FirstGroup PLC — Annual Report 2012

Mar 31, 2012

Report and Financial Statements

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31 March 2012

Report and financial statements 2012

Contents	Page
Officers and professional advisers	$\mathbf{1}$
Directors' report	$\mathbf{z}$
Statement of directors' responsibilities	8
Independent auditors' report	9
Consolidated income statement	10
Consolidated statement of comprehensive income	11
Consolidated balance sheet	12
Consolidated statement of changes in equity	14
Consolidated cash flow statement	15
Notes to the financial statements	16

Report and financial statements 2012

Officers and professional advisers

Directors

Christian Gartner Bruce Rasch

Secretary

Bruce Rasch

Registered Office

2711 Centerville Suite 400 Wilmington Delaware 19808

Bankers

JP Morgan Chase New York

Solicitors

Dinsmore & Shohl Cincinnati

Auditors

Deloitte LLP Chartered Accountants London, United Kingdom

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Directors' report

The directors present their annual report and the non-statutory audited financial statements for the vear ended 31 March 2012. The figures for the year to 31 March 2012 include the results of the business for the 53 weeks ended 31 March 2012. The figures for the year to 31 March 2011 include the results for the 52 weeks ended 26 March 2011.

Principal activities

The principal activity of FirstGroup America and its subsidiaries (the "Group") is the provision of passenger transport services.

Review of the business

Headquartered in Cincinnati, Ohio, our three operations are spread across North America.

Results

In North America the Group has three operating divisions: Yellow School Buses (First Student), Transit Contracting, Management and Vehicle Fleet Maintenance Services (First Transit) and intercity coach services (Greyhound). Headquartered in Cincinnati, FirstGroup America Inc. operates across the US and Canada. Revenue from our three businesses of Student, Transit and Greyhound was \$4,789.8 m (2011: \$4,664.3m). Operating profit before amortization expense, profit/ (loss) on disposal of assets and non-recurring items decreased to \$339.6m (2011: \$352.0m) representing a decrease of 3.5%. There were \$nil m (2011: \$87.7m) of non-recurring items, detailed in note 5. The prior year charge primarily represented costs in respect of restructuring in First Student and the Diego Garcia contract in First Transit.

First Student

First Student is the largest provider of student transportation in North America with a fleet of approximately 57,000 vellow school buses, carrying some 5.25 million students every day across the US and Canada. With government mandates for schools to provide transportation for students, contracts are typically between three and five years.

Our plan to address performance and strengthen the operating model is delivering in line with our expectations and we are pleased with the good progress made so far. The annual cost savings as a result of our recovery plan are now expected to be around \$100m, exceeding our original target of \$65m per annum.

Trading has developed in line with our expectations with revenue of \$2,488.7m (2011: \$2,467.3m), an increase of 0.9%. Adjusting for the extra week revenues were reduced by 1.3% year on year. Operating profit was \$169.5m (2011: \$200.2m). The reduction in operating profit included additional one-time costs including, as anticipated, a field management coaching programme supporting the good momentum in the recovery plan. The operating margin in the second half of the year was 11.5% compared with 11.4% for the corresponding period last year, indicating a stabilisation in line with our expectations.

Pressure on school board budgets continues to present challenges although we are encouraged by signs of wider economic recovery in the US. During the current bid season we have continued to see more rational bidding behaviour in the marketplace. Our strategy to strengthen our commercial team, focus on contract retention and reduce contract churn in our portfolio continues to deliver a performance in line with our plan and we are on track to achieve our target retention rate of over 90%.

During the year we started new contracts to operate more than 1,000 buses, one third of which came from conversions, where operations are transferred to the outsourced market for the first time. Conversion interest continues to increase during the current bid season and we are seeing record levels of activity. However, as the pace of conversions industry-wide remains slow, we continue to focus our activity in those areas where there is greatest potential.

As part of the recovery programme we have introduced improvements in working practices and culture across many areas of the business, helping us to deliver on our objectives and embed a standard way of operating across our business. As we harmonise best practices across almost 600 locations we are delivering a more agile and sustainable operating model. We have removed a layer of organisational management, providing closer links between the local operations and central management team, and continue to streamline systems to reduce bureaucracy. Through this period of change we were pleased to receive a record number of responses to our annual customer survey with an increase in overall satisfaction scores.

Directors' report

First Student (continued)

A key goal within our transformation of the business is the improvement in labour productivity. Across all our locations we are driving full adoption of a range of initiatives to ensure greater efficiency, accuracy and fairness. For example, applying best practices to the pre-trip inspections performed by drivers has reduced time taken and saved on average five minutes per driver, per location, per day throughout the business, achieving a cost reduction of \$2m for each minute saved.

We have enhanced our FOCUS software system to enable greater productivity savings. This proprietary system, which links on-board data with engineering, payroll and back office systems, allows us to manage standard driving hours more accurately as well as eliminate excess miles and reduce non-driving time. We will also be utilising GPS software to help us to encourage improved driving behaviour and practices; reduce fuel usage and provide customers with direct access to real time information and performance metrics.

We are also driving efficiency improvements across the business. In the key areas of engineering and maintenance we have worked with our technicians to reorganise our workshop layouts for maximum efficiency. Two lean reference workshops have now been created in each of our operating regions with training to support a unified direction with more efficient and consistent practices. As a result we are now saving on average 12 minutes per preventative maintenance inspection, of which we perform over 200,000 a year. Initiatives such as lean practices will increase our productivity by more than 10% and our best performing locations have demonstrated that these types of improvements are capable of producing ongoing cost efficiencies.

First Student is now positioned to leverage its scale as the market leader. Our recovery programme is restoring performance and is demonstrating marked improvement across many areas. There is some way to go but our steady progress, consistent with our plan, gives us confidence that we will create a sustainable competitive advantage for the future.

First Transit

Our First Transit business has developed in line with our expectations. During the period, revenue increased by 3.6% to \$1,242.6m (2011: \$1,199.0m). Operating profit (before amortization expense and non-recurring items) was \$89.1m (2011: \$89.4m).

First Transit continues to develop in line with our expectations. Revenue was \$1,242.6m (2011: \$1,199.0m), an increase of 3.6%. Adjusting for the extra week revenues were up 2.0% year on year. Operating profit was \$89.1m (2011: \$89.5m). During the year we invested in DriveCam technology which will allow us to offer customers a system to manage their fleets more efficiently.

With typically low capital investment required, this business depends on established credibility and a solid track record. We have successfully demonstrated our strong credentials in this market which has helped us succeed in working collaboratively with our customers to help improve their transport offering. We have a solid core of experienced transport managers with an unrivalled reputation for professionalism and innovation.

First Transit is the leading operator in its field and we operate a wide and diverse mix of different size and types of transport services across approximately 360 different contracts. In each of the core business segments - fixed route, paratransit, shuttle, transport call centres and municipal fleet maintenance services – we are the largest, or near largest, operator and consequently are able to bring to bear our scale and expertise to clients looking for transport solutions. We continue to seek out and stimulate further conversion opportunities and actively encourage and promote outsourcing by demonstrating the benefits of partnership and the range of solutions we can offer prospective clients.

During the year we continued to win new business including contracts to provide fixed route services for Foothill Transit in Arcadia, California; services in Fort Bend County, Texas and the city of Rochester, Minnesota. We were also awarded contracts to provide paratransit services in Louisville, Kentucky, in Yamhill County, Oregon and in Hunterdon County, New Jersey.

Directors' report

First Transit (continued)

Our shuttle bus business delivered a strong performance during the year and we were awarded the contract for the consolidated rental car centre at Chicago's Midway Airport. We continue to be the largest provider of university shuttle bus services and during the year extended our portfolio with new business added for universities including Yale, Southern Connecticut State and Kennesaw State. We also continue to pursue further growth in the transportation call centre market and were pleased to be awarded contracts in Colorado, Louisiana and Illinois during the year.

We have been able to successfully utilise our reputation and strong client relationships in one area of First Transit to win business for another. For example we were able to expand our vehicle maintenance work with the Williamsburg Area Transit Authority in Virginia through cross marketing our fixed route and fleet maintenance expertise.

Similarly in Fort McMurray, Alberta, our expertise and flexibility were the primary reasons we were initially awarded a contract to provide transportation during the first construction phase of a large industrial complex. Since then we have built on our strong business relationships in the area to complement this work as well as add several other oil industry related transportation contracts.

