3)
    
    
    16,037,985
    
    
    
    26.88
    
    
    
    16,037,985
    
    
    
    68.9Total
    
    
    16,037,985
    
    
    
    26.88
    
    
    
    16,037,985
 
 (1)
    
    Effective January 5, 2006, the Board of Directors authorized a stock repurchase program to
acquire up to $200 million of our outstanding stock. As of May 31, 2006, 2,821,200 shares had
been repurchased at an aggregate cost of $76.8 million.(2)
    
    On July 6, 2006 we announced that our Board of Directors had authorized the Company to
repurchase an additional $376.8 million of our outstanding common stock. This authorization,
in combination with the remaining amount authorized under the previously announced buyback
program, allowed the Company to repurchase up to $500 million of our outstanding stock.(3)
    
    On August 7, 2006, we repurchased 15,557,985 million shares of common stock for $26.90 per
share through a modified Dutch auction tender offer. Additionally, we repurchased 480,000
shares on the open market at an average price of $26.29 per share. 22




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ITEM 6.
    
    SELECTED FINANCIAL DATA
  Predecessor Company *($ in millions except per share amounts)
    
    
    
    
    
    
    
    
    
    
    
    
    
    Three Months ended
    
    
    Nine Months ended
    
    Year endedYears ended August 31,
    
    
    August
    
    
    May 31,
    
    August 31,Statements of Operations Data
    
    2006
    
    2005
    
    2004
    
    31, 2003
    
    
    2003
    
    2002Revenue
    
    $
    3,131.9
    
    
    $
    3,026.5
    
    
    $
    3,026.8
    
    
    $
    612.6
    
    
    
    $
    2,374.4
    
    
    $
    3,012.9Depreciation and amortization
    
    
    215.8
    
    
    
    249.1
    
    
    
    230.7
    
    
    
    39.5
    
    
    
    
    195.5
    
    
    
    259.8Operating income
    
    
    250.5
    
    
    
    164.9
    
    
    
    142.8
    
    
    
    7.9
    
    
    
    
    116.6
    
    
    
    64.8Income (loss) from continuing
operations **
    
    $
    141.2
    
    
    $
    (5.6
    )
    
    $
    46.5
    
    
    $
    (0.4
    )
    
    
    $
    373.4
    
    
    $
    50.7Income (loss) from discontinued
operations ***
    
    
    (12.6
    )
    
    
    218.0
    
    
    
    15.2
    
    
    
    (9.5
    )
    
    
    
    (1,586.2
    )
    
    
    (35.8
    )Cumulative effect of a change in
accounting principle
    
    
    (3.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    124.9
    
    
    $
    212.4
    
    
    $
    61.7
    
    
    $
    (9.9
    )
    
    
    
    (1,212.8
    )
    
    $
    14.9Basic earnings (loss) per share
Continuing operations
    
    $
    1.44
    
    
    $
    (0.06
    )
    
    $
    0.47
    
    
    $
    (0.01
    )
    
    
    $
    1.15
    
    
    $
    0.16Discontinued operations
    
    
    (0.13
    )
    
    
    2.18
    
    
    
    0.15
    
    
    
    (0.09
    )
    
    
    
    (4.87
    )
    
    
    (0.11
    )Cumulative effect of a change in
accounting principle
    
    
    (0.04
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    1.27
    
    
    $
    2.12
    
    
    $
    0.62
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )
    
    $
    0.05Diluted earnings (loss) per share
Continuing operations
    
    $
    1.44
    
    
    $
    (0.06
    )
    
    $
    0.45
    
    
    $
    (0.01
    )
    
    
    $
    1.15
    
    
    $
    0.16Discontinued operations
    
    
    (0.13
    )
    
    
    2.18
    
    
    
    0.14
    
    
    
    (0.09
    )
    
    
    
    (4.87
    )
    
    
    (0.11
    )Cumulative effect of a change in
accounting principle
    
    
    (0.04
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    1.27
    
    
    $
    2.12
    
    
    $
    0.59
    
    
    $
    (0.10
    )
    
    
    $
    (3.72
    )
    
    $
    0.05Dividends per Common Share
    
    $
    0.60
    
    
    $
    0.15
    
    
    $
    
    
    
    $
    
    
    
    
    $
    
    
    
    $
    Balance Sheet Data ****(at period end)Total assets  Continuing operations
    
    $
    3,038.7
    
    
    $
    2,908.7
    
    
    $
    3,030.3
    
    
    $
    3,031.5
    
    
    
    $
    3,064.3
    
    
    $
    3,790.1Total assets
    
    
    3,038.7
    
    
    
    2,908.7
    
    
    
    3,948.4
    
    
    
    3,977.1
    
    
    
    
    3,954.1
    
    
    
    6,275.9Total debt
    
    
    807.3
    
    
    
    314.4
    
    
    
    1,135.1
    
    
    
    1,190.5
    
    
    
    
    1,213.2
    
    
    
    192.7Liabilities subject to compromise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,977.1Shareholders equity
    
    
    1,207.9
    
    
    
    1,600.2
    
    
    
    1,376.5
    
    
    
    1,290.3
    
    
    
    
    1,309.3
    
    
    
    954.1
 
 *
    
    In June 2001 Laidlaw Inc. (the Predecessor Company) filed a voluntary petition for
bankruptcy protection under chapter 11, engaged in an internal restructuring and, in June
2003, the Company emerged from bankruptcy protection. 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. Due to the changes in the financial structure of the Company
the consolidated financial statements of the Company issued subsequent to the application of
fresh start accounting may not be comparable with the consolidated financial statements issued
by the Predecessor Company prior to the application of fresh start accounting. A black line
has been drawn on the schedule above to separate and distinguish between the Company and the
Predecessor Company.**
    
    The year ended August 31, 2005 includes $72.2 million of debt restructuring costs. The nine
months ended May 31, 2003 includes a net gain on extinguishment of debt of $1,482.8 million,
charges to income for fresh start accounting adjustments of $547.4 million and a goodwill
impairment charge of $636.4 million.***
    
    The year ended August 31, 2005 includes a $238.6 million gain on sale of the Companys
healthcare businesses. The nine months ended May 31, 2003 includes charges to income of
$1,569.0 million for goodwill impairment and $62.2 million for fresh start accounting
adjustments.****
    
    All balance sheet data on May 31, 2003 has been adjusted for fresh start accounting
adjustments. 23




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 OVERVIEW
  Education services
 Greyhound
 Public transit
 
 YEAR IN REVIEW
  Education Services
 Greyhound
 24




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Public Transit
    25




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RESULTS OF OPERATIONS
 Results of operations for the years ended August 31, 2006, 2005 and 2004 ($ in millions):
 Year ended August 31,2006
    
    
    2005
    
    
    2004Revenue
    
    $
    3,131.9
    
    
    $
    3,026.5
    
    
    $
    3,026.8Compensation expenses
    
    
    1,540.9
    
    
    
    1,519.0
    
    
    
    1,555.8Vehicle related costs
    
    
    249.7
    
    
    
    259.5
    
    
    
    260.5Fuel expense
    
    
    250.5
    
    
    
    199.7
    
    
    
    163.1Insurance and accident claim costs
    
    
    168.4
    
    
    
    163.2
    
    
    
    206.0Occupancy costs
    
    
    164.2
    
    
    
    156.7
    
    
    
    157.8Depreciation and amortization
    
    
    215.8
    
    
    
    249.1
    
    
    
    230.7Other operating expense
    
    
    291.9
    
    
    
    314.4
    
    
    
    310.1Operating income
    
    
    250.5
    
    
    
    164.9
    
    
    
    142.8Interest expense
    
    
    (24.3
    )
    
    
    (70.8
    )
    
    
    (78.6
    )Other income, net
    
    
    10.4
    
    
    
    10.5
    
    
    
    2.1Debt restructuring costs
    
    
    
    
    
    
    (112.2
    )
    
    
    Income (loss) before income taxes
    
    
    236.6
    
    
    
    (7.6
    )
    
    
    66.3Income tax (expense) benefit
    
    
    (95.4
    )
    
    
    2.0
    
    
    
