UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2005

Commission file number 000-13109

LAIDLAW INTERNATIONAL, INC.

55 Shuman Boulevard, Suite 400
Naperville, Illinois, 60563
(Address of principal executive offices)

Registrant’s telephone number, including area code (630) 848-3000

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES þ NO o

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES þ NO o

     As of March 31, 2005, there were 100,207,841 shares of common stock, par value $0.01 per share, outstanding.

LAIDLAW INTERNATIONAL, INC.

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PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

LAIDLAW INTERNATIONAL, INC.

The accompanying notes are an integral part of these statements.

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

The accompanying notes are an integral part of these statements.

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LAIDLAW INTERNATIONAL, INC.

The accompanying notes are an integral part of these statements.

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LAIDLAW INTERNATIONAL, INC.

The accompanying notes are an integral part of these statements.

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LAIDLAW INTERNATIONAL, INC.

The accompanying notes are an integral part of these statements.

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LAIDLAW INTERNATIONAL, INC.

Note 1 – Corporate overview and basis of presentation

Corporate overview

Laidlaw International, Inc. (the “Company”) operates in three reportable business segments: education services, public transit services and Greyhound. The education services segment provides school bus transportation, including scheduled home-to-school, extra-curricular and charter and transit school bus services, throughout the United States and Canada. The public transit services segment provides fixed-route municipal bus service and paratransit bus transportation for riders with disabilities. Greyhound, a national provider of inter-city bus transportation in the United States and Canada, provides scheduled passenger service, package delivery service, charter bus service and, in certain terminals, food service. As discussed in Note 2 – “Discontinued operations”, during the second quarter of fiscal 2005, the healthcare transportation services and emergency management services segments were sold and are presented as discontinued operations.

Basis of presentation

The accompanying interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim reporting and accordingly, do not include all of the disclosures required for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. All such adjustments are of a normal, recurring nature. Operating results for the three and six months ended February 28, 2005 are not necessarily indicative of the results that may be expected for the full year ending August 31, 2005. For further information, see the Company’s consolidated financial statements, including the accounting policies and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2004.

Prior period amounts have been reclassified to reflect the discontinuance of the healthcare businesses and also to conform to the current period presentation.

Note 2 – Discontinued operations

On February 10, 2005 the Company completed the sale of its healthcare transportation services and emergency management services segments to an affiliate of Onex Corporation for $818.0 million. After payment of transaction costs, net cash proceeds received by the Company were $789.1 million. Proceeds from the transaction were used in part to retire all outstanding borrowings under the Company’s Term B senior secured term facility aggregating $574.1 million.

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The following table details the components of income from discontinued operations:

For all periods presented, the Company has allocated interest expense under the Term B and Revolver to discontinued operations since the Company was required by the creditors to pay off the debt upon sale of the healthcare businesses. Additionally, $23.6 million of deferred financing fees related to the Term B and Revolver were written off against the gain on sale in discontinued operations giving rise to the $9.4 million tax benefit allocated to the gain on sale. While the remaining amount is a gain for book purposes, for tax purposes the sale generated a substantial capital loss. As discussed in Note 6 – “Income Taxes”, the Company has provided a full valuation allowance against the capital loss carryforward.

Note 3 – Goodwill and other intangible assets

On August 31, 2004, as a result of fresh start accounting, the Company had recorded goodwill of $139.1 million and other intangibles including contract values of $118.6 million. The Company also had established a valuation reserve against a portion of its deferred tax assets.

As discussed in Note 6 – “Income Taxes”, during the second quarter of 2005, the Company reduced its deferred tax valuation allowance and, as required under fresh start accounting, made a corresponding reduction to eliminate goodwill and to reduce other intangibles by $44.2 million.

The contract values remaining are net of $10.6 million of accumulated amortization at February 28, 2005 and $10.7 million at August 31, 2004. The accumulated amortization at February 28, 2005 is less than the August 31, 2004 balance due to the reduction in contract values that occurred in the second quarter of 2005 as discussed above.

