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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-10841
GREYHOUND LINES, INC.
AND ITS SUBSIDIARIES IDENTIFIED IN FOOTNOTE (1) BELOW
(Exact name of registrant as specified in its charter)
DELAWARE 86-0572343
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
15110 N. DALLAS PARKWAY, SUITE 600, DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip code)
(972) 789-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
8 1/2% CONVERTIBLE SUBORDINATED
DEBENTURES, DUE MARCH 31, 2007 AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES | | NO |X|
Aggregate market value of Common Stock held by non-affiliates of the
registrant on June 28, 2002, was $0.
As of March 15, 2003, the registrant had 587 shares of Common Stock, $0.01
par value, outstanding all of which are held by the registrant's parent company.
(1) THIS FORM 10-K IS ALSO BEING FILED BY THE CO-REGISTRANTS SPECIFIED UNDER
THE CAPTION "CO-REGISTRANTS", EACH OF WHICH IS A WHOLLY-OWNED SUBSIDIARY
OF GREYHOUND LINES, INC. AND EACH OF WHICH HAS MET THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTIONS I(1)(a) AND (b) OF FORM 10-K FOR FILING FORM
10-K IN A REDUCED DISCLOSURE FORMAT.
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CO-REGISTRANTS
This Form 10-K is also being filed by the following entities. Except as set
forth below, each entity has the same principal executive offices, zip code and
telephone number as that set forth for Greyhound Lines, Inc. on the cover of
this report:
I.R.S. EMPLOYER JURISDICTION
COMMISSION IDENTIFICATION OF
NAME FILE NO. NO. INCORP.
- ---- ------------ --------------- -------------
Atlantic Greyhound Lines of Virginia, Inc. 333-27267-01 58-0869571 Virginia
GLI Holding Company 333-27267-04 75-2146309 Delaware
Greyhound de Mexico, S.A. de C.V. 333-27267-05 None Republic of Mexico
Sistema Internacional de Transporte de Autobuses, Inc. 333-27267-08 75-2548617 Delaware
802 Commerce Street, 3rd Floor
Dallas, Texas 75201
(214) 849-8616
Texas, New Mexico & Oklahoma Coaches, Inc. 333-27267-10 75-0605295 Delaware
1313 13th Street
Lubbock, Texas 79408
(806) 763-5389
T.N.M. & O. Tours, Inc. 333-27267-11 75-1188694 Texas
(Same as Texas, New Mexico & Oklahoma Coaches, Inc.)
Vermont Transit Co., Inc. 333-27267-12 03-0164980 Vermont
345 Pine Street
Burlington, Vermont 05401
(802) 862-9671
As of December 31, 2002, Atlantic Greyhound Lines of Virginia, Inc. had 150
shares of common stock outstanding (at a par value of $50.00 per share); GLI
Holding Company had 1,000 shares of common stock outstanding (at a par value of
$0.01 per share); Greyhound de Mexico, S.A. de C.V. had 10,000 shares of common
stock outstanding (at a par value of $0.10 Mexican currency per share); Sistema
Internacional de Transporte de Autobuses, Inc. had 1,000 shares of common stock
outstanding (at a par value of $0.01 per share); Texas, New Mexico & Oklahoma
Coaches, Inc. had 1,000 shares of common stock outstanding (at a par value of
$0.01 per share); T.N.M. & O. Tours, Inc. had 1,000 shares of common stock
outstanding (at a par value of $1.00 per share); and Vermont Transit Co., Inc.
had 505 shares of common stock outstanding (no par value). Each of the above
named co-registrants (1) have filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period such co-registrant was required to file such
reports), and (2) have been subject to such filing requirements for the past 90
days.
2
GREYHOUND LINES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-K
PAGE NO.
--------
PART I
Item 1. Business ....................................................... 4
Item 2. Properties ..................................................... 10
Item 3. Legal Proceedings .............................................. 11
Item 4. Submission of Matters to a Vote of Security Holders ............ 12
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters ........................................ 13
Item 6. Selected Consolidated Financial Information .................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................. 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ..... 29
Item 8. Financial Statements and Supplementary Data .................... 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ................................... 57
PART III
Item 10. Directors and Executive Officers of the Registrant ............. 58
Item 11. Executive Compensation ......................................... 58
Item 12. Security Ownership of Certain Beneficial Owners and Management . 58
Item 13. Certain Relationships and Related Transactions ................. 58
Item 14. Controls and Procedures ........................................ 58
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................ 59
3
PART I
ITEM 1. BUSINESS
GENERAL
Greyhound Lines, Inc. and subsidiaries ("Greyhound" or the "Company") is
the only nationwide provider of scheduled intercity bus transportation services
in the United States. The Company serves the value-oriented customer by
connecting rural and urban markets throughout the United States, offering
scheduled passenger service to more than 2,600 destinations with a fleet of
approximately 2,900 buses and approximately 1,700 sales locations. The Company
also provides package express service, travel services and, in many terminals,
food service. For the year ended December 31, 2002, the Company generated total
operating revenues of $991.9 million.
The Company serves a diverse customer base, consisting primarily of low to
middle income passengers from a wide variety of ethnic backgrounds. Management
believes that the demographic groups that make up the core of the Company's
customer base are growing at rates faster than the U.S. population as a whole.
The Company believes that it is uniquely positioned to serve this broad and
growing market because (i) the Company's operating costs, which are lower on an
available-seat-mile basis than other modes of intercity transportation, enable
it to offer passengers everyday low prices, (ii) the Company offers the only
means of regularly scheduled intercity transportation in many of its markets,
and (iii) the Company provides additional capacity during peak travel periods to
accommodate passengers who lack the flexibility to shift their travel to
off-peak periods.
On March 16, 1999, the Company's stockholders approved the Agreement and
Plan of Merger with Laidlaw Inc. ("Laidlaw") pursuant to which the Company
became a wholly owned subsidiary of Laidlaw (the "Merger").
MARKETS
Passengers. While the Company's major passenger markets are large
metropolitan areas, its business is geographically fragmented with the 50
largest sales outlets or the 1,200 largest origin/destination city pairs
producing approximately 50% of 2002 ticket sales. Demographic studies have shown
that the Company's potential riders are concentrated in the northeastern,
southern and industrial mid-western United States, as well as Texas and
California. The typical passenger travels to visit friends and relatives and
generally has an annual income below $35,000. In many cases, the Company's
passengers report that they own automobiles considered sufficiently reliable for
a trip of a similar distance, but travel by bus because they are traveling alone
or because of the lower cost of bus travel. The majority of the Company's
customers usually make the decision to take a trip only a short time before
actually traveling and, for the most part, pay cash for their tickets on the day
of departure.