First Transit continues to develop opportunities that enable our clients to become as efficient as possible. We have partnered with DriveCam to implement their innovative product across a number of locations. By combining video data with real-time driver feedback this gives our customers access to information that can help to manage their fleet more effectively, improve fuel efficiency and lower emissions.

Greyhound

Greyhound is an iconic business that is synonymous with affordable long-distance travel.

We are delivering strong growth and improved performance, as a result of the actions we took to reform the operating model and transform the business, with operating profit that has more than doubled over the last two years.

Revenue was \$1,049.3m (2011: \$985.0m), an increase of 6.5%. Like-for-like revenue growth for the year was 4.1%. Operating profit was \$81.0m (2011: \$62.4m), an increase of 30%. Encouraging passenger revenue growth, including the successful expansion of Greyhound Express, supported the improvement in operating profit which was partly offset by higher fuel costs during the year.

The most significant development for Greyhound in recent times is the launch of Greyhound Express. As well as transforming our customer proposition, the service is attracting passengers back to bus travel and encouraging a new demographic of passenger. Customers are able to travel non-stop on high quality, new or refurbished coaches on high volume routes between major cities and take advantage of yield managed fares and reserve guaranteed seats online.

During the year Greyhound Express went from strength to strength. In addition to the two original Greyhound Express networks serving the Midwest and Northeast, we expanded services to the Southeast from a hub in Atlanta in the autumn, from where the network now reaches into Florida. As a result we now serve the vast majority of the east coast from Massachusetts to Miami. Heading west, Greyhound Express connects the main cities in Texas and from May 2012 the network is being rolled out into California.

Since its launch in December 2010, Greyhound Express has grown rapidly and now represents more than 20% of Greyhound's business. We have converted some schedules on high frequency lanes between urban locations to Greyhound Express services, with other schedules remaining as the traditional service. The strong feeder traffic from Greyhound's national network allows us to create sustainable new services, while minimising the cost of operating additional miles across the network, which also helps Greyhound Express routes achieve profitability quickly following the launch.

Our traditional Greyhound business is also seeing the benefits of a transformed operating model. We introduced ticket kiosks at ten of our locations which gave customers greater choice from a self-service alternative with additional options such as checking luggage, as well as helping to reduce our cost of sale. These kiosks proved very popular with over 60% of sales transacted through them. As a result we will be rolling out further ticket kiosks to ten additional locations in the coming months.

Directors' report

Greyhound (continued)

Our highly successful BoltBus service, serving city pairs in the Northeast, is offering customers a high quality, viable alternative to rail services. From May 2012 we will be expanding into the Pacific Northwest, introducing routes between Seattle and Portland.

During the year we added more than 80 new vehicles to our fleet, including 14 for our operations which serve the Hispanic market domestically and internationally along and across the southwest border with Mexico. Our refurbishment programme completed over 220 coaches in the year, bringing the total to almost 350 so far, significantly improving the passenger experience.

As we continue to make Greyhound a more modern and efficient network we are delivering improved service quality at the same time. 'On Time Performance' has increased from 79.8% to 89.1% over the last five years. New and refurbished coaches along with improvements in maintenance processes have also contributed to this improvement.

We are reviewing our terminals and, where appropriate, taking up opportunities to right-size and relocate Greyhound's properties to more appropriate, accessible and convenient sites for passengers across the network. So far we have right-sized or relocated around 50% of our US locations. During the year we completed the sale of our Washington DC terminal and will relocate our services to the multimodal hub at the city's Union Station by early 2013.

In November 2011 we launched a national initiative with another household name, 7-Eleven, and PayNearMe which has been highly successful and opened up online fares and discounts to a new market. Customers, including those without access to credit cards, can now order their tickets online and pay in cash at one of 6,400 7-Eleven stores nationwide and we are encouraged by the strong volume of daily transactions already achieved through this new sales channel. PayNearMe has concluded a deal with ACE Cash Express, which has 1,650 outlets, to start offering the same payment option from summer 2012 and we are in negotiations with several retailers across the US to continue to increase the breadth of our sales footprint.

Greyhound in Canada is undergoing a transformation and network modernisation programme, drawing on the positive changes we have already made in the US. Part of our strategy is to work with the provincial governments to reduce uneconomic, predominantly rural, routes. As a result we were pleased that Greyhound Canada returned to profitability during the year. Greyhound Express was also launched in four of the largest cities in Alberta during November 2011 and we are developing further opportunities to expand the service in Ontario and Quebec. Our redesigned Canadian website provides more options and a better online experience, and consequently we have seen Canadian web sales up by over 40% since its launch in September 2011.

Labor costs

Labor costs represent the largest component of the Group's operating costs. Labor shortages, or low unemployment rates, could hinder the Group's ability to recruit and retain qualified employees leading to a higher than expected increase in the cost of recruitment, training and other staff costs. To mitigate this risk, the Group seeks to structure our recruitment and retain the right people.

Fuel costs

Fuel prices and supply levels can be influenced significantly by international, political and economic circumstances. If fuel supply shortages were to arise because of national strikes, world supply difficulties, disruption of refining capacity or oil imports, the resultant higher fuel prices and disruption to services could adversely impact the Group's operating results. To mitigate the risks of rising fuel costs the Group works with FirstGroup Plc who regularly enter into forward contracts to buy fuel at fixed prices. In addition the Group seeks to limit the impact of unexpected fuel price rises through efficiency and pricing measures.

Directors' report

Insurance costs

Insurance reserves are made from estimates of losses that we will ultimately incur on accidents or incidents that have been reported but not paid and accidents or incidents that have taken place but have not yet been reported. These reserves are based on actuarial valuations that are prepared regularly by independent actuaries. The actuarial valuations are prepared after a number of factors are considered, including: historical claim payment patterns and changes in case reserves, the assumed rate of increase in medical treatment cost, property damage repairs and ultimate compensation. Historical experience and recent trends are the most significant factors considered in the determination of these reserves. Given the magnitude of the claims involved and the length of time until the ultimate cost is known, the use of any estimation technique is inherently uncertain. The Group seeks to mitigate the risk of rising insurance costs by promoting a culture of safety in everything that we do, through the Executive Safety Committee that is headed up by the Chief Executive of First Group plc.

Terrorism

Terrorist acts and the public's concerns about potential attacks could adversely affect demand for our services. More particularly if we were to be perceived as not taking all reasonable precautions to guard against potential terrorist acts this could adversely affect our reputation with the public. The Group has a Head of Security who is responsible for improved security awareness, the application of good practice in the implementation of security measures and the development and training of our employees so that they can respond effectively to any perceived threat or incident.

Customer service and contract retention

The Group's revenues are at risk if it does not continue to provide the level of service expected by customers. This could result in contracts not being renewed. To mitigate this risk all staff undertake intensive training programs to ensure they are aware of and abide by the levels of service that are required by our customers in each business. The Board also monitors in detail a series of customer service KPIs at each meeting to ensure strict targets are being met.

Employees

The Group is committed to employee involvement and uses a variety of methods to inform, consult and involve its employees in the business. These include divisional company newsletters and circulars. Senior managers within each division meet regularly to discuss current issues and employees are encouraged to discuss any issues with management at any time. The North American Group also operates a confidential hotline, which staff can use to report health and safety, employment-related and other issues concerning them.

Going concern

While the Group is not wholly immune to macroeconomic developments, it has established a strong balanced portfolio of businesses with a majority of Group revenues supported by medium term contracts with government agencies and other large organizations in North America.

The directors have also carried out a detailed review of the Group's 2012/2013 budget with due regard for the risks and uncertainties to which the Group is exposed, the uncertain economic climate and the impact that this could have on trading performance.

Based on this review, the directors believe that the Group continues to have more than adequate resources at their disposal. The financial statements have been prepared on a going concern basis.

Directors' report

Directors and their interests

The directors who held office during the year were as follows:

James Irvine (resigned Aug 1, 2011) Christian Gartner (appointed Aug 1, 2011) Bruce Rasch

The directors held no interests in the company's shares or the shares of any other group company during the year. The directors are eligible to participate in a sharesave scheme and an executive sharesave scheme of the ultimate parent company FirstGroup plc.

Auditors

Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.

Each of the persons who is a director at the date of approval of this report confirms that: so far as the director is aware, there is no relevant audit information of which the company's auditors are unaware; and the director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the company's auditors are aware of that information.