    (19.8
    )Income (loss) from continuing operations
    
    
    141.2
    
    
    
    (5.6
    )
    
    
    46.5Income (loss) from discontinued operations
    
    
    (12.6
    )
    
    
    218.0
    
    
    
    15.2Income before cumulative effect of a
change in accounting principle
    
    
    128.6
    
    
    
    212.4
    
    
    
    61.7Cumulative effect of a change in
accounting principle
    
    
    (3.7
    )
    
    
    
    
    
    
    Net income
    
    $
    124.9
    
    
    $
    212.4
    
    
    $
    61.7
 Operating income as a percentage of revenue:
 Year ended August 31,2006
    
    2005
    
    2004Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Compensation expenses
    
    
    49.2
    
    
    
    50.2
    
    
    
    51.4Vehicle related costs
    
    
    8.0
    
    
    
    8.5
    
    
    
    8.6Fuel expense
    
    
    8.0
    
    
    
    6.6
    
    
    
    5.4Insurance and accident claim costs
    
    
    5.4
    
    
    
    5.4
    
    
    
    6.8Occupancy costs
    
    
    5.2
    
    
    
    5.2
    
    
    
    5.2Depreciation and amortization
    
    
    6.9
    
    
    
    8.3
    
    
    
    7.6Other operating expense
    
    
    9.3
    
    
    
    10.4
    
    
    
    10.3Operating income
    
    
    8.0
    %
    
    
    5.4
    %
    
    
    4.7
    %
 26




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##### Table of Contents



Results by reportable segment
  Education services
 ($ in millions)
    
    Revenue
    
    EBITDA
    
    EBITDA MarginYear ended August 31,2006
    
    $
    1,579.5
    
    
    $
    294.5
    
    
    
    18.6
    %2005
    
    
    1,518.2
    
    
    
    296.0
    
    
    
    19.52004
    
    
    1,495.8
    
    
    
    279.3
    
    
    
    18.7Percentage increase (decrease)Year 2006 over 2005
    
    
    4.0
    %
    
    
    (0.5
    )%
    
    (90
    ) BP*Year 2005 over 2004
    
    
    1.5
    
    
    
    6.0
    
    
    
    80
 
 *
    
    Increase (decrease) in EBITDA margin is expressed in basis points     27




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##### Table of Contents



Greyhound
 ($ in millions)
    
    Revenue
    
    EBITDA
    
    EBITDA MarginYear ended August 31,2006
    
    $
    1,244.2
    
    
    $
    152.1
    
    
    
    12.2
    %2005
    
    
    1,201.6
    
    
    
    101.9
    
    
    
    8.52004
    
    
    1,230.5
    
    
    
    86.2
    
    
    
    7.0Percentage increase (decrease)Year 2006 over 2005
    
    
    3.5
    %
    
    
    49.3
    %
    
    370
    BP*Year 2005 over 2004
    
    
    (2.3
    )
    
    
    18.2
    
    
    
    150
 
 *
    
    Increase in EBITDA margin is expressed in basis points    28




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##### Table of Contents



Public transit
 ($ in millions)
    
    Revenue
    
    EBITDA
    
    EBITDA MarginYear ended August 31,2006
    
    $
    308.2
    
    
    $
    19.7
    
    
    
    6.4
    %2005
    
    
    306.7
    
    
    
    16.1
    
    
    
    5.22004
    
    
    300.5
    
    
    
    8.0
    
    
    
    2.7Percentage increaseYear 2006 over 2005
    
    
    0.5
    %
    
    
    22.4
    %
    
    120
    BP*Year 2005 over 2004
    
    
    2.1
    
    
    
    101.3
    
    
    
    250
 
 *
    
    Increase in EBITDA margin is expressed in basis points    Depreciation and amortization
  Year ended August 31,2006
    
    
    2005
    
    
    2004Education services
    
    $
    132.6
    
    
    $
    168.2
    
    
    $
    164.6Greyhound
    
    
    73.6
    
    
    
    70.3
    
    
    
    54.6Public transit
    
    
    9.6
    
    
    
    10.6
    
    
    
    11.5Consolidated
    
    $
    215.8
    
    
    $
    249.1
    
    
    $
    230.7
   29




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##### Table of Contents



Interest expense
  Other income, net
  Debt restructuring costs
 3 4
 Income taxes
  Discontinued operations
  Cumulative effect of a change in accounting principle
  30




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
      Share repurchase program
   31




---



##### Table of Contents



Credit Facilities
     (a) (b) (c)
      32




---



##### Table of Contents



OFF-BALANCE SHEET ARRANGEMENTS
  Contractual obligations
  Scheduled payments in fiscal yearsTotal
    
    
    2007
    
    
    2008-2009
    
    
    2010-2011
    
    
    ThereafterLong-term debt*
    
    $
    806.5
    
    
    $
    34.4
    
    
    $
    101.2
    
    
    $
    194.6
    
    
    $
    476.3Interest on long-term debt**
    
    
    291.4
    
    
    
    54.2
    
    
    
    99.6
    
    
    
    75.6
    
    
    
    62.0Capital lease obligation
    
    
    0.8
    
    
    
    0.3
    
    
    
    0.4
    
    
    
    
    
    
    
    0.1Operating lease obligation
    
    
    245.3
    
    
    
    71.4
    
    
    
    89.0
    
    
    
    45.7
    
    
    
    39.2Purchase orders
    
    
    73.4
    
    
    
    73.4
    
    
    
    
    
    
    
    
    
    
    
    Pension obligation ***
    
    
    15.8
    
    
    
    15.8
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,433.2
    
    
    $
    249.5
    
    
    $
    290.2
    
    
    $
    315.9
    
    
    $
    577.6
 
 *
    
    Excluding capital lease obligations.**
    
    For variable rate debt we used the applicable margin and interest rate in effect at August
31, 2006 for all periods presented. Amounts include the effects of interest rate swaps.***
    
    The Company is unable to determine required funding beyond 2007. 
 CRITICAL ACCOUNTING POLICIES
  33




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##### Table of Contents



Claims liability and insurance reserves
  Income tax valuation allowance
   Pension
  34




---



##### Table of Contents



ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Commodity Prices
     35




---



##### Table of Contents



Investment Prices
  Foreign Exchange
  Interest Rate Sensitivity
    
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  36




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  Managements Report on Internal Control over Financial Reporting
   Internal Control  Integrated Framework
 
 ITEM 9B.
    
    OTHER INFORMATION
  37




---



##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
     
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
  38




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##### Table of Contents



PART IV
 
 ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    
    See Index to Financial Statements on page F-1 and (c) below.(b)
    
    Exhibits
 2.1
    
    Third Amended Joint Plan of
Reorganization of Laidlaw USA, Inc.
and its Debtor Affiliates dated
January 23, 2003 (filed as Exhibit
2.1 to the Form 8-K filed on July 7,
2003 and incorporated herein by
reference).2.2
    
    Modifications to the Third Amended
Joint Plan of Reorganization (filed
as Exhibit 2.2 to the Form 8-K filed
on July 7, 2003 and incorporated
herein by reference).2.3
    
    Second modifications to the Third
Amended Joint Plan of Reorganization
(filed as Exhibit 2.3 to the Form
8-K filed on July 7, 2003 and
incorporated herein by reference).3.1
    
    Certificate of Incorporation of
Laidlaw International, Inc. (filed
as Exhibit 4.1 to the Form 8-K filed
on July 9, 2003 and incorporated
herein by reference).3.2
    
    By-laws of Laidlaw International,
Inc. (filed as Exhibit 4.2 to the
Form 8-K filed on July 9, 2003 and
incorporated herein by reference).4.1
    
    Rights agreement, dated as of June
23, 2003, by and between Laidlaw
International, Inc. and Wells Fargo
Bank Minnesota, National
Association, as rights agent (filed
as Exhibit 4.3 to the Form 8-K filed
on July 9, 2003 and incorporated
herein by reference).10.1
    
    Laidlaw International, Inc. Amended
and Restated 2003 Equity and
Performance Incentive Plan (filed as
Exhibit A to the Laidlaw
International, Inc. Proxy Statement
filed on Form DEF 14A on December
28, 2004 and incorporated herein by
reference).*10.2
    