Package Express. The Company's package express service targets commercial
shippers and delivery companies that require rapid delivery of small parcels,
typically within 400 miles. The Company's product offerings include standard
delivery, the traditional low-value, terminal-to-terminal delivery product, as
well as priority and same day delivery, premium priced products typically
delivered door to door. The Company satisfies the
door-to-terminal/terminal-to-door portion of priority and same day deliveries
principally through relationships with over 300 courier companies, which serve
over 400 markets. Shipments include automotive repair parts, wholesale foods,
computer parts and forms, fresh flowers, eyeglasses, medical and dental
supplies, architectural and legal documents and pharmaceutical products. With
its extensive network and multiple schedules, the Company is able to provide
expedited service, especially to rural areas. Most shipments arrive at their
destination on the same day they are shipped or by 8:00 a.m. the following
morning. The Company also provides local courier services through its
subsidiaries On Time Delivery in Minneapolis, MN, LSX Delivery in Chicago, IL
and Greyhound Xpress Delivery in Houston, TX, and offers a full complement of
shipping services through Greyhound Direct Logistics, acting as a freight
forwarder utilizing air, rail and trucking transportation. During 2001 the
Company began providing shipping services at its retail counters in selected
markets as an Authorized Shipping Outlet for United Parcel Service and plans to
expand this service to all major markets.
4
Food Service. The Company's food service division gives passengers the
ability to enjoy quality food and purchase gifts and logo merchandise in over 58
terminal locations. In addition to cafeteria-style restaurants, convenience
store type "grab and go" facilities and gift shops, the Company also offers
national brand concepts such as Star Hardee's, KFC, Blimpies and Pizza Hut.
Travel Services. The Company offers charter services whereby a group of
individuals can reserve a bus and driver in certain cities for transportation to
and from specific events, such as concerts, sporting events, casinos,
conventions, etc. Generally the passenger business provides the bus and driver
resources for these charters on an "as available" basis, consequently resources
are primarily available in off-peak periods, generally weekdays outside of the
peak summer and holiday periods. During 2001, the Company began expanding its
travel services offerings by establishing dedicated bus and driver resources for
charter operations in certain cities so that the operations in these cities are
not completely dependent on resource availability from the passenger business.
In 2002, the Company obtained Gray Line(R) franchisee rights and has used these
rights at our dedicated bus operating locations. Additionally the Company
operates "meet and greet" services for cruise lines at five ports in the United
States. The "meet and greet" service consists of meeting cruise line passengers
(usually at airports) and transferring these passengers and their baggage to and
from cruise ships.
MARKETING AND ADVERTISING
The Company's marketing and advertising philosophy is geared toward
stimulating extra travel through price awareness, improving the awareness and
image of Greyhound among potential customers and inducing first-time and repeat
travel. The Company uses various means to advertise its passenger travel
business including radio, television and print media (primarily yellow pages).
Additionally, the Company offers convenient around-the-clock fare and schedule
quotations via a toll-free telephone number through its telephone information
centers and through the Company's internet web site. The Company's telephone
centers and web site handled 39.2 million requests in 2002, an increase of 1.5%
over 2001. The Company also markets its passenger and in-terminal services
through advertising in the terminal facilities and on its ticket jackets.
OPERATIONS
The Company utilizes approximately 160 company-operated bus terminals and
approximately 1,530 agency-operated terminals and/or sales agencies. Maintenance
garages are maintained at 25 strategic locations and are supplemented by
company-operated service islands and fueling points. The Company currently has
approximately 4,500 drivers based in approximately 100 different locations
across the country. In the Greyhound Lines unit, drivers report to driver
supervisors who are organized into 11 districts reporting to district managers
of driver operations. The scheduling and dispatch of the buses and drivers is a
centralized function that coordinates with the districts in the planning and
execution of daily operations. The flexing of capacity to meet demand is
accomplished through the management of national dispatch operations for
equipment and drivers, rental of additional buses to cover peak demand periods,
planning and coordinating extra sections with the districts and analyzing and
implementing pooling and through service arrangements with other carriers.
Annual planning of the fleet size and driver requirements by location is also
centralized. Subsidiaries of Greyhound Lines independently coordinate and manage
their own driver and fleet resources.
Information technology is an integral component of the Company's
operations. The Company's information systems support, among other things, its
web site, scheduling and pricing, dispatch, operations planning, bus
maintenance, telephone information center, customer service, point of sale,
payroll and finance functions. As of December 31, 2002, the Company's automated
fare and schedule quotation and ticketing system, called TRIPS, was in use at
416 locations.
5
COMPETITION
Passengers. The transportation industry is highly competitive. The
Company's primary sources of competition for passengers are automobile travel,
low cost air travel from both regional and national airlines, and in certain
markets, regional bus companies and trains. Typically, the Company's customers
decide to travel only a short time before their trip and purchase their tickets
on the day of travel. The Company's everyday low pricing strategy results in
"walk-up" fares substantially below comparable airline fares. In instances where
the Company's fares exceed an airline discount fare, the Company believes the
airline fares are temporary or are typically more restrictive and less readily
available than travel provided by the Company. However, the Company has also
instituted numerous advance purchase programs in order to attract the price
sensitive customer. Price, destination choices and convenient schedules are the
ways in which the Company meets this competitive challenge.
The automobile is the most significant form of competition to the Company.
The out-of-pocket costs of operating an automobile are generally less expensive
than bus travel, particularly for multiple persons traveling in a single car.
The Company meets this competitive threat through price and convenient
scheduling.
Additionally, the Company experiences competition from regional bus
companies. Price, frequency of service, and convenient scheduling are the
current strategies of the Company to meet this competition. The Company's
competitors possess operating authority for, but do not currently operate over,
numerous routes potentially competitive to the Company. Based on market and
competitive conditions, the regional bus companies could operate such routes in
the future. Competition by U.S.-based bus and van operators for the market
represented by Spanish speaking customers in the U.S. is growing. As of January
1, 1997, barriers to entry into the regular-route cross-border bus market
between the U.S. and Mexico were scheduled to be reduced under the North
American Free Trade Agreement ("NAFTA"), although entry into either market would
still be regulated by the respective U.S. and Mexican regulatory authorities. On
March 19, 2002, the U.S. Department of Transportation ("DOT") issued a series of
rules establishing the process that Mexican-domiciled companies must follow to
obtain authority to perform cross-border bus operations into the United States.