Approved by the Board of Directors and signed on behalf of the Board

$U_{\mathcal{A}_{\infty}}$ get

Director JUNE 28 2012

Statement of directors' responsibilities

The directors are responsible for preparing the financial statements in accordance with International Financial Reporting Standards ('IFRS').

International Accounting Standard 1 requires that financial statements present fairly for each financial year the Company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. Directors are also required to:

• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
• prepare the accounts on a going concern basis unless, having assessed the ability of the Company to continue as a going concern, management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Independent auditor's report to the members of FirstGroup America. Inc.

We have audited the non-statutory Group financial statements of FirstGroup America. Inc. for the year ended 31 March 2012, which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes 1 to 29. These Group financial statements have been prepared under the accounting policies set out therein.

This report is made solely to the company's members in accordance with our letter of engagement dated 26 April 2012 and solely for the purpose of showing the results of management's stewardship of the resources entrusted to it. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an independent auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's and the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion:

• the non-statutory financial statements give a true and fair view of the state of the Group's affairs as at 31 March 2012 and of its profit for the year then ended; and
• the non-statutory financial statements have been properly prepared in accordance with in accordance with the accounting policies set out therein.

etoitte Li

Deloitte LLP Chartered Accountants London, United Kingdom 28 June 2012

Consolidated income statement Year ended 31 March 2012

	Notes	2012 Sm	2011 Sm
Revenue	3	4,789.8	4,664.3
Operating costs		(4,450.2)	(4,312.3)
Operating profit before amortization expense and non-
recurring items		339.6	352.0
Amortization expense		(43.8)	(43.9)
Non-recurring items	5		(87.7)
Profit/(Loss) on disposal of assets		7.5	(2.2)
Operating profit	6	303.3	218.2
Finance costs	8	(202.3)	(201.1)
Profit before tax		101.0	17.1
Tax	$\mathbf{Q}$	(28.9)	(7.7)
Profit for the year from continuing operations		72.1	9.4
Attributable to:
Equity holders of the parent		69.9	13.8
Non-controlling interests		2.2	(4.4)
		72.1	9.4

Consolidated statement of comprehensive income
Year ended 31 March 2012

	Note	2012 $\mathbf{Sm}$	2011 $S_{\rm I}$
Profit for the year		72.1	9.4
Other comprehensive income Actuarial loss on defined benefit pension schemes	27	(114.2)	(24.0)
Deferred tax on actuarial loss on defined benefit pension schemes		35.7	9.2
Derivative hedging instrument movements		(10.5)	4.8
Deferred tax on hedging instrument movements		4.2	(1.9)
Foreign currency movements		10.4	58.7
Other comprehensive (loss)/income for the year		(74.4)	46.8
Total comprehensive (loss)/income for the year		(2.3)	56.2
Attributable to:
Equity holders of the parent		(4.5)	60.6
Non-controlling interests		2.2	(4.4)
		(2.3)	56.2

Consolidated balance sheet 31 March 2012

	Notes	2012 $S_{m}$	2011 Sm
Non-current assets
Goodwill	10	2,387.4	2,387.3
Other intangible assets	11	503.1	548.7
Property, plant and equipment	12	1,946.0	1,993.3
External Investments		4.9	5.1
Financial assets - Derivative financial instruments		0.8	7.7
Deferred tax assets	21	61.8	53.1
		4,904.0	4,995.2
Current assets
Inventories	13	69.3	76.3
Trade and other receivables	14	506.2	486.3
Financial assets - Derivative financial instruments		7.5	11.0
Cash and equivalents	17	84.7	90.8
		667.7	664.4
Non-current assets classified as held for sale	15	5.9	7.5
Total assets		5,577.6	5,667.1
Current liabilities
Trade and other payables	16	706.8	669.2
Financial liabilities - Current maturity of long-term debt	18	L.
- Current maturity of finance leases	19	54.0	42.0
- Derivative financial instruments
		760.8	711.2
Net current liabilities		(93.1)	(46.8)
Non-current liabilities
Self-insured liabilities	22	312.1	317.5
Long-term provision	22	17.4	51.3
Pension liability	27	344.5	287.7
Intercompany balances	28	2,465.7	2,739.6
Long term debt	18	36.3	34.4
Finance leases	19	321.6	199.7
Financial liabilities - Derivative financial instruments		0.2	$\omega_{\rm c}$
		3,497.8	3,630.2
Total liabilities		4,258.6	4,341.4
Net assets		1,319.0	1,325.7

Consolidated balance sheet (continued) 31 March 2012

Sm
富
953.0
351.7
11.2
1,315.9
9.8
1,325.7

These financial statements were approved by the Board of Directors on $\sqrt{J}$ Signed on behalf of the Board of Directors

Director Chiles Pula

, 2012.

Consolidated statement of changes in equity Year ended 31 March 2012

	Share capital Sm	Share premium S m	Hedging reserve \$m	Retained earnings Sm	Total before Non- Controlling Interest S m	Non- Controlling Interest Sm	Total Sm
At 1 April 2010		953.0	8.3	298.0	1,259.3	10.2	1,269.5
Total comprehensive income for the
year	÷.	$\overline{\phantom{a}}$	2.9	57.7	60.6	(4.4)	56.2
Dividends paid		÷.				2.7	2.7
Foreign exchange movement	$\blacksquare$	$\sim$	$\overline{\phantom{a}}$	(4.0)	(4.0)	1.3	(2.7)
At 31 March 2011		953.0	11.2	351.7	1,315.9	9.8	1,325.7
Total comprehensive income for the year	۰	÷	(6.3)	1.8	(4.5)	2.2	(2.3)
Dividends paid	٠	÷	÷,	$\overline{\mathcal{C}}$	÷.	(4.4)	(4.4)
At 31 March 2012		953.0	4.9	353.5	1,311.4	7.6	1,319.0

The hedging reserve records the movement on designated hedging items.

The share premium account represents the premium on shares. The reserve is non-distributable.

Consolidated cash flow statement Year ended 31 March 2012

	2012 Sm	2011 Sm
Cash flows from operating activities
Operating profit	303.3	218.2
Profit/(loss) on disposal of Property, Plant, and Equipment	7.5	(17.4)
Depreciation/Amortization	348.6	341.8
Operating cash flows before working capital	659.4	542.6
Decrease in inventories	7.0	4.0
(Increase)/decrease in receivables and other current assets	(19.9)	27.4
Increase in payables and other current liabilities	34.2	145.6
(Increase)/decrease in other working capital	(214.9)	45.3
Increase/(decrease) in pension liability	56.8	(42.2)
Decrease in self insurance liability	(5.4)	(85.1)
Cash generated by operations	517.2	637.6
Corporate tax paid	(17.6)	(7.7)
Interest paid	(53.7)	(184.7)
Net cash from operating activities	445.9	445.2
Investing activities
Proceeds for disposal of property, plant and equipment	27.3	26.7
Purchase of property, plant and equipment	(335.7)	(278.1)
Acquisition of businesses	(5.5)	(4.9)
Net cash used in investing activities	(313.9)	(256.3)
Financing activities
Net change under finance leases	133.9	31.7
Net change of bank debt	1.9	(9.1)
Net change in advances from related party	(273.9)	(236.2)
Net cash used in financing activities	(138.1)	(213.6)
Net decrease in cash and cash equivalents	(6.1)	(24.7)
Cash and cash equivalents at beginning of year	90.8	115.5
Cash and cash equivalents at end of year	84.7	90.8

Notes to the financial statements Year ended 31 March 2012

$\mathbf{L}$ General information

FirstGroup America, Inc. is a Company incorporated in the United States of America. The address of the registered office is 2711 Centerville, Suite 400, Wilmington, DE 19808. The nature of the Group's operations and its principal activities are set out on pages 2 to 6. These financial statements are presented in United States dollars because that is the currency of the primary economic environment in which the Group operates.

$2.$ Statement of accounting policies

Basis of accounting

The non-statutory financial statements have been prepared in accordance with the accounting policies detailed below. These are extracted from FirstGroup plc's audited financial statements for the year ended 31 March 2012 which were prepared in accordance with International Financial Reporting Standards. The non-statutory financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below.