    First amendment to the Laidlaw
International, Inc. Amended and
Restated 2003 Equity and Performance
Incentive Plan.*10.3
    
    Laidlaw International, Inc. Short
Term Incentive Plan.* (filed as
Exhibit B to the Laidlaw
International, Inc. Proxy Statement
filed on Form DEF 14A on December
28, 2004 and incorporated herein by
reference).*10.4
    
    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).*10.5
    
    Credit Agreement dated July 31, 2006
by and among Laidlaw International,
Inc., Citigroup Global Markets Inc.,
UBS Securities LLC and Morgan
Stanley Senior Funding, Inc.
(Incorporated by reference to
Amendment No. 4 to Schedule TO filed
on July 31, 2006).
 39




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##### Table of Contents



10.6
    
    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).10.7
    
    Tax sharing agreement between
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).10.8
    
    Indemnification agreement between
Laidlaw International, Inc. and its
Directors and Officers (filed as
Exhibit 10.1 to the Form 10-Q for
the quarter ended May 31, 2004 and
incorporated herein by reference).10.9
    
    Stock Purchase Agreement, dated
December 6, 2004, by and among
Laidlaw International, Inc., Laidlaw
Medical Holdings, Inc. and EMSC,
Inc. (filed as Exhibit 99.1 to the
Form 8-K filed on December 13, 2004
and incorporated herein by
reference).10.10
    
    Stock Purchase Agreement, dated
December 6, 2004, by and among
Laidlaw International, Inc., Laidlaw
Medical Holdings, Inc. and EMSC,
Inc. (filed as Exhibit 99.2 to the
Form 8-K filed on December 13, 2004
and incorporated herein by
reference).10.11
    
    Amended and Restated Employment
Agreement between Laidlaw
International, Inc. and Kevin E.
Benson (filed as Exhibit 99.1 to the
Form 8-K filed on August 2, 2006 and
incorporated herein by reference).*10.12
    
    Amended and Restated Employment
Agreement between Laidlaw
International, Inc. and Beth Byster
Corvino (filed as Exhibit 99.2 to
the Form 8-K filed on August 2, 2006
and incorporated herein by
reference).*10.13
    
    Amended and Restated Employment
Agreement between Laidlaw
International, Inc. and Jeffrey W.
Sanders (filed as Exhibit 99.3 to
the Form 8-K filed on August 2, 2006
and incorporated herein by
reference).*10.14
    
    Amended and Restated Employment
Agreement between Laidlaw
International, Inc. and Jeffery A.
McDougle (filed as Exhibit 99.4 to
the Form 8-K filed on August 2, 2006
and incorporated herein by
reference).*10.15
    
    Employment Agreement between Laidlaw
International, Inc. and Mary B.
Jordan.*10.16
    
    Amended and Restated Employment
Agreement between Laidlaw
International, Inc. and Douglas A.
Carty (filed as Exhibit 99.5 to the
Form 8-K filed on August 2, 2006 and
incorporated herein by reference).*10.17
    
    Laidlaw International, Inc.
Non-Employee Director Compensation
Policy.
 40




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##### Table of Contents



10.18
    
    First Amendment to the Laidlaw
International, Inc. Non-Employee
Director Compensation Policy (filed
as Exhibit 99.6 to the Form 8-K
filed on August 2, 2006 and
incorporated herein by reference).10.19
    
    First Amendment to the Laidlaw
International, Inc. Short Term
Incentive Plan (filed as Exhibit
99.7 to the Form 8-K filed on August
2, 2006 and incorporated herein by
reference).10.20
    
    First Amendment to the Laidlaw Inc.
U.S. Supplemental Executive
Retirement Arrangement (filed as
Exhibit 99.8 to the Form 8-K filed
on August 2, 2006 and incorporated
herein by reference).21.1
    
    Subsidiaries of the registrant.23.1
    
    Consent of PricewaterhouseCoopers LLP24.1
    
    Power 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. 41




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##### Table of Contents



SIGNATURES
  LAIDLAW INTERNATIONAL, INC.By:
    /s/ Kevin E. BensonKevin E. BensonPresident, Chief Executive Officer and Director  Signature
    
    Title/s/ Kevin E. Benson
Kevin E. Benson
    
    President, Chief Executive Officer and Director
(Principal Executive Officer)/s/ Jeffrey W. Sanders
Jeffrey W. Sanders
    
    Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)John F. Chlebowski*
    
    DirectorJames H. Dickerson, Jr. *
    
    DirectorLawrence M. Nagin*
    
    DirectorRichard P. Randazzo*
    
    DirectorMaria A. Sastre*
    
    DirectorPeter E. Stangl*
    
    DirectorCarroll R. Wetzel, Jr.*
    
    Director
 *By
    
    /s/ Jeffrey W. SandersJeffrey W. SandersAs Attorney-in-Fact
 42




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
LAIDLAW INTERNATIONAL, INC.
 Reports of Independent Registered Public Accounting Firms
    
    
    F-2Consolidated Balance Sheets as of August 31, 2006 and 2005
    
    
    F-5Consolidated Statements of Operations for the years ended August 31,
2006, 2005 and 2004
    
    
    F-7Consolidated Statements of Shareholders Equity for the years ended
August 31, 2006, 2005 and 2004
    
    
    F-8Consolidated Statements of Cash Flows for the years ended August 31,
2006, 2005 and 2004
    
    
    F-9Notes to Consolidated Financial Statements
    
    
    F-10
 F-1




---



##### Table of Contents



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




---



##### Table of Contents



PricewaterhouseCoopers LLP
Chicago, Illinois
November 6, 2006
 F-3




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##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
($ in millions)
 August 31,
    
    
    August 31,2006
    
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    318.7
    
    
    $
    217.3Accounts receivable
    
    
    210.5
    
    
    
    202.6Insurance collateral
    
    
    106.4
    
    
    
    81.9Parts and supplies
    
    
    40.7
    
    
    
    32.5Deferred income tax assets
    
    
    39.6
    
    
    
    42.4Other current assets
    
    
    24.8
    
    
    
    29.2Total current assets
    
    
    740.7
    
    
    
    605.9Property and equipmentLand
    
    
    164.6
    
    
    
    166.9Buildings
    
    
    191.0
    
    
    
    176.1Vehicles
    
    
    1,753.4
    
    
    
    1,447.2Other
    
    
    137.1
    
    
    
    116.42,246.1
    
    
    
    1,906.6Less: Accumulated depreciation
    
    
    (648.2
    )
    
    
    (471.5
    )1,597.9
    
    
    
    1,435.1Other assetsInsurance collateral
    
    
    303.4
    
    
    
    392.2Other long-term investments
    
    
    29.3
    
    
    
    40.3Contracts and customer relationships
    
    
    68.5
    
    
    
    73.4Deferred income tax assets
    
    
    267.4
    
    
    
    350.3Deferred charges and other assets
    
    
    31.5
    
    
    
    11.5700.1
    
    
    
    867.7Total assets
    
    $
    3,038.7
    
    
    $
    2,908.7
  F-4




---



##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
($ in millions)
 August 31,
    
    
    August 31,2006
    
    
    2005LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    140.3
    
    
    $
    86.4Accrued employee compensation
    
    
    112.7
    
    
    
    105.7Other accrued liabilities
    
    
    95.8
    
    
    
    86.9Current portion of insurance reserves
    
    
    147.8
    
    
    
    141.6Current portion of long-term debt
    
    
    34.7
    
    
    
    27.8Total current liabilities
    
    
    531.3
    
    
    
    448.4Long-term debt
    
    
    772.6
    
    
    
    286.6Insurance reserves
    
    
    339.7
    
    
    
    344.4Pension liability
    
    
    104.5
    
    
    
    128.4Other long-term liabilities
    
    
    82.7
    
    
    
    100.7Total liabilities
    
    
    1,830.8
    
    
    
    1,308.5Commitments and contingencies(Note 8, 15)SHAREHOLDERS EQUITYCommon shares; $0.01 par value per share;
issued and outstanding 81.6 million
(August 31, 2005  100.2 million)
    