These rules require Mexican companies to comply with all U.S. safety
requirements and labor and immigration laws. A federal court stayed these rules
late in 2002 until DOT completes an environmental impact review required by
federal law. Once the environmental impact review is complete, the Company could
experience significant new competition on routes, to, from and across Mexican
border points. Additionally, certain U.S.-based operators are providing
cross-border service into Mexico at this time. NAFTA also permits U.S. carriers
to make controlling investments in carriers domiciled in Mexico and permits
Mexican carriers to make controlling investments in carriers domiciled in the
United States. In addition to bringing new competition, the Company believes
that the changes under NAFTA will increase the volume of bus travel along both
sides of the border and provide the Company with a growth opportunity. The
Company believes that the most effective way to service passengers in this
market is through joint ventures or joint ticket selling arrangements with
Mexico-based bus carriers. The Company has established a separate operating
subsidiary that, through several joint ventures, provides through-bus service at
most major gateways between the United States and Mexico. Additionally , in some
of its terminals Greyhound Lines sells tickets for travel in Mexico on Grupo
Estrella Blanca ("GEB"), a Mexico-based bus carrier, and GEB sells tickets for
travel in the U.S. on Greyhound Lines in certain of their terminals in Mexico.
Package Express. The Company faces intense competition in its package
express service from local courier services and overnight express and ground
carriers. The Company continues to develop programs to meet this competition and
rebuild its package express business. These programs focus on system upgrades to
improve service, billing and tracking for its customers, localized marketing
strategies, and local, regional or national alliances with, or acquisitions of,
pick up and delivery carriers. Due to the incremental nature of the package
express business, the Company is able to provide same-day intercity package
express service at distances of up to 400 miles at a substantially lower price
than those charged by other delivery services.
Food Service. The captive nature of the food service operations in the
Company's terminals limits competition; however, in some locations proximity of
terminals to fast food outlets and convenience stores can pose a competitive
factor.
6
Travel Services. Charter services are provided by several thousand local
operators as well as a few regional and national carriers. Pricing, type of
equipment and consistency in service are the principal factors both in
generating new business and retaining existing customers. The Company
principally competes based upon price and consistency of service, and continues
to develop diversified product offerings in order to meet the customers'
demands.
OPERATING ENVIRONMENT
The Company's business is affected by changes in economic conditions,
consumer preferences and spending patterns, medical and wage inflation,
demographic trends, consumer perceptions of transportation safety, costs of
safety, security and environmental measures, road congestion and the weather.
Following the September 11, 2001 terrorist attacks the Company increased its
spending for safety and security by approximately $5 million annually. Limited
government assistance, in the form of grants, is being offered to the bus
industry; however, there can be no assurance that the Company will receive any
grants, that the funding will offset the Company's increased safety and security
expenses or will continue in the future. Additionally, it is possible that the
Transportation Security Administration could mandate security procedures that
exceed the level currently provided by the Company further increasing costs. The
Company has also incurred significant increases in insurance costs principally
due to medical inflation, increases in excess insurance premiums and several
significant claims arising from in-transit criminal assaults against drivers.
Past terrorist acts and incidents on buses, or perceptions about future attacks,
including changes in the Homeland Security threat levels, has and could continue
to adversely affect the demand for the Company's services.
SEASONALITY
The Company's business is seasonal in nature and generally follows the
pattern of the travel industry as a whole, with peaks during the summer months
and the Thanksgiving and Christmas holiday periods. As a result, the Company's
cash flows are also seasonal with a disproportionate amount of the Company's
annual cash flows being generated during the peak travel periods. Therefore, an
event that adversely affects ridership during any of these peak periods could
have a material adverse effect on the Company's financial condition and results
of operations for that year. The day of the week on which certain holidays
occur, the length of certain holiday periods, and the date on which certain
holidays occur within a fiscal quarter, may also affect the Company's quarterly
results of operations.
WORKFORCE
At March 1, 2003, the Company employed approximately 12,200 workers,
consisting of approximately 4,000 terminal employees, 4,500 drivers, 1,500
supervisory personnel, 800 mechanics, 500 telephone information agents, and 900
clerical workers. Of the total workforce, approximately 10,000 are full-time
employees and approximately 2,200 are part-time employees.
At March 1, 2003, approximately 47% of the Company's employees were
represented by collective bargaining agreements. The Amalgamated Transit Union
(the "ATU") represents approximately 4,900 of the Company's employees, including
drivers, telephone information agents in the Omaha location, terminal workers in
seven locations and about half of the Company's mechanics. The largest ATU
agreement ("ATU National Local 1700"), which covers the drivers and maintenance
employees, expires on January 31, 2004. The Company has started early contract
negotiations with the ATU National Local 1700 in an attempt to enter into a new
bargaining agreement significantly prior to the January 31, 2004 expiration of
the current agreement. As of the date of this report the parties have not
reached an agreement on a new contract. The International Association of
Machinists and Aerospace Workers (the "IAM") represents approximately 400 of the
Company's employees, including the remaining mechanics. The IAM agreements
expire on October 1, 2004. The Company also has bargaining agreements with the
International Brotherhood of Teamsters, which represent approximately 200
employees at five terminal locations and the United Transportation Union, which
represents approximately 200 employees at two of the Company's subsidiaries.
7
TRADEMARKS
The Company owns the Greyhound name and trademarks and the "image of the
running dog" trademarks worldwide. The Company believes that this name and the
trademarks have substantial consumer awareness.
GOVERNMENT REGULATION
The Department of Transportation. As a motor carrier engaged in
interstate, as well as intrastate, transportation of passengers and express
shipments, the Company is, and must remain, registered with the DOT. Failure to
maintain a satisfactory safety rating, designate agents for service of process
or to meet minimum insurance requirements, after notice and opportunity to
remedy, may result in the DOT's ordering the suspension or revocation of the
registration of the Company and its right to provide transportation. DOT
regulations also govern the qualifications, duties and hours of service of
drivers, the standards for vehicles, parts and accessories, the maintenance of
records and the submission of reports pertaining to the Company's drivers, buses
and operations. In 2002, the DOT sent a new set of commercial motor vehicle
hours of service rules to the Office of Management and Budget ("the OMB") for
review. If the OMB approves the new rules, the rules will then be issued by DOT.