Note 4 – Stock awards and options

Pursuant to the Company’s Amended and Restated 2003 Equity and Performance Incentive Plan, the Company issued stock based compensation to various employees and non-employee directors. These grants to employees represent the long-term incentive portion of the Company’s overall compensation plan for management. The Company accounts for all stock-based compensation based on estimated fair value at the date of issue and recorded an expense related to these plans of approximately $2.3 million and $0.8 million during the six month periods ended February 28, 2005 and February 29, 2004, respectively. A summary of stock based compensation issued during the current fiscal year is as follows:

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Stock options – On December 8, 2004, the Company issued 452,625 non-qualified stock options to employees and non-employee directors with a strike price of $18.85 per share. The grant price was equal to the fair market value of the Company’s stock at the date of grant. The stock options have a ten-year life and vest ratably over three years.

Restricted Shares – On December 8, 2004, the Company issued 25,313 shares of restricted common stock to non-employee directors. The restricted shares vest at the end of a three-year period and during the vesting period the participant has the rights of a shareholder with respect to voting and dividend rights but is restricted from transferring the shares.

Deferred Shares – Deferred shares are granted to key employees and vest ratably over a four-year period. On each vesting date the employee receives common stock of the Company equal in number to the deferred shares that have vested. Upon delivery of the Company common stock an equal number of deferred shares are terminated. The participant has no voting rights with respect to the deferred shares. On December 8, 2004, the Company granted an additional 275,000 deferred shares to key employees.

Note 5 – Pension plans

The Company, collectively with all of its wholly-owned U.S. subsidiaries, is party to an agreement with the Pension Benefit Guaranty Corporation regarding the funding levels of the Company’s pension plans (the “PBGC Agreement”). Under the PBGC Agreement, 3.8 million shares of the Company’s common stock were issued to a trust formed for the benefit of the pension plans (the “Pension Plan Trust”).

In February 2005, the Company purchased all of the shares held in the Pension Plan Trust for $22.37 per share, or aggregate consideration of $84.5 million. The purchase price per share was based upon the closing price per share on the New York Stock Exchange on the date of purchase. All net proceeds from the stock sale were contributed directly to the pension plans and the 3.8 million shares were retired.

The components of net periodic benefit cost for the Company’s pension plans were as follows:

Note 6 – Income taxes

At August 31, 2004, the Company had recorded a valuation allowance against its deferred tax assets of $305 million. During the second quarter of fiscal 2005 the Company wrote-off $127 million of deferred tax assets against the valuation allowance for carryforwards that will be used as part of a recent settlement with the IRS and for carryforwards which management believes will not likely be available for use against future income. The remaining $178 million of valuation allowance was reversed in its entirety as recent historical, and current projected, results reflect a level of income that supports a conclusion that it is more likely than not that the Company will fully recover the remaining surviving carryforwards. The results of the Company considered the sale of the healthcare segments and the retirement of the Term B debt and reduction in related interest costs. As required under fresh start accounting rules, the reversal first eliminated all remaining

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goodwill established at fresh start, with the balance reducing other intangibles established in conjunction with fresh start accounting.

As discussed in Note 2 – “Discontinued operations”, in the second quarter of fiscal 2005 the Company sold its healthcare segments for a pre-tax book gain of $201.0 million. For tax purposes the sale generated a substantial capital loss. As capital losses may only be applied against capital gains, and the Company does not generate capital gains in the ordinary course, a valuation allowance has been established for this deferred tax asset since the Company believes it is more likely than not that the capital loss carryforward will not be realized.

Note 7 – Material contingencies

Legal proceedings

Contingent Liabilities Relating to Sale of AMR

On February 10, 2005 the Company completed the sale of American Medical Response, Inc. (“AMR”) to an affiliate of Onex Corporation in accordance with the Stock Purchase Agreement dated December 6, 2004, as amended (the “Stock Purchase Agreement”). Pursuant to the terms of the Stock Purchase Agreement, the Company may be subject to indemnification obligations related to certain investigations and matters previously disclosed relating to AMR, including potentially those set forth below.