Going concern

The financial statements are prepared on a going concern basis. As disclosed on page 6, the directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up the results for the 53 weeks ended 31 March 2012. The consolidated accounts for the year ended 31 March 2011 include the results for the 52 weeks ended 26 March 2011. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in subsidiaries are identified separately from the Group's equity therein. The interests of non-controlling shareholders may be initially measured at fair value or at the non-controlling interests' proportionate share of the fair value of the acquiree's identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group's interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities are disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or jointly controlled entity.

Notes to the financial statements Year ended 31 March 2012

$2.$ Statement of accounting policies (continued)

Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given. liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair value of contingent consideration classified as equity are not recognised.

Where a business combination is achieved in stages, the Group's previously-held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3(2008) are recognised at their fair value at the acquisition date, except that:

• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are ö recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
• liabilities or equity instruments related to the replacement by the Group of an acquiree's share-based payment awards are measured in accordance with IFRS 2 Share-based Payment; and
• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date, and is subject to a maximum of one year.

Non-current assets held for sale

Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Goodwill and intangible assets

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition.

Notes to the financial statements Year ended 31 March 2012

$2.$ Statement of accounting policies (continued)

Goodwill and intangible assets (continued)

Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognized as an asset is reviewed for impairment at least annually. Any impairment is recognized immediately in the income statement and is not subsequently reversed.

For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units. Cashgenerating units to which goodwill has been allocated are tested for impairment annually, or more frequently where there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous US GAAP amounts subject to being tested for impairment at that date.

The existing finite life intangible assets have a residual value of nil and are amortized over their useful economic lives as follows:

Customer contracts - over the life of the contract	(9 to 20 years)
Greyhound brand and trade name - over the life of the brand	$(20 \text{ years})$

Revenue recognition

Revenue principally comprises revenue from road passenger transport, and certain management and maintenance services. Where appropriate, amounts are shown net of rebates and sales taxes.

Revenue principally comprises amounts receivable from contracts with government bodies and similar organizations and is recognized as the services are provided. Greyhound coach revenue mainly comprises of amounts receivable from ticket sales.

Interest income is recognized on an accruals basis.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases and the rental charges are charged against income on a straight-line basis over the life of the lease.

Assets held under hire purchase contracts and finance leases are recognized as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group's general policy on borrowing costs (see below).

Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

Foreign currencies

The individual financial statements are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of the Group are expressed in US dollars, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

Notes to the financial statements Year ended 31 March 2012

$2.$ Statement of accounting policies (continued)

Foreign currencies (continued)

In preparing the financial statements of the individual companies, transactions in currencies other than US dollars are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of nonmonetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognized directly in equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognized in the income statement in the period in which they are incurred.

Operating profit

Operating profit is stated after charging intangible asset amortization and other non-recurring items but before investment income and finance costs.

Non-recurring items

Non-recurring items are material items of income or expenditure which due to their size, nature and infrequency, require separate identification on the face of the income statement to allow a better understanding of the financial performance in the year, in comparison to prior years.

Retirement benefit costs

The Group operates or participates in a number of pension schemes, which include both defined benefit schemes and defined contribution schemes.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. There is no legal or constructive obligation to pay contributions into a defined contribution scheme if the fund has insufficient assets to pay all employees' benefits relating to employee service in the current and prior periods.

For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognized in full in the period in which they occur. They are recognized outside the income statement and presented in the statement of recognized income and expense.

Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over the average period until the benefits become vested.

The retirement benefit obligation recognized in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.

Notes to the financial statements Year ended 31 March 2012

$2.$ Statement of accounting policies (continued)

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill, or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Property, plant and equipment

Properties for provision of services or administrative purposes are carried at cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Group's accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Passenger carrying vehicles and other plant and equipment are stated at cost less accumulated depreciation and any recognized impairment loss.

Depreciation is charged so as to write off the cost of assets, other than freehold land, the land element of long leasehold properties or on assets in the course of construction, over their estimated useful lives, using the straight-line method, on the following bases:

Freehold buildings	50 years straight-line
Long leasehold buildings	50 years straight-line
Short leasehold properties	period of lease
Passenger carrying vehicles	5 to 15 years straight-line
Other plant and equipment	3 to 20 years straight-line

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in income.

Notes to the financial statements Year ended 31 March 2012

$2.$ Statement of accounting policies (continued)

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately, except in the case of goodwill, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Inventories

Inventories are stated at the lower of cost and net realizable value, with costs determined using the weighted average method. This approximates fair value.

Financial instruments

Financial assets and financial liabilities are recognized on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

The Group measures financial assets on initial recognition at fair value, and determines the classification of such assets at initial recognition and on any subsequent reclassification event.

Where there is no active market for a financial asset, fair value is determined using valuation techniques including recent commercial transactions and discounted cash flows. Otherwise financial assets are carried at amortized cost.

Financial assets are classified into one of four primary categories:

Fair value through the income statement

This covers any financial asset designated on initial recognition to be measured at fair value with fair value changes to go through the income statement, and financial assets acquired principally for the purpose of trading in the short term.

Notes to the financial statements Year ended 31 March 2012

$2.$ Statement of accounting policies (continued)

Financial assets (continued)

Held to maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified here when the Group has the intention and ability to hold to maturity. These financial assets are held at amortized cost using the effective interest method. Gains and losses are recognized in the income statement when the investments are derecognized or impaired as well as through amortization.

Loans and Receivables

Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, do not qualify as trading assets and have not been designated as either fair value through the income statement or Available For Sale. Such assets are carried at amortized cost. Gains and losses are recognized in the income statement to the extent that the receivables are impaired as well as through amortization.

The most significant financial assets under this category are trade receivables and bank deposits.

Trade receivables are measured at fair value, i.e. original invoice amount, less an allowance for uncollectible amounts. Appropriate allowances for estimated irrecoverable amounts are recognized in the income statement when there is objective evidence that the asset is impaired.

Bank deposits are included within cash and cash equivalents. Cash and cash equivalents as defined for the cash flow statement comprise cash in hand, cash held at bank with immediate access, other short-term investments and bank deposits with maturities of three months or less from the date of inception and bank overdrafts. In the consolidated balance sheet cash includes cash and cash equivalents excluding bank overdrafts. Bank overdrafts that have no legal right of set-off against cash and cash equivalents are included within borrowings in current liabilities. All are carried on the balance sheet at cost. Cash and cash equivalents includes ring-fenced cash. The ring-fenced cash represents that which is not available for distribution or the amount required to satisfy the contractual liquidity ratio at the balance sheet date.

Available for sale financial assets

Available for sale financial assets are non-derivative financial assets that are designated as such, or that are not classified in any of the other categories. After initial recognition these assets are measured at fair value with gains or losses being recognized as a separate component of equity until the investment is derecognized or the investment is determined to be impaired, at which time the previously reported cumulative gain or loss is included in the income statement.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

Notes to the financial statements Year ended 31 March 2012

$2.$ Statement of accounting policies (continued)

Financial liabilities

Bank borrowings

Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs.

Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest rate method.

Derivative financial instruments and hedge accounting

The Group uses derivative financial instruments to hedge fuel price risks. Use of such financial instruments is governed by policies and delegated authorities approved by the Board. The Group does not use derivative financial instruments for speculative purposes.

The main derivative financial instruments used by the Group are fuel swaps. Such instruments are initially recognized at fair value and subsequently re-measured to fair value at the reported balance sheet date. The fair values are calculated by reference to market fuel prices at the period end, and supported by counterparty confirmations. The fuel swaps are designated as cash flow hedges of fuel price risks or otherwise used as economic hedges of such risks.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognized in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to the income statement for the period.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value with unrealized gains or losses reported in the income statement.

Provisions

Provisions are recognized when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material.

Insurance

The Group's policy is to self-insure high frequency, low value claims within the businesses. To provide protection above these types of losses, coverage is obtained through third-party insurance policies. Provision is made under IAS 37 for the estimated cost of settling uninsured claims for incidents occurring prior to balance sheet date.