The Company does not know what changes, if any, would be mandated by the new
hours of service rules, but the new rules could cause significant changes to the
Company's driver operations. The Company is subject to periodic and random
inspections and audits by the DOT or, pursuant to cooperative arrangements with
the DOT, by state police or officials, to determine whether the Company's
drivers, buses and records are in compliance with the DOT's regulations. The
Company, from time to time, has been cited by the DOT for non-compliance with
its regulations but, nevertheless, has retained a satisfactory safety rating.
The Company has also been authorized by the DOT to partially self-insure its
bodily injury and property damage liability. See "Insurance Coverage." The DOT
also administers regulations to assure compliance with vehicle noise and
emission standards prescribed by the Environmental Protection Agency (the
"EPA"). All of the buses in the Company's fleet contain engines that comply
with, or are exempt from compliance with, EPA regulations, but, on occasion, the
Company has been cited and fined for non-compliance with noise or emission
standards.
Surface Transportation Board. The Company is also regulated by the DOT's
Surface Transportation Board (the "STB"). The STB must grant advance approval
for the Company to pool operations or revenues with another passenger carrier.
The STB, moreover, must authorize any merger by the Company with, or its
acquisition or control of, another motor carrier of passengers. The Company must
maintain reasonable through routes with other motor carriers of passengers, and,
if found not to have done so, the STB can prescribe them. The Company is party
to certain agreements, which are subject to STB authorization and supervision.
State Regulations. As an interstate motor carrier of passengers, the
Company may engage in intrastate operations over any of its authorized routes.
By federal law, states are pre-empted from regulating the Company's fares or its
schedules, including the withdrawal of service over any route. However, the
Company's buses remain subject to state vehicle registration requirements, bus
size and weight limitations, fuel sales and use taxes, vehicle emissions, speed
and traffic regulations and other local standards not inconsistent with federal
requirements.
Other. The Company is subject to regulation under the Americans with
Disabilities Act (the "ADA") pursuant to regulations adopted by the DOT. The
regulations require that, all new buses acquired by the Company for its fixed
route operations must be equipped with wheelchair lifts. Additionally, by
October 2006, one-half of the Company's fleet involved in fixed route operations
will be required to be lift-equipped, and by October 2012, such fleet will need
to be entirely lift-equipped. The regulations do not require the retrofitting of
existing buses with lift equipment. Nor do the regulations require the purchase
of accessible used buses. At December 31, 2002, approximately 16% of the
Company's fleet used in fixed route operations were wheelchair lift-equipped. To
meet the 50% requirement by October 2006, and assuming no change in current
fleet size, the Company must replace 943 of its non-lift-equipped buses with
lift-equipped buses over the next four years.
8
Under an initiative implemented in the spring of 2000, and continuing
until the fleet is fully equipped, the Company provides an accessible bus to any
disabled passenger who provides at least 48 hours notice. This initiative was
implemented over 18 months in advance of the deadline required by DOT. Currently
the added cost of a built-in lift device in a new bus is approximately $35,000
plus the Company incurs additional maintenance and employee training costs.
Passenger revenues could also be impacted by the loss of seating capacity when
wheelchair passengers are on the bus, partially offset by potentially increased
ridership by disabled persons.
INSURANCE COVERAGE
Following the Merger and through August 31, 2001, the Company purchased
its insurance through Laidlaw with coverage subject to a $50,000 deductible for
property damage claims and no deductible for all other claims. Additionally, on
December 31, 1999, the Company transferred liability for all known, and unknown
claims, and all related insurance reserves, associated with the period prior to
March 16, 1999 to Laidlaw for which Laidlaw received compensation in an amount
equal to the book value of the reserves. Effective September 1, 2001, the
Company has purchased coverage from third-party insurers for claims up to $5.0
million with coverage subject to a $3.0 million deductible for automobile
liability; a $1.0 million deductible for general liability; and a $1.0 million
deductible for workers' compensation. The Company purchases excess coverage for
automobile liability, general liability and workers' compensation insurance
through Laidlaw for claims which exceed $5.0 million. The Company has continued
to purchase from Laidlaw coverage for damage to Company property and business
interruption subject to a $50,000 deductible.
The predecessor agency to the STB granted the Company authority to
self-insure its automobile liability exposure for interstate passenger service
up to a maximum level of $5.0 million per occurrence, which has been continued
by the DOT. To maintain self-insurance authority, the Company is required to
provide periodic financial information and claims reports, maintain a
satisfactory safety rating by the DOT, a tangible net worth of $10.0 million and
a $15.0 million trust fund (currently fully funded) to provide security for
payment of claims. At December 31, 2002, the Company's tangible net worth was
below the minimum required by the DOT to maintain self-insurance authority. The
Company is in discussions with the DOT in an attempt to obtain a waiver of the
net worth requirement or some other suitable modification so as to allow the
Company to continue to maintain its self-insurance authority.
Insurance coverage and risk management expense are key components of the
Company's cost structure. Additionally, the Company is required by the DOT, some
states and some of its insurance carriers to maintain collateral deposits or
provide other security pursuant to its insurance program. At December 31, 2002,
the Company maintained $22.9 million of collateral deposits including the above
$15.0 million trust fund and had issued $35.0 million of letters of credit in
support of these programs. The loss or modification of self-insurance authority
from the DOT or a decision by the Company's insurers to modify the Company's
program substantially, by either increasing cost, reducing availability or
increasing collateral, could have a material adverse effect on the Company's
liquidity, financial condition, and results of operations.
ENVIRONMENTAL MATTERS
The Company may be liable for certain environmental liabilities and
clean-up costs at the various facilities presently or formerly owned or leased
by the Company. Based upon surveys conducted solely by Company personnel or its
experts, 31 active and nine inactive locations have been identified as sites
requiring potential clean-up and/or remediation as of December 31, 2002.
Additionally, the Company is potentially liable with respect to five active and
seven inactive locations which the EPA has designated as Superfund sites. The
Company, as well as other parties designated by the EPA as potentially
responsible parties, face exposure for costs related to the clean-up of those
sites. Based on the EPA's enforcement activities to date, the Company believes
its liability at these sites will not be material because its involvement was as
a de minimis generator of wastes disposed of at the sites. In light of its
minimal involvement, the Company has been negotiating to be released from
liability in return for the payment of nominal settlement amounts.
9
The Company has recorded a total environmental liability of $6.8 million
at December 31, 2002 of which approximately $1.3 million is indemnifiable by the
predecessor owner of the Company's domestic bus operations, now known as Viad
Corp. The environmental liability relates to sites identified for potential
clean-up and/or remediation and represents the present value of estimated cash
flows discounted at 8.0%. The Company expects the majority of this environmental
liability to be paid over the next five to ten years. As of the date of this
report, the Company is not aware of any additional sites to be identified, and
management believes that adequate accruals have been made related to all known
environmental matters.