    
    0.8
    
    
    
    1.0Additional paid in capital
    
    
    814.5
    
    
    
    1,315.9Accumulated other comprehensive income
    
    
    77.8
    
    
    
    34.1Retained earnings
    
    
    314.8
    
    
    
    249.2Total shareholders equity
    
    
    1,207.9
    
    
    
    1,600.2Total liabilities and shareholders equity
    
    $
    3,038.7
    
    
    $
    2,908.7
  F-5




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##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in millions except per share amounts)
 Year Ended August 31,2006
    
    
    2005
    
    
    2004Revenue
    
    $
    3,131.9
    
    
    $
    3,026.5
    
    
    $
    3,026.8Compensation expense
    
    
    1,540.9
    
    
    
    1,519.0
    
    
    
    1,555.8Vehicle related costs
    
    
    249.7
    
    
    
    259.5
    
    
    
    260.5Fuel expense
    
    
    250.5
    
    
    
    199.7
    
    
    
    163.1Insurance and accident claim costs
    
    
    168.4
    
    
    
    163.2
    
    
    
    206.0Occupancy costs
    
    
    164.2
    
    
    
    156.7
    
    
    
    157.8Depreciation and amortization
    
    
    215.8
    
    
    
    249.1
    
    
    
    230.7Other operating expenses
    
    
    291.9
    
    
    
    314.4
    
    
    
    310.1Operating income
    
    
    250.5
    
    
    
    164.9
    
    
    
    142.8Interest expense
    
    
    (24.3
    )
    
    
    (70.8
    )
    
    
    (78.6
    )Other income, net
    
    
    10.4
    
    
    
    10.5
    
    
    
    2.1Debt restructuring costs
    
    
    
    
    
    
    (112.2
    )
    
    
    Income (loss) from continuing operations before income
taxes and cumulative effect of a change in accounting
principle
    
    
    236.6
    
    
    
    (7.6
    )
    
    
    66.3Income tax (expense) benefit
    
    
    (95.4
    )
    
    
    2.0
    
    
    
    (19.8
    )Income (loss) from continuing operations before
cumulative effect of a change in accounting principle
    
    
    141.2
    
    
    
    (5.6
    )
    
    
    46.5Income (loss) from discontinued operations
    
    
    (12.6
    )
    
    
    218.0
    
    
    
    15.2Income before cumulative effect of a change in
accounting principle
    
    
    128.6
    
    
    
    212.4
    
    
    
    61.7Cumulative effect of a change in accounting principle
    
    
    (3.7
    )
    
    
    
    
    
    
    Net income
    
    $
    124.9
    
    
    $
    212.4
    
    
    $
    61.7Basic earnings (loss) per shareContinuing operations
    
    $
    1.44
    
    
    $
    (0.06
    )
    
    $
    0.47Discontinued operations
    
    
    (0.13
    )
    
    
    2.18
    
    
    
    0.15Cumulative effect of a change in accounting principle
    
    
    (0.04
    )
    
    
    
    
    
    
    Net income
    
    $
    1.27
    
    
    $
    2.12
    
    
    $
    0.62Diluted earnings (loss) per shareContinuing operations
    
    $
    1.44
    
    
    $
    (0.06
    )
    
    $
    0.45Discontinued operations
    
    
    (0.13
    )
    
    
    2.18
    
    
    
    0.14Cumulative effect of a change in accounting principle
    
    
    (0.04
    )
    
    
    
    
    
    
    Net income
    
    $
    1.27
    
    
    $
    2.12
    
    
    $
    0.59Dividends per share
    
    $
    0.60
    
    
    $
    0.15
    
    
    $
    
  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
    
    Earnings
    
    Comprehensive
    
    Comprehensive# of shares
    
    Amount
    
    Capital
    
    (Deficit)
    
    Income (Loss)
    
    Income (Loss)Balance at August 31, 2003
    
    
    100.0
    *
    
    $
    1.0
    
    
    $
    1,308.3
    *
    
    $
    (9.9
    )
    
    $
    (9.1
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61.7
    
    
    
    
    
    
    $
    61.7Stock based compensation
    
    
    
    
    
    
    
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive income:Net unrealized gain on financial
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.5
    
    
    
    4.5Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17.4
    
    
    
    17.4Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    83.6Balance at August 31, 2004
    
    
    100.0
    *
    
    $
    1.0
    
    
    $
    1,310.9
    *
    
    $
    51.8
    
    
    $
    12.8Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212.4
    
    
    
    
    
    
    $
    212.4Stock based compensation
    
    
    0.2
    
    
    
    
    
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.0
    )
    
    
    
    
    
    
    Other comprehensive income (loss):Net unrealized gain on financial
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    1.2Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39.5
    
    
    
    39.5Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19.4
    )
    
    
    (19.4
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    233.7Balance at August 31, 2005
    
    
    100.2
    
    
    $
    1.0
    
    
    $
    1,315.9
    
    
    $
    249.2
    
    
    $
    34.1Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124.9
    
    
    
    
    
    
    $
    124.9Stock based compensation
    
    
    0.3
    
    
    
    
    
    
    
    7.2
    
    
    
    
    
    
    
    
    
    
    
    Repurchase of common stock
    
    
    (18.9
    )
    
    
    (0.2
    )
    
    
    (508.6
    )
    
    
    
    
    
    
    
    
    
    
    Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59.3
    )
    
    
    
    
    
    
    Other comprehensive income (loss):Net unrealized loss on financial
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    (1.4
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25.7
    
    
    
    25.7Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.4
    
    
    
    19.4Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    168.6Balance at August 31, 2006
    
    
    81.6
    
    
    $
    0.8
    
    
    $
    814.5
    
    
    $
    314.8
    
    
    $
    77.8
 
 *
    
    Net of 3.8 million common shares held in trust. The common shares held in trust were cancelled in fiscal 2005.
  F-7




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##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
 Year Ended August 31,2006
    
    
    2005
    
    
    2004Operating activitiesNet income
    
    $
    124.9
    
    
    $
    212.4
    
    
    $
    61.7Loss (income) from discontinued operations
    
    
    12.6
    
    
    
    (218.0
    )
    
    
    (15.2
    )Non-cash adjustments to net incomeDepreciation and amortization
    
    
    215.8
    
    
    
    249.1
    
    
    
    230.7Deferred income taxes
    
    
    85.3
    
    
    
    (3.0
    )
    
    
    17.5Write-off of deferred financing fees
    
    
    
    
    
    
    41.5
    
    
    
    Other non-cash items
    
    
    (3.7
    )
    
    
    28.6
    
    
    
    25.7Net change in certain assets and liabilitiesAccounts receivable
    
    
    8.0
    
    
    
    (6.4
    )
    
    
    8.7Insurance collateral
    
    
    57.6
    
    
    
    (15.9
    )
    
    
    (89.7
    )Accounts payable and accrued liabilities
    
    
    6.9
    
    
    
    (4.2
    )
    
    
    (6.4
    )Insurance reserves
    
    
    4.7
    
    
    
    (18.3
    )
    
    
    11.0Other assets and liabilities
    
    
    (38.5
    )
    
    
    1.1
    
    
    
    3.0Net cash provided by operating activities
    
    $
    473.6
    
    
    $
    266.9
    
    
    $
    247.0Investing activitiesPurchase of property and equipment
    
    $
    (329.3
    )
    
    $
    (186.6
    )
    
    $
    (183.6
    )Proceeds from disposal of property and equipment
    
    
    39.2
    
    
    
    34.2
    
    
    
    14.9Expended on acquisitions
    
    
    (11.0
    )
    
    
    (6.4
    )
    
    
    (3.4
    )Net decrease in performance bond collateral
    
    
    0.6
    
    
    
    20.5
    
    
    
    48.6Net decrease (increase) in other investments
    
    
    7.5
    
    
    
    4.0
    
    
    
    (2.5
    )Net (distributions) proceeds from sale of
healthcare businesses
    
    
    (10.0
    )
    
    
    797.8
    
    
    
    Net proceeds from sale of other businesses
    
    
    6.3
    
    
    