On May 9, 2002, AMR received a subpoena duces tecum from the Office of Inspector General for the United States Department of Health and Human Services (“HHS”). The subpoena requested copies of documents for the period from January 1993 through May 2002. The subpoena required AMR to produce a broad range of documents including those relating to Regional Emergency Services contracts in Georgia and Colorado. The government investigations in Georgia and Colorado are continuing.

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

Greyhound Default Judgment

On September 20, 2004, the Company’s wholly owned subsidiary, Greyhound Lines, Inc. (“Greyhound Lines”), responded to proceedings brought in Georgia state court in August 2004 seeking to enforce a default garnishment judgment on funds in a Greyhound Lines bank account. This action stemmed from an October 1995 default judgment in the amount of approximately $7 million (“1995 Judgment”) against Gary Jones, a former consultant to Greyhound Lines. More than four years later, in October 2000, the plaintiff who obtained the 1995 Judgment (“Plaintiff”) began garnishment proceedings against Greyhound Lines 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 was entered by the Georgia state court against Greyhound Lines. On March 10, 2005, Greyhound Lines settled this matter for an immaterial amount and the Company has reflected the cost of the settlement as a

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component of other income (expense) in its Consolidated Statements of Operations for the quarter ended February 28, 2005.

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.

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. 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, increases in fuel prices, 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 above in Legal proceedings, Greyhound Lines has settled the matter brought in Georgia state court seeking to enforce a default garnishment judgment. Prior to the March 10, 2005 settlement, the default judgment could have been deemed to be an event of default under the Greyhound Facility. Following the settlement, the lenders under the Greyhound Facility have confirmed to Greyhound Lines that no event of default exists under the Greyhound Facility as a result of the default judgment.

Environmental matters

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

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Income tax matters

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

Note 8 – Earnings per share

The basic earnings per share figures are calculated using the weighted average number of shares outstanding during the respective periods. The diluted earnings per share for the three and six month periods ended February 28, 2005 and February 29, 2004 include the dilutive effect of the Company’s stock based compensation and the weighted average shares outstanding of the Company’s common shares held in trust up until February 17, 2005, the date they were re-purchased and retired by the Company.

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Note 9 – Segment information

The Company has three reportable segments: education services, public transit services and Greyhound. Revenues and EBITDA (operating income before depreciation and amortization) of the segments for the three and six months ended February 28, 2005 and February 29, 2004 are as follows:

Corporate expenses previously allocated to the healthcare transportation services and emergency management services segments exceeded the amount of direct charges incurred and allocated to discontinued operations. The previously allocated corporate costs in excess of the direct charges related to the discontinued segments have been re-allocated to the remaining segments above. Because of this change in allocation, EBITDA as now reported for the continuing segments may not agree to amounts previously reported.

Total identifiable assets by segment on February 28, 2005 and August 31, 2004 are as follows:

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Note 10 – Condensed financial statements of restricted subsidiaries

Pursuant to the terms of the Company’s $406.0 million Senior Notes, the Company is required to segregate the consolidated results of operations between the subsidiaries of the Company that are not a party to the agreement, which are comprised of the U.S. based businesses in the Greyhound segment (the “Unrestricted Subsidiaries”), and the Company and its remaining subsidiaries (the “Restricted Subsidiaries”).

Condensed Consolidated Statement of Operations
Three Months Ended February 28, 2005

Condensed Consolidated Statement of Operations
Six Months Ended February 28, 2005

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Condensed Consolidated Statement of Operations
Three Months Ended February 29, 2004

Condensed Consolidated Statement of Operations
Six Months Ended February 29, 2004

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Condensed Consolidated Statement of Cash Flows
Six Months Ended February 28, 2005

Condensed Consolidated Statement of Cash Flows
Six Months Ended February 29, 2004

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Condensed Consolidated Balance Sheet
February 28, 2005

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Condensed Consolidated Balance Sheet
August 31, 2004