ITEM 2. PROPERTIES
LAND AND BUILDINGS
At December 31, 2002, the Company used 539 parcels of real property in its
operations, of which it owned 168 properties and leased 371 properties. Of those
properties, 390 are bus terminals, 31 are maintenance facilities, 29 are
terminal/maintenance facilities, and the remaining properties consist of driver
dormitories, parking/storage lots, office/storage/warehouse buildings and
telephone information centers. These properties are located throughout the
United States and in select locations in Canada and Mexico. Where practical, the
Company attempts to locate its terminals in state or federally funded intermodal
facilities. The Company currently operates in approximately 100 of such
facilities.
The Company believes the current makeup of its properties is adequate for
its operations. However, the Company must occasionally relocate its facilities,
permanently or temporarily, when it sells a parcel, when leases are not renewed
or are terminated, or when owned or leased properties are taken through eminent
domain proceedings by government authorities. The Company is also subject to
local zoning restrictions that can limit the Company's ability to expand a
location or relocate to a new facility. In the case of publicly funded
facilities, the relocation can be affected by funding availability and site
selection and urban planning considerations. Although there can be no assurance,
based on its recent experience, the Company believes that it will be able to
find suitable replacement properties on acceptable terms for any properties the
Company chooses to replace or expand, or which are condemned, or for which
leases are not renewed or are otherwise terminated.
The Company operates out of its largest sales location, the Port Authority
Bus Terminal of New York (the "Port Authority"), on a month-to-month basis
pursuant to several lease agreements and a license agreement. The Port Authority
has been in discussions to develop the air rights above the terminal and should
an agreement on the development be reached the Company would likely be required
to temporarily relocate its operations within the Port Authority. Such
relocation, if required, could result in an increase in the costs to operate out
of the Port Authority and potentially impact ticket and food service revenues.
FLEET COMPOSITION AND BUS ACQUISITIONS
During 2002, the Company took delivery of 177 new buses, and retired 90
buses, resulting in a fleet of 2,926 buses at December 31, 2002 of which the
Company owned 1,244 buses and leased an additional 1,682 buses. The average age
of the Company's bus fleet increased to 6.6 years at December 31, 2002, compared
to 6.2 years at December 31, 2001 and 5.8 years at December 31, 2000. Although
the Company believes the current fleet size and fleet age are adequate for its
operations, the Company's experience indicates that older buses are less
reliable and more costly to operate than newer buses. As example, over the last
two years the cost per mile to maintain the Company's fleet has increased 11.7%,
or well above the rate of wage and material inflation. Additionally, older buses
with older engines are generally less fuel-efficient than newer buses and,
because older buses require maintenance on a more frequent basis, an older fleet
results in an increase in the number of buses required to operate the business.
10
Motor Coach Industries, Inc. or its affiliate, Motor Coach Industries
Mexico, S.A. de C.V., hereafter referred to collectively as "MCI", produced all
but 47 of these buses. The Company is party to a long-term supply agreement with
MCI. The agreement extends through 2007, but may be canceled at the end of any
year upon six months notice. If the Company decides to acquire new buses, the
Company and its affiliates must purchase at least 80% of its new bus
requirements from MCI pursuant to the agreement.
ITEM 3. LEGAL PROCEEDINGS
GOLDEN STATE INDICTMENT
In December 2001, Gonzalez, Inc. d/b/a Golden State Transportation
("Golden State") and 22 current and former employees and agents of Golden State
were indicted as part of a 42-count federal criminal proceeding. The case, filed
before the United States District Court for the District of Arizona, is styled
U.S. v. Gonzalez, Inc, et al., Case No. CR 01-1696-TUC-RCC. Two superseding
indictments have been issued in this proceeding adding 44 additional criminal
counts against Golden State and certain individual defendants, including two
newly indicted defendants. The indictment alleges that the defendants were
engaged in a conspiracy, spanning over an almost three-year period, to transport
and harbor illegal aliens within the United States and to launder money. Golden
State has pleaded not guilty to the charges.
On August 20, 2002, the Government filed an in rem civil forfeiture action
against the parcels of real property owned by Golden State. The case, filed
before the United States District Court for the District of Arizona, is styled
U.S. v. 130 North 35th Avenue, Phoenix, Arizona, et al., Case No. CV
02-409-TUC-RCC.
The foregoing criminal and civil cases seek a forfeiture of substantially
all of Golden State's owned assets. At this stage in the proceedings, the
probable outcome of these cases cannot be predicted. Neither Greyhound Lines,
Inc. nor any of its other subsidiaries have been charged in these proceedings.
Although Golden State continued to operate following the original
indictment, the resultant legal costs and a decline in business consumed
substantially all available cash. Golden State was in the process of
implementing a plan to restructure their operations in a manner that would
improve profitability and cash flow. However, the Government's potential
forfeiture claims impaired Golden State's ability to raise money utilizing their
real property. Faced with funding insurance renewal premiums in advance and a
lack of immediate working capital, Golden State ceased operations effective
August 30, 2002 and filed a voluntary petition for bankruptcy on September 30,
2002 in the United States Bankruptcy Court for the District of Arizona in a case
styled In re: Gonzalez, Inc. d/b/a Golden State Transportation, Case No.
02-15508-PHX-GBN.
The Company had leased 40 buses to Golden State (the "Lease Buses") and
guaranteed third party leases of an additional 27 of Golden State's buses (the
"Guarantee Buses"). As a result of defaults under the bus leases between Golden
State and the Company, Golden State returned all of the Lease Buses to the
Company. Additionally, the Company took an assignment of the leases for all of
the Guarantee Buses. The Company has retained the buses for use in revenue
service.
During the year ended December 31, 2002 the Company recorded a $4.0
million charge principally from the write-off of the investment in, and accounts
receivable due from, Golden State. The Company has filed a proof of claim in the
Golden State bankruptcy seeking recovery of these accounts receivables and for
damages accruing as a result of defaults under the leases relating to Lease
Buses and Guarantee Buses.
The Company has a 51.4% ownership interest in Golden State. However,
because control of Golden State no longer rests with the Company, effective
August 31, 2002, Golden State's future results of operations and financial
condition will no longer be included in the Company's consolidated financial
statements.