    10.6
    
    
    
    Net cash (used) provided by investing activities
    
    $
    (296.7
    )
    
    $
    674.1
    
    
    $
    (126.0
    )Financing activitiesProceeds from issue of long-term debt
    
    $
    522.1
    
    
    $
    300.5
    
    
    $
    3.6Repayments of long-term debt
    
    
    (29.1
    )
    
    
    (1,155.3
    )
    
    
    (65.8
    )Repurchase of common stock
    
    
    (504.0
    )
    
    
    (84.5
    )
    
    
    Dividend payment
    
    
    (59.3
    )
    
    
    (15.0
    )
    
    
    Other financing activities
    
    
    (5.2
    )
    
    
    (4.4
    )
    
    
    (5.3
    )Decrease in credit facility cash collateral
    
    
    
    
    
    
    100.0
    
    
    
    Net cash used in financing activities
    
    $
    (75.5
    )
    
    $
    (858.7
    )
    
    $
    (67.5
    )Discontinued operations(revised  Note 14)Operating cash flows
    
    $
    
    
    
    $
    (1.8
    )
    
    $
    56.1Investing cash flows
    
    
    
    
    
    
    (15.0
    )
    
    
    (42.0
    )Financing cash flows
    
    
    
    
    
    
    (2.4
    )
    
    
    (7.4
    )Net cash used by discontinued operations
    
    $
    
    
    
    $
    (19.2
    )
    
    $
    6.7Net increase in cash and cash equivalents
    
    $
    101.4
    
    
    $
    63.1
    
    
    $
    60.2Cash and cash equivalents  beginning of period
    
    
    217.3
    
    
    
    154.2
    
    
    
    94.0Cash and cash equivalents  end of period
    
    $
    318.7
    
    
    $
    217.3
    
    
    $
    154.2
  F-8




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##### Table of Contents



LAIDLAW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Corporate overview and basis of presentation
 Corporate overview
  Basis of presentation
  Note 2  Summary of significant accounting policies
  Cash and cash equivalents
  Accounts receivable
  Parts and supplies
  Property and equipment
  F-9




---



##### Table of Contents



Insurance collateral
   Other long-term investments
  Contracts and customer relationships
  Income taxes
  Impairment of long-lived assets
  F-10




---



##### Table of Contents



Insurance reserves
    Defined benefit pension plans
  Financial instruments
   F-11




---



##### Table of Contents



Foreign currency
   Revenue recognition
  Stock options
  Use of estimates
   Recent accounting pronouncements
  F-12




---



##### Table of Contents



Note 3  Insurance collateral
  August 31,
    
    
    August 31,2006
    
    
    2005Cash, deposits and receivables
    
    $
    115.9
    
    
    $
    131.3Debt securities
    
    
    245.3
    
    
    
    296.7Equity securities
    
    
    48.6
    
    
    
    46.1Total insurance collateral
    
    
    409.8
    
    
    
    474.1Less: current portion
    
    
    106.4
    
    
    
    81.9Long term insurance collateral
    
    $
    303.4
    
    
    $
    392.2
  F-13




---



##### Table of Contents



Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Fair MarketAmortized Cost
    
    
    Gains
    
    
    losses
    
    
    ValueAugust 31, 2006Debt securities
    
    $
    255.0
    
    
    $
    
    
    
    $
    (9.7
    )
    
    $
    245.3Equity securities
    
    
    45.7
    
    
    
    4.1
    
    
    
    (1.2
    )
    
    
    48.6Total
    
    $
    300.7
    
    
    $
    4.1
    
    
    $
    (10.9
    )
    
    $
    293.9August 31, 2005Debt securities
    
    $
    301.1
    
    
    $
    0.6
    
    
    $
    (5.0
    )
    
    $
    296.7Equity securities
    
    
    43.6
    
    
    
    3.9
    
    
    
    (1.4
    )
    
    
    46.1Total
    
    $
    344.7
    
    
    $
    4.5
    
    
    $
    (6.4
    )
    
    $
    342.8
  12 months or greater
    
    
    Less than 12 months
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesAugust 31, 2006Debt securities
    
    $
    200.1
    
    
    $
    8.5
    
    
    $
    43.2
    
    
    $
    1.2
    
    
    $
    243.3
    
    
    $
    9.7Equity securities
    
    
    2.6
    
    
    
    0.2
    
    
    
    9.2
    
    
    
    1.0
    
    
    
    11.8
    
    
    
    1.2Total
    
    $
    202.7
    
    
    $
    8.7
    
    
    $
    52.4
    
    
    $
    2.2
    
    
    $
    255.1
    
    
    $
    10.9August 31, 2005Debt securities
    
    $
    190.3
    
    
    $
    4.6
    
    
    $
    68.6
    
    
    $
    0.4
    
    
    $
    258.9
    
    
    $
    5.0Equity securities
    
    
    3.8
    
    
    
    0.5
    
    
    
    9.8
    
    
    
    0.9
    
    
    
    13.6
    
    
    
    1.4Total
    
    $
    194.1
    
    
    $
    5.1
    
    
    $
    78.4
    
    
    $
    1.3
    
    
    $
    272.5
    
    
    $
    6.4
  Due within one year
    
    $
    39.4Due between one year and five years
    
    
    126.0Due between five years and ten years
    
    
    79.9Total fair market value of debt securities
    
    $
    245.3
  F-14




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##### Table of Contents



Note 4  Contracts and customer relationships
  Note 5  Income taxes
  Year Ended August 31,2006
    
    
    2005
    
    
    2004United States
    
    $
    192.7
    
    
    $
    (24.1
    )
    
    $
    37.3Canada
    
    
    43.9
    
    
    
    16.5
    
    
    
    29.0$
    236.6
    
    
    $
    (7.6
    )
    
    $
    66.3
  Year Ended August 31,2006
    
    
    2005
    
    
    2004Current income tax expenseU.S.  Federal
    
    $
    7.3
    
    
    $
    
    
    
    $
    U.S.  State
    
    
    1.6
    
    
    
    0.5
    
    
    
    1.7Canada
    
    
    1.2
    
    
    
    0.5
    
    
    
    0.6Total current income tax expense
    
    $
    10.1
    
    
    $
    1.0
    
    
    $
    2.3Deferred income tax expense (benefit)U.S.  Federal
    
    $
    60.2
    
    
    $
    (10.2
    )
    
    $
    12.6U.S.  State
    
    
    6.5
    
    
    
    0.9
    
    
    
    0.6Canada
    
    
    18.6
    
    
    
    6.3
    
    
    
    4.3Total deferred income tax expense (benefit)
    
    $
    85.3
    
    
    $
    (3.0
    )
    
    $
    17.5Total income tax expense (benefit)U.S.  Federal
    
    $
    67.5
    
    
    $
    (10.2
    )
    
    $
    12.6U.S.  State
    
    
    8.1
    
    
    
    1.4
    
    
    
    2.3Canada
    
    
    19.8
    
    
    
    6.8
    
    
    
    4.9Total income tax expense (benefit)
    
    $
    95.4
    
    
    $
    (2.0
    )
    
    $
    19.8
 F-15




---



##### Table of Contents



Year Ended August 31,2006
    
    
    2005
    
    
    2004Income tax expense (benefit) at the statutory
rate
    
    $
    82.8
    
    
    $
    (2.7
    )
    
    $
    23.2Increase (decrease) resulting from:Tax rate differentials in other jurisdictions
    
    
    0.5
    
    
    
    0.7
    
    
    
    0.9State taxes
    
    
    5.2
    
    
    
    0.9
    
    
    
    1.5Foreign earnings repatriated
    
    
    5.9
    
    
    
    
    
    
    
    Canadian tax rate change
    
    
    3.8
    
    
    
    
    
    
    
    (6.6
    )Change in valuation allowance
    
    
    (0.7
    )
    
    
    0.3
    
    
    
    Other
    
    
    (2.1
    )
    
    
    (1.2
    )
    
    
    0.8Income tax expense (benefit)
    
    $
    95.4
    
    
    $
    (2.0
    )
    