Notes to the financial statements Year ended 31 March 2012

$2.$ Statement of accounting policies (continued)

New standards and interpretations not applied

The International Accounting Standards Board and the International Financial Reporting Interpretations Committee (IFRIC) have issued the following standards and interpretations with effective dates as noted below:

IAS/IFRS standards		Effective for accounting periods starting on or after
Amendments to IFRS 1 (March 2012)	Government Loans	1 January 2013
Amendments to IAS 32 (Dec 2011)	Offsetting Financial Assets and Financial Liabilities	1 January 2014
Amendments to IFRS 7 (Dec 2011)	Disclosures – Offsetting Financial Assets and Financial Liabilities	1 January 2013
IFRS 9	Financial Instruments	1 January 2015
Amendments to IAS 1 (June 2011)	Presentation of Items of Other Comprehensive Income	1 July 2012
IAS 19 (revised June 2011)	Employee Benefits	1 January 2013
IFRS 13	Fair Value Measurement	1 January 2013
IFRS 12	Disclosure of Interests in Other Entities	1 January 2013
IFRS 11	Joint Arrangements	1 January 2013
IFRS 10	Consolidated Financial Statements	1 January 2013
IAS 28 (revised May 2011)	Investments in Associates and Joint Ventures	1 January 2013
IAS 27 (revised May 2011)	Separate Financial Statements	1 January 2013

The key impact of IAS 19 (revised) 'Employee Benefits' will be to remove the separate assumptions for expected return on plan assets and discounting of scheme liabilities and replace them with one single discount rate for the net deficit.

With the exception of the revisions to IAS19 noted above, the Directors do not anticipate the adoption of these other standards will have a material impact on the Group's accounts in the period of initial application.

Notes to the financial statements Year ended 31 March 2012

Critical accounting judgements and key sources of estimation uncertainty

In the process of applying the Group's accounting policies which are described above, management has made the following judgements that have the most significant effect on the amounts recognized in the financial statements.

Impairment of intangible assets (including goodwill)

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which the goodwill has been allocated. The value in use requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the balance sheet date was \$2,387.4m (2011: \$2,387.3m) as set out in note 10 and the carrying amount of other intangible assets at the balance sheet date was \$503.1m (2011: \$548.7m) as set out in note 11. The sensitivities on the key assumptions used in the goodwill impairment testing are also set out in note 10.

Defined benefit pension arrangements

Measurement of defined benefit pension obligations requires estimation of a suitable discount rate, the expected return on scheme assets, expected rate of inflation of future salary and pension costs along with assumptions about mortality rates. The most significant of these are the discount rate and inflation assumptions.

Self-insurance

Provision is made for all known incidents for which there is self-insurance using management's best estimate of the likely settlement of these incidents. The estimated settlement is reviewed on a regular basis with independent actuarial advice and the amount provided is adjusted as required. The Group's total insurance provisions as at the balance sheet date were \$480.1m (2011: \$488.5m) as set out in note 22.

$3.$ Revenue

	2012 Sm	2011 Sm
Services rendered	4,789.8	4,664.3

All results derive from continuing operations.

Notes to the financial statements Year ended 31 March 2012

$4.$ Business segments

The Group is organized into three operating divisions – First Student, First Transit and Greyhound. These divisions are the basis on which the Group reports its primary segment information. The principal activities of these divisions are set out in the Review of business. All operations are located within North America. First Transit includes First Services as these are now managed as a single business. Up to 31 March 2009 First Transit and First Services were classed as separate divisions.

Segment information about these businesses is set out below.

The segment results for the year to 31 March 2012 are as follows:

	First Student Sm	First Sm	Transit Greyhound Sm	Group items $S_{m}$	Total 2012 Sm
Revenue	2,488.7	1,242.6	1,049.3	9.2	4,789.8
Operating profit/(loss) before amortization expense and non-recurring items	169.5	89.1	81.0		339.6
Amortization expense Non-recurring items Profit/(Loss) on disposal of assets	(32.0) (0.4)	(6.8) Ξ	(5.0) 7.9	۷	(43.8) 7.5
Operating profit (loss)	137.1	82.3	83.9		303.3
Finance Costs					(202.3)
Profit before tax Tax					101.0 (28.9)
Profit for the year					72.1
Other information	First Student Sm	First $S_{m}$	Transit Greyhound $S_{\rm m}$	Group items Sm	Total 2011 Sm
Capital additions	201.8	47.6	70.8	15.5	335.7
Depreciation and amortization	271.4	22.7	51.9	2.6	348.6
Balance sheet	First Student Sm	First Sm	Transit Greyhound $S_{m}$	Group items Sm	Total 2011 Sm
Total assets	3.752.9	683.1	878.5	263.1	5,577.6
Total liabilities	949.7	174.2	304.3	2,830.4	4,258.6

Notes to the financial statements Year ended 31 March 2012

$4.$ Business segments (continued)

The segment results for the year to 31 March 2011 are as follows:

	First Student Sm	First Sm	Transit Greyhound Sm	Group items Sm	Total 2011 Sm
Revenue	2,467.3	1,199.0	985.0	13.0	4,664.3
Operating profit/(loss) before amortization expense and non-recurring items	200.2	89.4	62.4	g)	352.0
Amortization expense Non-recurring items Profit/(Loss) on disposal of assets	(31.6) (54.4) (0.1)	(7.4) (26.7) (0.1)	(4.9) (0.1) (1.9)	(6.6)	(43.9) (87.8) (2.1)
Operating profit (loss)	114.1	55.2	55.5	(6.6)	218.2
Finance Costs					(201.1)
Profit before tax Tax					17.1 (7.7)
Profit for the year					9.4
Other information	First Student Sm	First \$m	Transit Greyhound Sm	Group items $S_{\rm I}$	Total 2011 Sm
Capital additions	193.7	13.6	65.4	5.4	278.1
Depreciation and amortization	268.0	22.2	49.5	2,1	341.8
Balance sheet	First Student Sm	First Transit Sm	Greyhound $S_{\rm I}$	Group items Sm	Total 2011 Sm
Total assets	3,465.4	667.8	1,140.8	393.1	5,667.1
Total liabilities	1,123.2	192.8	630.2	2,395.2	4,341.4

Notes to the financial statements Year ended 31 March 2012

5. Non-recurring items

As a result of the downturn in the US economy, First Group America has restructured the business, mostly affecting the overhead structures at the parent company and First Student:

	2012 Sm	2011 Sm
Legal and professional costs		2.8
Redundancy and staff related costs		15.3
Asset impairments and provision for excess buses		45.1
IT costs		5.0
Onerous Provision		19.5
		87.7

Legal and professional costs comprise consultants and legal fees involved in planning and managing the integration and restructure. Redundancy and staff related costs reflect severance payments, relocation expenses, retention bonuses and travel expenses. Asset impairment charges related to writing down to market excess school buses and certain assets of a First Transit onerous contract. IT costs comprise the costs of systems integration and repair of a Student system. Relocation of offices reflects the remaining lease costs of premises which were closed down during the integration process. The onerous provision related to future losses of Student contracts as a result of recessionary cuts by its customers and the First Transit onerous contract.

6. Operating profit

Operating profit has been arrived at after charging:

	2012 Sm	2011 $\mathbf{Sm}$
Depreciation of property, plant and equipment	304.8	297.9
Operating lease charges	10.2	6.5
Amortization of intangible assets	43.8	43.9
Auditors' remuneration for audit services	1.3	1.3
Staff costs (note 7)	2.681.5	2,614.0
Foreign Exchange losses	0.1	0.1
Cost of inventories recognised as expense	0.7	0.7

$\overline{a}$

$\sim$ $\sim$ $\sim$

Notes to the financial statements Year ended 31 March 2012

7. Staff costs

8.

The average monthly number of employees (including Executive Directors) was:

	2012 No.	2011 No.
Operational	82,223	83,314
Administration	5,646	5,728
	87,869	89,042
Their aggregate remuneration (including Executive Directors) comprised:
	2012	2011
	Sm	\$m
Wages and salaries	2,135.0	2,081.2
Taxes	290.1	282.9
Other benefit and pension costs	256.4	249.9
	2,681.5	2,614.0
Finance costs
	2012	2011
	S m	Sm
HP contracts & finance lease interest	10.0	9.1
Interest on inter-company loans	164.1	164.2
Notional interest on self insured liabilities	26.2	25.3
Loan note interest	2.0	2.5
Total borrowing costs	202.3	201.1

There was no interest capitalized into qualifying assets in either the year ended 31 March 2011 or 31 March 2012.