11
OTHER LEGAL PROCEEDINGS
In addition to the matter discussed above, the Company is a defendant in
various lawsuits arising in the ordinary course of business, primarily cases
involving personal injury and property damage claims and employment-related
claims. Although these lawsuits involve a variety of different facts and
theories of recovery, the majority arise from traffic accidents involving buses
operated by the Company. The vast majority of these claims are covered by
insurance for amounts in excess of the deductible portion of the policies.
Management believes that there are no proceedings either threatened or pending
against the Company relating to such personal injury, property damage and
employment-related claims that, if resolved against the Company, would
materially exceed the amounts recorded as estimated liabilities by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
All of the Company's outstanding common stock is held by a subsidiary of
Laidlaw Inc. and, therefore, the common stock is not traded on any established
public trading market. The Company has not paid dividends in the past and,
furthermore, the indenture governing the Company's 11 1/2 % Senior Notes and the
agreement governing the Company's revolving credit facility limit the ability of
the Company to pay dividends. At December 31, 2002, under the most restrictive
of the agreements, no dividends could be paid by the Company.
13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business" and the Consolidated Financial Statements and notes
thereto included elsewhere in this filing. Certain reclassifications have been
made to prior period statements to conform them to the December 31, 2002
classifications.
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
2002(a) 2001 2000 1999(b) 1998(c)
---------- ---------- ---------- ---------- ----------
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS)
Total Operating Revenues ............ $ 991,914 $1,022,420 $1,014,317 $ 925,990 $ 848,445
Operating Income .................... 4,381 29,912 43,800 25,530 46,831
Net Income (Loss) ................... $ (111,596) $ 1,986 $ 12,570 $ (16,320) $ 35,232
========== ========== ========== ========== ==========
STATEMENT OF FINANCIAL POSITION DATA:
Total Assets ........................ $ 561,323 $ 688,457 $ 678,121 $ 652,056 $ 643,378
Long-Term Debt (d) .................. 216,203 280,566 275,617 222,206 233,658
Stockholder's Equity (Deficit) (e) .. (113,512) 187,919 235,174 227,906 218,013
- ----------
(a) During the year ended December 31, 2002, the Company recorded a $60.8
million charge to tax expense to establish a full valuation allowance
against previously recognized deferred tax assets. Additionally, the
Company recorded a charge of $40.0 million as a cumulative effect of a
change in accounting for goodwill.
(b) During the year ended December 31, 1999, the Company recorded a $21.3
million charge related to the settlement of the Company's outstanding
stock options.
(c) During the year ended December 31, 1998, the Company recognized a tax
benefit related to previously reserved deferred tax assets. As a result,
the Company had a $16.9 million tax benefit for the year.
(d) Long-term debt includes current maturities of long-term debt of $4.4
million in 2002, $8.0 million in 2001, $5.1 million in 2000, $5.7 million
in 1999 and $8.0 million in 1998; also included is redeemable preferred
stock of $2.7 million in 2000 and $42.0 million in 1999.
(e) During the year ended December 31, 2002, the Company recorded an increase
in the minimum pension liability, and corresponding decrease to
stockholder's equity, of $191.8 million.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Greyhound is the only nationwide provider of scheduled intercity bus
transportation services in the United States. The Company's primary business
consists of scheduled passenger service, package express service and food
services at certain terminals, which accounted for 85.7%, 4.0% and 4.3%,
respectively, of the Company's total operating revenues for 2002. The Company's
operations include a nationwide network of terminal and maintenance facilities,
a fleet of approximately 2,900 buses and approximately 1,700 sales outlets.
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations as a
percentage of total operating revenues for 2002, 2001 and 2000:
YEARS ENDED DECEMBER 31,
--------------------------------
2002 2001 2000
------ ------ ------
Operating Revenues
Passenger services ................................. 85.7% 85.8% 86.1%
Package express .................................... 4.0 4.0 4.2
Food services ...................................... 4.3 4.3 4.2
Other operating revenues ........................... 6.0 5.9 5.5
------ ------ ------
Total Operating Revenues .................... 100.0 100.0 100.0
------ ------ ------
Operating Expenses
Maintenance ........................................ 10.2 9.9 9.3
Transportation ..................................... 24.7 25.1 25.0
Agents' commissions and station costs .............. 18.5 18.6 18.3
Marketing, advertising and traffic ................. 2.8 3.5 3.1
Insurance and safety ............................... 7.8 5.9 5.2
General and administrative ......................... 12.7 12.7 12.4
Depreciation and amortization ...................... 5.1 4.8 4.5
Operating taxes and licenses ....................... 6.2 6.2 6.0
Operating rents .................................... 8.1 7.1 8.4
Cost of goods sold - food services ................. 2.8 2.9 2.9
Other operating expenses ........................... 0.7 0.4 0.6
------ ------ ------
Total Operating Expenses .................... 99.6 97.1 95.7
------ ------ ------
Operating Income ..................................... 0.4 2.9 4.3
Interest Expense ..................................... 2.6 2.8 2.3
Income Tax Provision (Benefit) ....................... 5.3 (0.1) 0.8
Minority Interests ................................... (0.2) 0.0 0.0
Cumulative Effect of Change in Accounting for Goodwill 4.0 0.0 0.0
------ ------ ------
Net Income (Loss) .................................... (11.3)% 0.2% 1.2%
====== ====== ======
15
The following table sets forth certain operating data for the Company for
2002, 2001 and 2000. Certain statistics have been adjusted and restated from
those previously published to provide consistent comparisons.
YEARS ENDED DECEMBER 31,
------------------------
2002 2001 2000
--------- --------- ---------
Regular Service Miles (000's) .............................. 333,154 349,978 348,789
Total Bus Miles (000's) .................................... 341,071 358,502 356,831
Passenger Miles (000's) .................................... 8,739,581 9,191,173 9,285,794
Passengers Carried (000's) ................................. 23,283 25,167 25,659
Average Trip Length (passenger miles / passengers carried) . 375 365 362
Load (avg. number of passengers per regular service mile) .. 26.2 26.3 26.6
Load Factor (% of available seats filled) .................. 52.1% 52.5% 53.9%
Yield (regular route revenue / passenger miles) ............ $ 0.0972 $ 0.0954 $ 0.0941
Average Ticket Price ....................................... $ 36.50 $ 34.84 $ 34.04
Total Revenue Per Total Bus Mile ........................... $ 2.91 $ 2.85 $ 2.84
Operating Income Per Total Bus Mile ........................ $ 0.01 $ 0.08 $ 0.12
Cost per Total Bus Mile:
Maintenance .............................................. $ 0.296 $ 0.284 $ 0.265
Transportation ........................................... $ 0.719 $ 0.716 $ 0.712
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
Operating Revenues. Total operating revenues decreased $30.5 million, down
3.0% for the year ended December 31, 2002 compared to the same period in 2001.