    $
    19.8
  August 31,2006
    
    
    August 31,2005Deferred income tax assets:Capital loss carryforwards
    
    $
    464.0
    
    
    $
    487.1Net operating loss and credit carryforwards
    
    
    142.5
    
    
    
    180.3Interest deduction carryforwards
    
    
    131.8
    
    
    
    163.1Claims liabilities
    
    
    74.1
    
    
    
    65.0Pension liability
    
    
    36.3
    
    
    
    49.2Other accrued liabilities
    
    
    36.4
    
    
    
    47.9Total deferred income tax assets
    
    $
    885.1
    
    
    $
    992.6Deferred income tax liabilities:Book over tax depreciation/amortization
    
    $
    107.1
    
    
    $
    104.1Other
    
    
    6.7
    
    
    
    8.4Total deferred income tax liabilities
    
    $
    113.8
    
    
    $
    112.5Net deferred income tax asset:Net deferred income tax assets before
valuation allowance
    
    $
    771.3
    
    
    $
    880.1Valuation allowance
    
    
    (464.3
    )
    
    
    (487.4
    )Net deferred income tax assets
    
    $
    307.0
    
    
    $
    392.7
 Valuation allowance
  F-16




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##### Table of Contents



Availability and Amount of NOLs and Capital Losses
     Investment in Foreign Subsidiaries
  F-17




---



##### Table of Contents



Note 6  Long-term debt
  Weighted AverageDebt Balance
    
    
    Interest RateAugust 31,
    
    
    August 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Credit FacilitiesTerm A Facility
    
    $
    277.5
    
    
    $
    300.0
    
    
    
    6.8
    %
    
    
    4.9
    %Term B Facility
    
    
    500.0
    
    
    
    
    
    
    
    7.1
    
    
    
    Revolver
    
    
    22.0
    
    
    
    
    
    
    
    6.3
    
    
    
    Notes and other debt
    
    
    7.8
    
    
    
    14.4
    
    
    
    10.4
    
    
    
    9.9Total debt
    
    
    807.3
    
    
    
    314.4Less: current portion
    
    
    34.7
    
    
    
    27.8Long-term debt
    
    $
    772.6
    
    
    $
    286.6
  Year ending August 31,2007
    
    $
    34.72008
    
    
    50.92009
    
    
    50.72010
    
    
    185.32011
    
    
    9.3Thereafter
    
    
    476.4Total maturities
    
    $
    807.3
 Credit Facilities
      F-18




---



##### Table of Contents



(a) (b) (c)
      Notes and other debt
 3 4
 Note 7  Benefit plans
  F-19




---



##### Table of Contents



Year ended August 31,2006
    
    
    2005Change in benefit obligation:Benefit obligation at beginning of period
    
    $
    1,030.2
    
    
    $
    934.9Service cost
    
    
    10.6
    
    
    
    8.2Interest cost
    
    
    53.2
    
    
    
    57.3Plan participants contributions
    
    
    2.7
    
    
    
    2.5Actuarial (gain) loss
    
    
    (49.1
    )
    
    
    95.6Benefits paid
    
    
    (88.6
    )
    
    
    (86.2
    )Foreign exchange
    
    
    25.0
    
    
    
    17.9Benefit obligation at end of period
    
    $
    984.0
    
    
    $
    1,030.2Change in plan assets:Fair value of plan assets at beginning of period
    
    $
    891.4
    
    
    $
    734.4Actual return on plan assets
    
    
    56.9
    
    
    
    73.3Employer contributions
    
    
    11.1
    
    
    
    150.1Plan participants contributions
    
    
    2.8
    
    
    
    2.7Benefits paid
    
    
    (88.6
    )
    
    
    (86.2
    )Foreign exchange
    
    
    24.3
    
    
    
    17.1Fair value of plan assets at end of period
    
    $
    897.9
    
    
    $
    891.4Funded status
    
    $
    (86.1
    )
    
    $
    (138.8
    )Unrecognized net (gain) loss
    
    
    (8.0
    )
    
    
    41.2Unrecognized prior service cost
    
    
    0.5
    
    
    
    0.5Funding after measurement date
    
    
    0.1
    
    
    
    Accrued benefit cost
    
    $
    (93.5
    )
    
    $
    (97.1
    )Amounts recognized in the consolidated
balance sheets:Prepaid benefit asset
    
    $
    11.0
    
    
    $
    Accrued benefit liability
    
    
    (104.5
    )
    
    
    (128.4
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    31.3Accrued benefit cost
    
    $
    (93.5
    )
    
    $
    (97.1
    )Increase (decrease) in minimum pension liability
reflected in other comprehensive income
    
    $
    (31.3
    )
    
    $
    31.3
 F-20




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##### Table of Contents



Year Ended August 31,2006
    
    
    2005
    
    
    2004Components of net pension benefit costService cost
    
    $
    10.6
    
    
    $
    8.2
    
    
    $
    7.2Interest cost
    
    
    53.2
    
    
    
    57.3
    
    
    
    55.0Expected return on plan assets
    
    
    (57.0
    )
    
    
    (57.5
    )
    
    
    (51.3
    )Net pension expense
    
    $
    6.8
    
    
    $
    8.0
    
    
    $
    10.9
  Year Ended August 31,2006
    
    2005
    
    2004Benefit obligationsDiscount rate
    
    
    5.9
    %
    
    
    5.2
    %
    
    
    6.3
    %Rate of salary progression
    
    
    3.6
    %
    
    
    3.6
    %
    
    
    3.6
    %Net periodic costsDiscount rate
    
    
    5.2
    %
    
    
    6.3
    %
    
    
    5.9
    %Rate of salary progression
    
    
    3.6
    %
    
    
    3.6
    %
    
    
    3.5
    %Expected long-term rate
of return on plan assets
    
    
    6.4
    %
    
    
    7.4
    %
    
    
    7.5
    %
   August 31,
    
    August 31,2006
    
    2005Accumulated obligation in excess of plan assets:Projected benefit obligation
    
    $
    730.4
    
    
    $
    809.3Accumulated benefit obligation
    
    
    726.5
    
    
    
    805.0Fair value of assets
    
    
    635.5
    
    
    
    673.5Projected benefit obligation in excess of plan
assets:Projected benefit obligation
    
    $
    794.8
    
    
    $
    1,020.6Accumulated benefit obligation
    
    
    782.4
    
    
    
    991.7Fair value of assets
    
    
    698.5
    
    
    
    878.2Total accumulated benefit obligation
    
    $
    954.0
    
    
    $
    1,001.8
 Plan Assets
  F-21




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##### Table of Contents



Target
    
    
    Percentage of Plan AssetsAllocation
    
    
    August 31,August 31, 2006
    
    
    2006
    
    
    2005Equity securities
    
    
    58
    %
    
    
    53
    %
    
    
    57
    %Debt securities
    
    
    42
    %
    
    
    47
    %
    
    
    43
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Plan Contributions and Potential Funding Requirements
   Expected future Payments
  Year ending August 31,2007
    
    $
    82.62008
    
    
    81.32009
    
    
    80.22010
    
    
    78.82011
    
    
    82.9Fiscal years 2012 through 2016
    
    
    374.4
 Defined Contribution Retirement plans
  F-22




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##### Table of Contents



Note 8  Commitments and contingencies
 Lease commitments
    Year ending August 31,2007
    
    $
    71.42008
    
    
    53.32009
    
    
    35.72010
    
    
    26.72011
    
    
    19.0Thereafter
    
    
    39.2Total rentals payable
    
    $
    245.3
 Environmental matters
   F-23




---



##### Table of Contents



Income tax matters
  Contractual fuel obligations
    Director and Officer Claim Treatment Letter
  F-24




---



##### Table of Contents



Note 9  Shareholders equity
 (1)
    
    Capital stock
 (a)
    