Notes to the financial statements Year ended 31 March 2012

9. Tax on profit on ordinary activities

	2012 Sm	2011 \$m
Current tax	9.2	8.2
Deferred tax	19.7	(0.5)
	28.9	7.7

Current tax is calculated at 41% (2011:39%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction. The charge for the year can be reconciled to the profit per the income statement as follows:

		2012 Sm	2012 $\frac{0}{0}$	2011 Sm	2011 $\frac{0}{0}$
	Profit before tax	101.0	100.0%	17.1	100.0%
	Tax at the US current tax rate of $41\%$ (39%)	41.4	41.0%	6.7	39.0%
	Adjustments to tax in respect to prior years Tax effect of expenses that are not deductible in	0.4	0.4%	(0.1)	$(0.6)\%$
	determining taxable profit and other items Capital losses previously unrecognized	(12.9)	$-10.3%$	1.1	6.5%
	Tax expense and effective tax rate for the year	28.9	31.1%	7.7	44.9%
10.	Goodwill
				2012	2011
	Cost			S m	S m
	At 1 April			2,387.3	2,380.1
	Additions			4.6	3.6
	Impairment				(8.0)
	Foreign Exchange movement			(4.5)	11.6
	At 31 March			2,387.4	2,387.3
	Accumulated impairment losses at 31 March
	Carrying amount
	at 31 March			2,387.4	2,387.3
	Goodwill is split as follows:
				2012	2011
	Carrying amount			Sm	Sm
	First Student			1,627.5	1,627.4
	First Transit			395.9	395.9
	Greyhound			364.0	364.0
				2,387.4	2,387.3

Notes to the financial statements Year ended 31 March 2012

10. Goodwill (continued)

Impairment testing

At the year end, the carrying value of net assets, including goodwill, was reviewed for impairment in accordance with IAS 36 Impairment of Assets. For the purposes of this impairment review goodwill has been tested for impairment on the basis of discounted future cash flows arising in each relevant CGU.

The Group prepares cash flow forecasts derived from the most recent budget for 2012/13 and Five Year Plan projections for 2013-16 which take account of both past performance and expectations for future market developments. The projections for First Student assume the incremental benefits of the recovery plan together with a moderate economic recovery. Cash flows in 2015/16 are extrapolated using estimated growth rates of 3.0% (2011: 3.0%) which do not exceed the long-term average growth rate for the Group's businesses. A risk adjustment is then made using a pre-tax discount rate of $10.0\%$ (2011: 10.0%) to arrive at the value in use for each of the CGUs. The pre-tax discount rates applied are derived from the Group's weighted average cost of capital. The assumptions used in the calculation of the Group's weighted average cost of capital are benchmarked to externally available data.

The Directors consider the assumptions to be reasonable based on the historic performance of each CGU and to be realistic in light of economic and industry forecasts.

The calculation of value in use for each CGU is most sensitive to the principal assumptions of discount rate, growth rates and margins achievable. Sensitivity analysis has been performed on the calculations and confirms that no reasonably possible changes in the assumptions would cause the carrying amount of the CGUs to exceed their recoverable amount.

The First Student margin would need to fall in excess of 1.6% compared to future projections for there to be an impairment to the carrying value of net assets in this business.

Following their review of goodwill the Directors have concluded that there is no impairment to any of the CGU_s.

Notes to the financial statements Year ended 31 March 2012

11. Other intangible assets

	Greyhound Brand and trade name Sm	Contracts acquired Sm	Total Sm
Cost
At 1 April 2010	97.4	587.0	684.4
Currency exchange movements	0.9	4.2	5.1
At 31 March 2011	98.3	591.2	689.5
Amortization
At 1 April 2010	12.2	84.4	96.6
Charge for year	4.9	39.3	44.2
At 31 March 2011	17.1	123.7	140.8
Carrying amount
At 31 March 2011	81.2	467.5	548.7
Cost
At 1 April 2011	98.3	591.2	689.5
Currency exchange movements	Ξ	(1.8)	(1.8)
At 31 March 2012	98.3	589.4	687.7
Amortization
At 1 April 2011	17.1	123.7	140.8
Charge for year	4.9	38.9	43.8
At 31 March 2012	22.0	162.6	184.6
Carrying amount
At 31 March 2012	76.3	426.8	503.1

Contracts acquired through the purchases of businesses and subsidiary undertakings are amortized on a straightline basis over their useful lives, which is on average, nine years.

Notes to the financial statements Year ended 31 March 2012

12. Property, plant and equipment

	Machinery
	Land and		and
	buildings	Buses	equipment	Total
	Sm	Sm	Sm	$S_{\rm m}$
Cost At 31 March 2011	549.7	2,622.2	297.6
				3,469.5
Foreign currency movement Additions	(1.7) 15.4	(8.3) 276.4	(0.3) 43.9	(10.3) 335.7
Disposals	(61.1)	(154.6)
Reclassified as held for sale	(0.1)	22.4	(7.0) (8.9)	(222.7) 13.4
At 31 March 2012	502.2	2,758.1	325.3	3,585.6
Accumulated depreciation and impairment
At 31 March 2011	146.7	1,150.8	178.7	1,476.2
Foreign currency movement	(0.3)	(3.2)	(0.2)	(3.7)
Charge for year	9.7	256.1	39.0	304.8
Disposals	(4.3)	(128.4)	(5.8)	(138.5)
Revaluation		(11.4)	$\overline{a}$	(11.4)
Reclassified as held for sale	ä,	12.2	÷	12.2
At 31 March 2012	151.8	1,276.1	211.7	1,639.6
Carrying amount
At 31 March 2012	350.4	1,482.0	113.6	1.946.0
Cost
At 31 March 2010	556.4	2,499.2	264.5	3,320.1
Foreign currency movement	4.3	20.2	0.8	25.3
Additions	10.9	219.8	47.4	278.1
Disposals	(21.9)	(91.5)	(15.1)	(128.5)
Reclassified as held for sale		(25.5)		(25.5)
At 31 March 2011	549.7	2,622.2	297.6	3,469.5
Accumulated depreciation and impairment
At 31 March 2010	139.8	966.3	155.2	1,261.3
Foreign currency movement	0.5	6.0	0.4	6.9
Charge for year	10.9	250.3	36.7	297.9
Disposals	(4.5)	(66.3)	(13.6)	(84.4)
Revaluation		17.2		17.2
Reclassified as held for sale		(22.7)		(22.7)
At 31 March 2011	146.7	1,150.8	178.7	1,476.2
Carrying amount
At 31 March 2011	403.0	1,471.4	118.9	1,993.3

The carrying amount of property, plant and equipment includes an amount of \$399.5m (2011: \$224.9m) in respect of assets held under HP contracts and finance leases.

In the normal course of business, the Group enters into contractual commitments to purchase buses and other assets. At 31 March 2012, the Group had no contractual commitments for such purchases (2011: \$nil).

Notes to the financial statements Year ended 31 March 2012

13. Inventories

	2012 $\mathbf{Sm}$	2011 Sm
Fuel and oil	15.3	16.7
Parts	54.0	59.6
	69.3	76.3

There is no material difference between the balance sheet value of inventories and their replacement cost. There was no material write down of inventories during the current or prior year. The provision for stock obsolescence at the balance sheet date was \$9.0m (2011: \$8.5m).

14. Trade and other receivables

	2012	2011
	Sm	Sm
Amounts due within one year
Trade receivables	395.6	386.7
Provision for doubtful receivables	(4.9)	(9.4)
Other receivables	25.0	24.9
Other prepayments and accrued income	90.5	84.1
	506.2	486.3

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

Credit risk

Credit risk is the risk that financial loss arises from failure by a customer or counterparty to meet its obligations under a contract.

Credit risk exists in relation to the Group's financial assets, which comprise trade and other receivables of \$506.2 m (2011: \$486.3m), cash and cash equivalents of \$84.7m (2011: \$90.8m) and derivative financial instruments of \$7.5m (2011: \$11.0m).

The Group's credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group's management based on prior experience and their assessment of the current economic environment. The provision for doubtful receivables at the balance sheet date was \$4.9m (2011: \$9.4m).

Most trade receivables are with public or quasi public bodies, principally the school bus boards and city municipal authorities in North America. The Group does not consider any of these counterparties to be a significant risk. Each division within the Group has a policy governing credit risk management on trade receivables.

The counterparties for bank balances and derivative financial instruments are mainly represented by large banks with strong credit ratings assigned by international credit rating agencies. These counterparties are subject to approval by the Board of Directors. Group Treasury policy limits the maximum deposit amount with any one counterparty to \$100 million or \$75 million, depending on the counterparty, and limits the maximum term to three months. The term of the bank deposits is typically less than one month.