Passenger services revenues decreased $27.2 million, or 3.1%, in 2002
compared to 2001 as a 1.9% increase in yield was more than offset by a 4.9%
decrease in passenger miles. Subsequent to the events of September 11, 2001, and
continuing through 2002, the Company has experienced significant passenger
declines in its short haul markets (450 miles and less), while long haul travel
(over 450 miles) has increased. The 7.5% decline in passengers, offset somewhat
by the 2.7% increase in trip length due to the change in passenger mix, resulted
in a 4.9% decline in passenger miles during the twelve months ended December 31,
2002. Because longer trips produce lower revenue per mile, the change in
passenger mix also caused a decline in yield, however, this was more than offset
by price increases resulting in a 1.9% overall increase in yield compared to
2001. Additionally, passenger revenues declined approximately $10 million
compared to the prior year due to Gonzalez, Inc. d/b/a Golden State
Transportation ("Golden State") ceasing operations effective August 30, 2002.
See Note 15 of the Consolidated Financial Statements for further discussion of
Golden State.
Package express revenues decreased $1.3 million, down 3.0% in 2002
compared to 2001. The Company continues to experience reduced standard product
deliveries (the traditional, low value, terminal to terminal market segment) as
a result of continued competition, as well as expanded and improved product
offerings from larger package delivery companies. In response, the Company
continues to increase its focus on the same day delivery market niche through
the selling of Daily Direct, a guaranteed same day or early next morning
service. In addition, in 2000 the Company began offering freight forwarding
services and in 2001 began providing shipping services as an Authorized Shipping
Outlet for United Parcel Service. During 2002, Daily Direct and these new
services accounted for $2.6 million in revenues, a 42.6% increase over the prior
year.
Food services revenues decreased $1.5 million, down 3.5% for the year
ended December 31, 2002 compared to the same period in 2001. Food services
revenues decreased over the prior year due primarily to the declines in
passenger counts, offset somewhat by product price increases.
16
Other operating revenues, consisting primarily of revenue from travel
services, in-terminal sales and other services, as well as interest income on
deposits and investments, decreased $0.6 million, down 1.0% in 2002 compared to
2001. The decrease is primarily a result of lower investment income due to lower
interest rates.
Operating Expenses. Total operating expenses decreased $5.0 million, down
0.5% for the year ended December 31, 2002 compared to the same period in 2001.
Maintenance costs decreased $1.0 million, down 1.0% in 2002 compared to
2001. On a per mile basis, maintenance costs increased 4.2% due to 65 fewer
buses under warranty in 2002 compared to 2001, a higher average fleet age, wage
increases for mechanics and increased material and labor related to body
repairs, offset somewhat by lower utility costs.
Transportation expenses, which consist primarily of fuel costs and driver
wages, decreased $11.4 million, down 4.5% for the year ended December 31, 2002
compared to the same period in 2001, due primarily to fewer miles operated,
decreased fuel prices and driver hiring and training costs. During 2002 the
average cost per gallon of fuel decreased to $0.75 from $0.85 in 2001 resulting
in reduced costs of $5.3 million. Additionally, driver hiring and training costs
were $2.0 million lower in 2002 as the Company needed to hire fewer drivers due
to the reduction in bus miles operated. On a per mile basis, excluding the
effects of fuel price changes and driver hiring costs, transportation expenses
increased 3.4% during 2002, due mainly to contractual driver wage increases.
Agents' commissions and station costs decreased $7.3 million, down 3.8% in
2002 compared to 2001. The decrease is primarily due to lower commissions and
terminal wages as a result of decreased ticket sales, offset by a $3.2 million
increase in security costs. As a percentage of revenue, agents commissions and
station costs decreased slightly to 18.5% compared to 18.6% in the prior year,
as the effect of wage rate freezes during 2002 offset the increase in security
costs.
Marketing, advertising and traffic expenses decreased $7.7 million, or
21.7%, in 2002 compared to 2001 and decreased as a percent of revenue to 2.8%
compared to 3.5% in the prior year. Since September 11, 2001, leisure or
discretionary travel in non-peak periods has been soft. As a result management
believed that the potential incremental revenue gain would not exceed the cost
of additional advertising during the off-peak periods and substantially reduced
spending during the first and fourth quarters of 2002.
Insurance and safety costs increased $17.1 million, up 28.6% in 2002
compared to 2001, and increased as a percentage of revenue to 7.8% compared to
5.9% in the prior year. The increase is primarily due to an increase in the cost
of excess insurance coverage and a growth in the average cost per claim due
principally to medical cost inflation.
General and administrative expenses decreased $3.4 million, down 2.6% for
the year ended December 31, 2002 compared to the same period in 2001. The
decrease is attributable to lower management incentive plan costs ($7.7 million)
due to the decline in financial performance, a decrease in management fees ($2.3
million) charged by Laidlaw and reduced travel and other employee related costs
due to lower business volume, offset somewhat by higher pension costs of ($2.3
million) and higher health and welfare costs ($3.9 million) due principally to
medical cost inflation.
Depreciation and amortization increased $1.7 million, or 3.5% for the year
ended December 31, 2002 compared to the same period in 2001. The increases are
primarily due to inflationary increases in the cost of recent capital
expenditures for buses, structures and capitalized software which, due to the
long-lived nature of the Company's assets, significantly exceeds the historical
cost basis of asset disposals, partially offset by a decrease in goodwill and
trademark amortization from the adoption of a new accounting standard.
Operating taxes and licenses expense decreased $1.4 million, down 2.3% in
2002 compared to 2001. The decrease is due principally to lower payroll and fuel
taxes resulting from the lower business volume and miles operated.
Operating rents increased $7.7 million, up 10.7% for the year ended
December 31, 2002 compared to the same period in 2001. The increase is mainly
due to the settlement of the New York Port Authority license agreement in June
2001 that resulted in a reduction to operating rents of approximately $7.5
million in the second quarter of 2001. See Note 16 of the Consolidated Financial
Statements for further discussion.
17
Food services cost of goods sold decreased $1.3 million, down 4.6% in 2002
compared to 2001 primarily due to the decrease in food services revenues related
to decreased passenger counts.
Other operating expenses increased $2.0 million, up 44.2% for the year
ended December 31, 2002 compared to the same period in 2001. The increase is
principally due to $4.0 million charge related to the Company's write-off of its
investment in and accounts receivable due from Golden State, offset by losses on
disposals of property, plant and equipment in 2001 compared to gains on
disposals recorded in 2002.