    Authorized500 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 PlanThe Company has a shareholder rights plan pursuant to which each outstanding share of the
Companys common shares is accompanied by one preferred share purchase right. The rights
expire on July 3, 2013 unless they are earlier redeemed, exchanged, extended or amended by
the Companys board of directors.The rights are not exercisable or transferable apart from the common shares until ten days
after a public announcement by the Company that a person or group has acquired beneficial
ownership of 15% or more of the Companys common shares or ten business days (or a later
date as determined by the Companys board of directors) after a person or group begins a
tender or exchange offer that, if completed, would result in that person or group acquiring
beneficial ownership of 15% or more of the Companys common shares. Once exercisable, each
right would separate from the common shares and be separately tradeable, and, subject to
adjustment would entitle its holder to purchase, at the exercise price of $75.00 per right,
a number of common shares, or a number of the surviving companys shares if the Company is
not the surviving company, having a market value equal to $150.00.The Company may redeem all (but not less than all) of the rights for a redemption price of
$0.01 per right until the rights become exercisable. The Company may also exchange each
right for one common share or an equivalent security until an acquiring person or group owns
50% or more of the outstanding common shares.
 (c)
    
    DividendsDuring fiscal 2006 and 2005, the Company paid dividends of $0.60 and $0.15 per share to
shareholders, respectively. While, the Company intends to pay dividends for the foreseeable
future, all subsequent dividends will be reviewed quarterly and declared by the Board of
Directors, or a committee to which it delegates such authority, at its discretion.
 (d)
    
    Stock repurchase programEffective January 5, 2006, the Board of Directors authorized a stock repurchase program to
acquire up to $200 million of the Companys outstanding stock. Through July 5, 2006,
approximately 2.8 million shares had been repurchased at an average cost of $27.18 per share
through open market purchases, leaving $123.2 million authorized for future repurchases
under the program. On July 6, 2006 the Company announced that the Board of Directors had
authorized the repurchase of an additional $376.8 million of outstanding common stock. This
authorization, in combination with the remaining amount authorized under the previously
announced buyback program, allowed the
 F-25




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##### Table of Contents



Company to repurchase an additional $500 million. In August 2006 we repurchased
approximately 15.5 million shares for $26.90 per share through a modified Dutch auction
tender offer. Additionally, we repurchased approximately 0.5 million shares on the open
market at an average price of $26.29 per share leaving $68.9 million available for future
repurchases. As of October 31, 2006, we had completed the repurchase of all authorized
amounts.Future stock repurchases may be made through open market and privately negotiated
transactions at times, and in such amounts, as management deems appropriate. The timing and
amount of shares repurchased will depend on a variety of factors including price, corporate
and regulatory requirements and other market conditions. The stock repurchase program does
not have an expiration date and may be limited or terminated at any time without prior
notice.
 (2)
    
    Accumulated other comprehensive income
  August 31,
    
    
    August 31,2006
    
    
    2005Foreign currency translation
    
    $
    80.0
    
    
    $
    54.3Unrealized loss on investments
    
    
    (4.7
    )
    
    
    (1.2
    )Unrealized gain on interest rate
swap
    
    
    3.0
    
    
    
    Unrealized loss on fuel hedge
    
    
    (1.6
    )
    
    
    Minimum pension liability
    
    
    
    
    
    
    (31.3
    )Deferred income tax
    
    
    1.1
    
    
    
    12.3Total
    
    $
    77.8
    
    
    $
    34.1
 Note 10  Stock based compensation
   Stock options
  F-26




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##### Table of Contents



Years ended August 31,2006
    
    2005Expected volatility
    
    
    29.9
    %
    
    
    32.1
    %Expected term (in years)
    
    
    6.0
    
    
    
    6.0Expected dividends per share
    
    $
    0.60
    
    
    $
    Risk-free rate of return (weighted average)
    
    
    4.5
    %
    
    
    3.7
    %Weighted average grant-date fair value
    
    $
    6.52
    
    
    $
    7.23
   Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    ValueOptions
    
    
    Price
    
    
    Term (years)
    
    
    ($ in millions)Outstanding at September 1, 2005
    
    
    906,805
    
    
    $
    15.75Granted
    
    
    404,125
    
    
    
    23.21Exercised
    
    
    (40,886
    )
    
    
    14.94Outstanding at August 31, 2006
    
    
    1,270,044
    
    
    $
    18.15
    
    
    
    8.2
    
    
    $
    11.2Exercisable at August 31, 2006
    
    
    419,257
    
    
    $
    14.76
    
    
    
    7.6
    
    
    $
    5.1
  Restricted shares
  F-27




---



##### Table of Contents



Weighted-AverageNumber of
    
    Grant-DateShares
    
    Fair ValueOutstanding at September 1, 2005
    
    
    50,626
    
    
    $
    14.59Granted
    
    
    25,313
    
    
    
    24.79Outstanding at August 31, 2006
    
    
    75,939
    
    
    
    17.99
  Deferred shares
   Weighted-AverageNumber of
    
    Grant-DateShares
    
    Fair ValueNon-vested at September 1, 2005
    
    
    855,412
    
    
    $
    15.71Granted
    
    
    236,500
    
    
    
    23.06Vested
    
    
    (189,736
    )
    
    
    15.30Forfeited
    
    
    (84,482
    )
    
    
    15.03Non-vested at August 31, 2006
    
    
    817,694
    
    
    
    18.01
  F-28




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##### Table of Contents



Note 11  Discontinued operations
  Year Ended August 31,2006
    
    
    2005
    
    
    2004Revenue
    
    $
    
    
    
    $
    646.2
    
    
    $
    1,604.6Pre-tax income (loss) before income taxes
    
    
    0.6
    
    
    
    (30.6
    )
    
    
    27.7Income tax benefit (expense)
    
    
    (0.2
    )
    
    
    10.0
    
    
    
    (12.5
    )Income (loss) from operations
    
    
    0.4
    
    
    
    (20.6
    )
    
    
    15.2Pre-tax gain (loss) on sale of businesses
    
    
    (12.4
    )
    
    
    236.8
    
    
    
    Income tax benefit (expense)
    
    
    (0.6
    )
    
    
    1.8
    
    
    
    Gain (loss) on sale
    
    
    (13.0
    )
    
    
    238.6
    
    
    
    Income (loss) from discontinued operations
    
    $
    (12.6
    )
    
    $
    218.0
    
    
    $
    15.2
   Note 12  Change in accounting principle
  F-29




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##### Table of Contents



Note 13  Earnings (loss) per share
  Years ended August 31,2006
    
    
    2005 *
    
    
    2004Average shares outstanding
    
    
    97.8
    
    
    
    100.1
    
    
    
    100.0Effect of dilutive securities
    
    
    0.4
    
    
    
    
    
    
    
    Shares held in pension plan trust
    
    
    
    
    
    
    
    
    
    
    3.8Average diluted shares outstanding
    
    
    98.2
    
    
    
    100.1
    
    
    
    103.8
 
 *
    
    Potential common shares are considered non-dilutive for the year ending August 31, 2005 due
to the loss from continuing operations Note 14  Statement of cash flows
    Note 15  Legal proceedings
 Contingent Liabilities Relating to Sale of AMR
   F-30




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##### Table of Contents



Other
  F-31




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##### Table of Contents



Note 16  Segment information
   Reportable Segments
 Year Ended August 31,2006
    
    
    2005
    
    
    2004RevenueEducation services
    
    $
    1,579.5
    
    
    $
    1,518.2
    
    
    $
    1,495.8Greyhound
    
    
    1,244.2
    
    
    
    1,201.6
    
    
    
    1,230.5Public transit
    
    
    308.2
    
    
    
    306.7
    
    
    
    300.5Consolidated
    
    $
    3,131.9
    
    
    $
    3,026.5
    
    
    $
    3,026.8EBITDAEducation services
    
    $
    294.5
    
    
    $
    296.0
    
    
    $
    279.3Greyhound
    
    
    152.1
    
    
    
    101.9
    
    
    
    86.2Public transit
    
    
    19.7
    
    
    
    16.1
    
    
    
    8.0Consolidated
    
    $
    466.3
    
    
    $
    414.0
    
    
    $
    373.5Depreciation and amortization
    
    
    (215.8
    )
    
    
    (249.1
    )
    
    
    (230.7
    )Operating income
    
    
    250.5
    
    
    
    164.9
    
    
    