Notes to the financial statements Year ended 31 March 2012

14. Trade and other receivables (continued)

An analysis of financial assets which are past due but not impaired is set out below.

	40 L 4 $S_{\rm I}$	111 Sm
Movement in the provision for doubtful receivables
Balance at the beginning of the year	9.4	5.5
Subsidiary undertakings acquired
Amounts recovered during the year	(0.8)
Utilized during the year	(4.2)	(1.7)
Increase in allowance recognized in the income statement	0.3	5.8
Currency exchange movements	0.2	(0.2)
Balance at the end of the year	4.9	9.4
	2012	2011
	Sm	$\mathbf{Sm}$
Ageing of past due but not impaired trade receivables
Less than 30 days	42.7	54.2
$30 - 90$ days	16.0	12.0
$90 - 180$ days	5.1	12.1
$180 + days$	7.1	2.4
Total	70.9	80.7

$3012$

$3011$

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

15. Non-current assets classified as held for sale

Non-current assets held for sale comprise of North American yellow school buses, which are surplus to requirements and are being actively marketed. Gains or losses arising on the disposal of such assets are included in arriving at operating profit in the income statement. The Group expects to sell such yellow school buses within 12 months of them going onto the 'for sale' list. The value at each balance sheet date represents management's best estimate of their resale value. There are no liabilities associated with these held for resale assets.

Trade and other payables 16.

	2012 $\mathbf{S}_{\mathbf{m}}$	2011 $\mathbf{Sm}$
Amounts falling due within one year
Trade payables	210.5	170.8
Other payables	93.7	100.6
Accruals and deferred income	402.6	397.8
Total	706.8	669.2

Trade payables and accruals principally comprise of amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 30 days (2010: 30 days). The Group has controls in place to ensure that all payments are paid within the appropriate credit timeframe.

The Directors consider that the carrying amount of trade payables approximates to their fair value.

Notes to the financial statements Year ended 31 March 2012

17. Cash and cash equivalents

	2012 Sm	2011 Sm
Cash and cash equivalents	84.7	90.8

The fair value of cash and cash equivalents matches the carrying value.

18. Long term debt

The Group had the following loan notes issued as at the balance sheet dates:

	2012 $S_{\rm I}$	2011 $\mathbf{Sm}$
Due in less than one year	-	$\sim$
Due in more than one year	36.3	34.4
	36.3	34.4

The loan has been classified by reference to the earliest date on which the loan note holder can request redemption. The loan is due in November 2012 and bears interest at a rate of LIBOR plus 1.75%.

Effective interest rates

The effective interest rates at the balance sheet dates were as follows:

	2012	2011
	$\frac{0}{0}$	$\frac{0}{0}$
\$250m Parent company borrowing facility	$LIBOR + 1.2$	$LIBOR + 1.2$
\$1,800m Parent company fixed rate term loans	$6.2$ to $8.2$	6.2 to 8.2
\$800m Parent company borrowing facility	$LIBOR + 0.41$	$LIBOR + 0.41$
\$71.1 m Parent company promissory note	$LIBOR + 3.0$	$LIBOR + 3.0$

The original parent company borrowing facility had \$250.0m (2011: \$177.5m) undrawn at 31 March 2012. The new parent company borrowing facility had \$704.7m undrawn at 31 March 2012 (2011: \$664.6m). The \$1,800m fixed term loans were fully drawn as of 31 March 2011 and 2012. The \$71.1m parent company promissory note was fully drawn as of 31 March 2012.

Notes to the financial statements Year ended 31 March 2012

19. Finance leases

The Group had the following obligations under finance leases as at the balance sheet dates;

	2012		2011
	Minimum payments Sm	PV of payments Sm	Minimum payments Sm	PV of payments Sm
Maturing less than one year	55.8	54.0	42.0	35.3
Maturing more than one year but not more than two years	51.4	48.1	39.1	30.8
Maturing in more than two years but not more than
five years	207.8	182.3	127.3	110.7
Maturing in more than five years	113.1	91.2	71.6	64.9
	428.1	375.6	280.0	241.7
Less future financing charges	(52.5)		(38.3)
Present value of minimum lease payments	375.6	375.6	241.7	241.7

The lease obligations are denominated US Dollars and Canadian Dollars. The US Dollar fixed rate leases of \$342.7 m (2011: \$235.5m) have an average remaining life of four years and an effective borrowing rate of 3.26% (2011: 3.98%). The Canadian Dollar fixed rate leases of \$32.8m (2011: \$2.7m) have an average remaining life of four years (2011: one year) and an effective borrowing rate of 4.08% (2011: 7.39%). The Group considers there to be no material difference between the fair value of the finance leases and the carrying amount in the balance sheet.

20. Derivative financial instruments

Financial Risk Management

The most material financial risks faced by the company are liquidity risk and the effects of changes in interest rates and fuel prices. These risks are managed and controlled on a Group wide basis by its ultimate parent company, FirstGroup plc within the context of a set of formal treasury policies established by the FirstGroup plc Board.

Liquidity risk

Liquidity risk is the risk that the Group may encounter difficulty in meeting obligations associated with financial liabilities. As the company is funded by its parent company, the liquidity risk is the same as that for the Group.

The objective of the Group's liquidity risk management is to ensure sufficient committed liquidity resources. The Group has a diversified debt structure largely represented by medium term unsecured syndicated and bilateral committed bank facilities and long term unsecured bond debt. It is a policy requirement that refinancing obligations must be addressed well in advance of their due dates.

Notes to the financial statements Year ended 31 March 2012

20. Derivative financial instruments (continued)

Liquidity risk (continued)

Group treasury policy requires a minimum of \$250m of committed liquidity headroom at all times within medium term bank facilities and such facilities must be renewed or replaced well before their expiry dates. At 31 March 2012, the total amount of these facilities stood at \$1,886.1m (2011: \$1,961.8m), and committed headroom was \$1,011.3m (2011: \$845.4m). Of these facilities, the next material contractual expiry is in December 2015. Largely due to the seasonality of the yellow school bus business, headroom tends to reduce by September and increase again by March.

The average duration on net debt (excluding ring-fenced cash) at 31 March 2012 was 5.5 years (2011: 6.1 years).

Interest rate risk

The company has inter-group debt on which interest is payable at a margin above US Dollar LIBOR. The following sensitivity analysis details the sensitivity of FirstGroup America, Inc. to a 100 basis point increase in US Dollar LIBOR throughout the reporting period with all other variables held constant.

	2012	2011
	Sm	Sm
Effect on profit after tax	(2.5)	(2.6)

Commodity price risk

The Group purchases diesel fuel on a floating price basis in its US and Canadian bus operations and therefore is exposed to changes in diesel prices, of which the most significant element is crude oil price risk. The Group's policy objective is to maintain a significant degree of fixed price protection in the short term with lower levels of protection over the medium term, so that the businesses affected are protected from any sudden and significant increases and have time to prepare for potentially higher costs, while retaining some access for potentially lower costs over the medium term. The Group uses a range of cash flow hedge financial instruments to achieve significant fixed price certainty. During the year to 31 March 2012, the Group was hedged 88% on commodity price risk.

The following analysis details the Group's sensitivity on profit after tax and equity if the price of crude oil had been \$10 per barrel higher at the year end.

	2012 Sm	2011 $\mathbf{Sm}$
Impact on profit after taxation	(4.3)	1.1)
Impact on hedging reserve	ユニ	3.5

Notes to the financial statements Year ended 31 March 2012

20. Derivative financial instruments (continued)

Volume at risk for the year to 31 March 2012 is 1.5m (2011: 1.7m) barrels for which 69% is hedged to diesel price risk. The fair value measurements of the financial derivatives held by the Group have been derived based on observable market inputs (as categorised within Level 2 of the fair value hierarchy under IFRS 7 (2009)).

Deferred tax 21.

The following are the major deferred tax liabilities and assets recognized by the Group and movements thereon during the current and prior reporting period.

tax depreciation Sm	temporary differences Sm	Tax losses Sm	Total Sm
(311.8)	(107.5)	419.4	0.1
35.4	(4.9)	0.9	31.4
	22.7		22.7
	(1.1)		(1.1)
(276.4)	(90.8)	420.3	53.1
41.3	(50.3)	(10.7)	(19.7)
	25.3		25.3
	3.1		3.1
(235.1)	(112.7)	409.6	61.8
		Accelerated Other

No deferred tax asset was recognized in 2010 in respect of \$2.5 m of capital losses during that year.