    142.8Interest expense, net
    
    
    (24.3
    )
    
    
    (70.8
    )
    
    
    (78.6
    )Other income, net
    
    
    10.4
    
    
    
    10.5
    
    
    
    2.1Debt restructuring costs
    
    
    
    
    
    
    (112.2
    )
    
    
    Income tax (expense) benefit
    
    
    (95.4
    )
    
    
    2.0
    
    
    
    (19.8
    )Income (loss) from continuing operations
    
    $
    141.2
    
    
    $
    (5.6
    )
    
    $
    46.5AssetsEducation services
    
    $
    1,235.0
    
    
    $
    1,088.3
    
    
    $
    1,222.7Greyhound
    
    
    783.6
    
    
    
    857.0
    
    
    
    898.0Public transit
    
    
    102.8
    
    
    
    102.1
    
    
    
    104.5Corporate assets
    
    
    917.3
    
    
    
    861.3
    
    
    
    805.1Discontinued operations
    
    
    
    
    
    
    
    
    
    
    918.1Consolidated
    
    $
    3,038.7
    
    
    $
    2,908.7
    
    
    $
    3,948.4Capital expendituresEducation services
    
    $
    233.2
    
    
    $
    137.4
    
    
    $
    134.9Greyhound
    
    
    87.4
    
    
    
    41.9
    
    
    
    35.5Public transit
    
    
    8.7
    
    
    
    7.3
    
    
    
    13.2Consolidated
    
    $
    329.3
    
    
    $
    186.6
    
    
    $
    183.6
 Geographic Information
 F-32




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##### Table of Contents



Year Ended August 31,2006
    
    
    2005
    
    
    2004RevenueUnited States
    
    $
    2,621.2
    
    
    $
    2,576.0
    
    
    $
    2,614.4Canada
    
    
    510.7
    
    
    
    450.5
    
    
    
    412.4Consolidated
    
    $
    3,131.9
    
    
    $
    3,026.5
    
    
    $
    3,026.8EBITDAUnited States
    
    $
    389.0
    
    
    $
    360.0
    
    
    $
    313.3Canada
    
    
    77.3
    
    
    
    54.0
    
    
    
    60.2Consolidated
    
    $
    466.3
    
    
    $
    414.0
    
    
    $
    373.5Long-lived assetsUnited States
    
    $
    1,586.4
    
    
    $
    1,533.2
    
    
    $
    1,586.8Canada
    
    
    387.0
    
    
    
    368.0
    
    
    
    379.0Consolidated
    
    $
    1,973.4
    
    
    $
    1,901.2
    
    
    $
    1,965.8
 Note 17  Valuation and qualifying accounts
  Year Ended August 31,2006
    
    
    2005
    
    
    2004Allowance for doubtful accountsBalance at beginning of Period
    
    $
    6.2
    
    
    $
    4.9
    
    
    $
    5.7Charged to costs and expenses
    
    
    1.8
    
    
    
    2.7
    
    
    
    1.2Amounts written off net of recoveries
    
    
    (2.0
    )
    
    
    (1.4
    )
    
    
    (1.7
    )Other
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Balance at end of period
    
    $
    6.0
    
    
    $
    6.2
    
    
    $
    4.9Deferred income tax asset valuation reserveBalance at beginning of Period
    
    $
    487.4
    
    
    $
    179.4
    
    
    $
    178.6Reserves established for capital losses
    
    
    0.5
    
    
    
    487.1
    
    
    
    Reserves used against capital gains
    
    
    (0.7
    )
    
    
    
    
    
    
    Losses expired
    
    
    (17.9
    )
    
    
    
    
    
    
    Increase (decrease) in attributes
subject to reserve
    
    
    (5.4
    )
    
    
    
    
    
    
    35.9Reduction applied to intangibles
    
    
    
    
    
    
    (113.3
    )
    
    
    (34.9
    )Amounts written off net of recoveries
    
    
    
    
    
    
    (66.8
    )
    
    
    (0.5
    )Exchange rate differences
    
    
    0.4
    
    
    
    0.7
    
    
    
    0.3Charged to costs and expenses
    
    
    
    
    
    
    0.3
    
    
    
    Balance at end of period
    
    $
    464.3
    
    
    $
    487.4
    
    
    $
    179.4
 F-33




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##### Table of Contents



Note 18  Quarterly financial information
  20064thQtr.**
    
    
    3rd Qtr.
    
    
    2nd Qtr.
    
    
    1st Qtr.Revenue
    
    $
    635.4
    
    
    $
    860.7
    
    
    $
    789.0
    
    
    $
    846.8Operating income
    
    
    5.0
    
    
    
    83.5
    
    
    
    65.3
    
    
    
    96.7Income from continuing operations
    
    
    1.9
    
    
    
    43.5
    
    
    
    37.8
    
    
    
    58.0Income (loss) from discontinued operations
    
    
    0.3
    
    
    
    (9.4
    )
    
    
    (3.8
    )
    
    
    0.3Cumulative effect of a change in
accounting principles
    
    
    (3.7
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (1.5
    )
    
    $
    34.1
    
    
    $
    34.0
    
    
    $
    58.3Basic earnings (loss) per share *Continuing operations
    
    $
    0.02
    
    
    $
    0.44
    
    
    $
    0.38
    
    
    $
    0.58Discontinued operations
    
    
    
    
    
    
    (0.09
    )
    
    
    (0.04
    )
    
    
    Cumulative effect of a change in
accounting principles
    
    
    (0.04
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (0.02
    )
    
    $
    0.35
    
    
    $
    0.34
    
    
    $
    0.58Diluted earnings (loss) per share *Continuing operations
    
    $
    0.02
    
    
    $
    0.44
    
    
    $
    0.38
    
    
    $
    0.58Discontinued operations
    
    
    
    
    
    
    (0.09
    )
    
    
    (0.04
    )
    
    
    Cumulative effect of a change in
accounting principles
    
    
    (0.04
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (0.02
    )
    
    $
    0.35
    
    
    $
    0.34
    
    
    $
    0.58
 20054th Qtr.***
    
    
    3rd Qtr.
    
    
    2nd Qtr.
    
    
    1st Qtr.Revenue
    
    $
    613.0
    
    
    $
    836.1
    
    
    $
    763.7
    
    
    $
    813.7Operating income (loss)
    
    
    (7.1
    )
    
    
    62.0
    
    
    
    50.9
    
    
    
    59.1Income (loss) from continuing operations
    
    
    (81.5
    )
    
    
    30.4
    
    
    
    20.7
    
    
    
    24.8Income (loss) from discontinued operations
    
    
    (2.1
    )
    
    
    (1.0
    )
    
    
    215.5
    
    
    
    5.6Net income (loss)
    
    $
    (83.6
    )
    
    $
    29.4
    
    
    $
    236.2
    
    
    $
    30.4Basic earnings (loss) per share *Continuing operations
    
    $
    (0.81
    )
    
    $
    0.30
    
    
    $
    0.21
    
    
    $
    0.25Discontinued operations
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    2.15
    
    
    
    0.05Net income (loss)
    
    $
    (0.83
    )
    
    $
    0.29
    
    
    $
    2.36
    
    
    $
    0.30Diluted earnings (loss) per share *Continuing operations
    
    $
    (0.81
    )
    
    $
    0.30
    
    
    $
    0.20
    
    
    $
    0.24Discontinued operations
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    2.08
    
    
    
    0.05Net income (loss)
    
    $
    (0.83
    )
    
    $
    0.29
    
    
    $
    2.28
    
    
    $
    0.29
 
 *
    
    The sum of the quarterly earnings per share amounts do not equal the total annual earnings
per share due to the uneven timing of earnings through out the year compared to the weighted
average shares outstanding.**
    
    Income from continuing operations includes a $5.4 million ($0.05 per share) Insurance
recovery gain from hurricane Katrina and a $2.3 million ($0.02 per share) gain from the sale
of a public transit facility.***
    
    Loss from continuing operations includes a $72.2 million ($0.72 per share) charge for debt
restructuring costs and a $2.1 million ($0.02 per share) charge for a correction of the
accounting for post-retirement benefits. F-34