22. Provisions

	FSS Loss- Making Reserve \$m	Legal and other 2 $S_{m}$	Insurance claims 1 $\mathbf{Sm}$	Total Sm
At 31 March 2011	11.2	40.1	488.5	539.8
Foreign currency movement			(0.4)	(0.4)
Provided in the year	œ.	12.0	184.5	196.5
Released in the year		(3.3)		(3.3)
Utilised in the year	(5.9)	(36.7)	(218.7)	(261.3)
Notional interest			26.2	26.2
At 31 March 2012	5.3	12.1	480.1	497.5

¹ Insurance claims accruals due within one year at 31 March 2012 amounted to \$168.0m (2011: \$171.0m) and are included in 'accruals and deferred income' within note 16.

² Legal and other provisions relate to estimated exposures for cases filed or thought highly likely to be filed for incidents that occurred prior to the balance sheet date. It is anticipated that most of these items will be settled within 10 years. Other items also include provisions in respect of costs anticipated on the exit of surplus properties which are expected to be settled over the remaining terms of the respective leases.

The amount included within provisions represents the estimate of amounts due after more than one year.

Notes to the financial statements Year ended 31 March 2012

23. Acquisition of businesses and subsidiary undertakings

	2012
	Total
	Sm
Goodwill	4.6
Property, plant and equipment	6.5
Other current assets	0.6
Accounts payable	(3.8)
Net debt	(2.4)
Cash paid	5.5

The business acquired during the year to 31 March 2012 was in relation to the purchase of vehicles and ancillary assets of a competitor in the Province of Quebec, Canada.

24. Contingent liabilities

26.

To support operating units in their normal course of business, certain banks and insurance companies have issued performance bonds for \$503.0m (2011: \$418.4m) and letters of credit for \$383.3m (201: \$408.4m) and have been indemnified by the UK Parent Company, FirstGroup plc. The letters of credit relate substantially to insurance arrangements in North America.

The Company is party to certain unsecured guarantees granted to banks for overdraft and cash management facilities provided to itself and subsidiary undertakings.

25. Operating lease arrangements

At 31 March 2012, the Group had outstanding commitments for future minimum lease payments under noncancellable operating leases, which fall due as follows:

	2012 Sm	2011 Sm
Within one year	80.6	83.7
In the second to fifth years inclusive	117.2	140.4
After five years	69.9	64.3
	267.7	288.4
Called up share capital
	2012	2011
	Sm	$S_{m}$
Authorised:
6,000 ordinary shares of \$.01 each	×.
Allotted, called up and fully paid:
953 ordinary shares of \$.01 each

Notes to the financial statements Year ended 31 March 2012

27. Retirement benefit schemes

Defined contribution schemes

The Group operates defined contribution retirement benefit schemes for all qualifying employees. The assets of the schemes are held separately from those of the Group in funds under the control of trustees. Where there are employees who leave the schemes prior to vesting fully in the contributions, the contributions payable by the Group are reduced by the amount of forfeited contributions.

The total cost charged to income of \$9.5m (2011: \$7.7m) represents contributions payable to these schemes by the Group at rates specified in the rules of the plans.

Defined benefit schemes

The Group operates a defined benefit retirement scheme for certain of its employees. These are principally defined benefit schemes under which benefits provided are based on employees' number of years of service and either career average or final salary. The scope of benefits varies between schemes. The assets of the schemes are held in separately administered trusts which are managed independently of the Group's finances by investment managers appointed by the schemes' trustees.

Key assumptions used:

	2012	2011	2010
	$\frac{6}{9}$	$\%$	$\frac{6}{6}$
Discount rate	4.20/4.75	5.25	5.65
Expected return on scheme assets	6.33	6.90	7.40

Amounts recognized in income in respect of these defined benefit schemes are as follows:

	2012 Sm	2011 \$m	2010 Sm
Current service cost	6.9	6.9	3.8
Interest cost	51.6	53.0	48.4
Expected return on scheme assets	(47.1)	(48.4)	(37.7)
	11.4	11.5	14.5

Actuarial gains and losses have been reported in the statement of recognized income and expense.

Notes to the financial statements Year ended 31 March 2012

27. Retirement benefit schemes (continued)

The actuarial return on scheme assets was \$47.1m (2011: \$48.4m).

Defined contribution schemes

The amount included in the balance sheet arising from the Group's obligations in respect of its defined pension schemes is as follows:

	2012 Sm	2011 Sm	2010 Sm
Fair value of schemes' assets Present value of defined benefit obligations	736.4 (1,080.9)	758.8 (1,046.5)	789.2 (1,034.7)
Deficits in schemes	(344.5)	(287.7)	(245.5)
Liability recognized in the balance sheet	(344.5)	(287.7)	(245.5)
This amount is presented in the balance sheet as follows:
Current liabilities Non current liabilities	(344.5)	(287.7)	(245.5)
	(344.5)	(287.7)	(245.5)

Movements in the present value of defined benefit obligations (DBO) were as follows:

	2012	2011	2010
	$S_{m}$	$\mathbf{Sm}$	Sm
At 1 April	1,046.5	1,034.7	873.9
Group service cost	6.9	6.9	3.8
Group interest cost	51.6	53.1	48.4
Actuarial (gain)/loss	104.1	52.9	142.5
Benefit payments	(91.8)	(87.4)	(106.3)
Employee share of change to DBO	3.2	2.5	1.9
Currency loss	(39.6)	(16.2)	70.5
At 31 March	1,080.9	1,046.5	1,034.7

Notes to the financial statements Year ended 31 March 2012

27. Retirement benefit schemes (continued)

Movements in the fair value of scheme assets were as follows:

	2012 Sm	2011 Sm	2010 Sm
At 1 April	758.8	789.2	644.6
Expected return on assets	47.1	49.9	37.7
Company contributions	34.5	18.1	21.9
Employee contributions	3.2	2.7	1.9
Benefits paid from schemes	(91.8)	(90.2)	(106.3)
Actuarial (loss)/gain	(10.1)	28.9	132.8
Currency (loss)/gain	(5.3)	(39.8)	56.6
At 31 March	736.4	758.8	789.2

The analysis of the scheme assets and the expected rate of return at the balance sheet date was as follows:

	Expected return 2012 $\frac{6}{6}$	Fair value of assets 2012 Sm	Expected return 2011 $\frac{0}{0}$	Fair value of assets 2011 $\mathbf{S}_{\mathbf{m}}$	Expected return 2010 $\frac{0}{0}$	Fair value of assets 2010 Sm
Equity instruments	9.00	347.1	9.00	374.8	9.00	394.1
Debt instruments	3.40	329.1	4.65	325.7	4.60	288.8
Other assets	2.60-7.50	60.2	$4.00 - 7.50$	58.4	$3.50 - 9.00$	106.3
		736.4		758.9		789.2

The expected rates of return on assets were determined by looking at the individual asset classes and applying a model developed by Aon, an independent firm of actuaries.

28. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated and are not disclosed in this note.

Amounts due to the parent company, FirstGroup plc, of \$2,465.7m (2011: \$2,739.6m) are included within noncurrent liabilities due to the nature of the pay back provisions. Interest is calculated on these at the rate of LIBOR plus 0.41 - 2.45%. The movement within the year is primarily due to working capital movement.

The group paid interest to its parent company of \$17.5m (2011: \$17.7m) under the parent company borrowing facility.

FirstGroup Acquisitions Inc is the immediate parent company of FirstGroup America, Inc. The directors regard FirstGroup plc, incorporated in the United Kingdom, as the ultimate parent undertaking and controlling party. The consolidated accounts of the ultimate undertaking are available from 395 King Street, Aberdeen, AB24 5RP, Scotland, United Kingdom.

Notes to the financial statements Year ended 31 March 2012

29. Remuneration of key management personnel

The remuneration of key management personnel of the Group is set out below in aggregate for each of the categories specified in the IAS 24 Related Party Disclosures. The remuneration of key management includes directors as named previously during the period in which they served.

	2012	2011
	$\mathbf{S}$ m	Sm
Basic salaries	0.6	0.5
Performance related bonuses	٠	0.2
Pension contributions	۰
Other benefits	0.1	0.1
	0.7	0.8