Interest expense decreased $3.6 million, down 12.3% for the year ended
December 31, 2002 compared to the same period in 2001, due to a decrease in the
average debt outstanding and a decrease in interest rates.
Income tax expense for the year ended December 31, 2002, includes a $60.8
million charge related to the establishment of a full valuation allowance on the
Company's remaining net deferred tax assets. See Note 12 to the Consolidated
Financial Statements for further discussion.
Minority interests for year ended December 31, 2002, reflects the minority
partners share of current year losses in the Company's hispanic joint ventures,
particularly Golden State. The joint ventures were slightly profitable in the
prior year.
During 2002, the Company adopted Statement of Financial Accounting
Standards No. 142 "Accounting for Goodwill and Other Intangible Assets" ("SFAS
142") and, as a result, recorded a non-cash charge of $40.0 million as a
cumulative effect of a change in accounting principle. See Note 8 to the
Consolidated Financial Statements for further discussion.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Operating Revenues. Total operating revenues increased $8.1 million, up
0.8% for the year ended December 31, 2001 compared to the same period in 2000.
Passenger services revenues increased $3.5 million, or 0.4%, in 2001
compared to 2000 as a 1.4% increase in yield offset a 1.0% decrease in passenger
miles. During 2000, rising fuel costs, which dramatically increased automobile
travel costs and resulted in the airlines adding fuel surcharges to their ticket
prices, allowed the Company to implement broad-based ticket price increases
(which increased yield) throughout 2000 while still maintaining growth in
passenger miles. During the first half of 2001 the Company further raised ticket
prices resulting in a 5.6% increase in yield and, through the first quarter,
continued to achieve growth (2.1%) in passenger miles. The continued ticket
price increases, combined with stabilized fuel costs and airline price
discounting due to softening business travel, however, resulted in a 3.2%
decline in passenger miles during the second quarter. In response to this
decline, during the third quarter the Company reduced both prices and
restrictions on advance purchase fares and lowered some walkup fares. The slight
reduction in ticket prices that these actions produced were not enough to offset
the effects of significant reductions in retail fuel prices and airline ticket
prices which resulted in continued declines (1.1%) in passenger miles during the
third quarter. This decline was somewhat mitigated by a substantial increase in
passengers during the shutdown of the air system following the events of
September 11, 2001. Subsequent to September 11, 2001 the Company experienced
significant declines in its short haul markets (450 miles and less), principally
due to the reduced travel in the Northeastern United States, while long haul
travel (over 450 miles) increased dramatically as passengers chose bus travel
instead of air travel. On October 3, 2001 an incident on one of the Company's
buses resulted in a six-hour shutdown of operations nationwide. This shutdown
and general heightened security concerns, caused material declines in sales
during the week of the incident. Although the level of sales decline lessened
each subsequent week, passenger revenue declined 6.1% during the fourth quarter
compared to prior year. While long haul passenger traffic grew, declines in
short haul passengers more than offset this growth resulting in a 1.3% decline
in passenger miles during the fourth quarter. This change in passenger mix
resulted in an increase in average trip length of 8.3% and, because longer trips
produce lower revenue per passenger mile, also produced a 4.8% decline in yield.
18
Package express revenues decreased $1.2 million, down 2.9% in 2001
compared to 2000. The Company experienced reduced standard product deliveries
(the traditional, low value, terminal to terminal market segment) which more
than offset growth in new services. During 2001, Daily Direct and the new
services accounted for $1.8 million in revenues, an 86.2% increase over the
prior year.
Food services revenues increased $0.6 million, up 1.5% for the year ended
December 31, 2001 compared to the same period in 2000. Food services revenues
increased over the prior year due primarily to product price increases and
increased locations, offset somewhat by volume declines as a result of the
decline in passenger miles.
Other operating revenues, consisting primarily of revenue from travel
services and in-terminal sales and other services increased $5.2 million, up
9.3% in 2001 compared to 2000. The increase is primarily attributable to the
Company's expansion during 2001 into "meet and greet" service provided to cruise
lines.
Operating Expenses. Total operating expenses increased $22.0 million, up
2.3% for the year ended December 31, 2001 compared to the same period in 2000.
Maintenance costs increased $7.1 million, up 7.5% in 2001 compared to
2000. On a per mile basis, maintenance costs increased 7.2% due to 190 fewer
buses under warranty in 2001 compared to 2000, a slightly higher average fleet
age, wage increases for mechanics, increased material and labor related to body
repairs and brake jobs and higher utility costs.
Transportation expenses, which consist primarily of fuel costs and driver
wages, increased $2.7 million, up 1.1% for the year ended December 31, 2001
compared to the same period in 2000. During 2001 the average cost per gallon of
fuel decreased to $0.85 from $0.94 in 2000 resulting in reduced costs of $5.4
million. On a per mile basis, excluding the effects of fuel price changes,
transportation expenses increased 2.7% during 2001, due mainly to contractual
driver wage increases and higher driver training and hiring costs.
Agents' commissions and station costs increased $4.7 million, up 2.5% in
2001 compared to 2000. The increase for the year ended December 31, 2001 is due
to wage increases for customer service employees and increases in utility and
security costs. As a percentage of revenue, agents commissions and station costs
increased slightly to 18.6%, compared to 18.3% in the prior year, principally
due to increased security costs and passenger revenue declines experienced in
the fourth quarter of 2001.
Marketing, advertising and traffic expenses increased $4.0 million, or
12.7%, in 2001 compared to 2000 and increased as a percent of revenue to 3.5%
compared to 3.1% in the prior year. The increase in 2001 was principally due to
production costs related to new television advertisements, spending for
development of new markets, and media spending to raise brand awareness with
certain targeted demographic groups.
Insurance and safety costs increased $7.2 million, up 13.8% in 2001
compared to 2000, and increased as a percentage of revenue to 5.9% compared to
5.2% in the prior year. The increase is due to an increase in the cost of excess
insurance coverage, growth in the average cost per claim due principally to
medical inflation and two large claims arising from in-transit criminal assaults
against drivers.
General and administrative expenses increased $4.2 million, up 3.4% for
the year ended December 31, 2001 compared to the same period in 2000, increasing
slightly as a percentage of revenue. The increase is primarily due to a $5.2
million increase in pension expense due to a deterioration in plan returns
principally related to equity investments, higher management fee charges ($1.6
million) from the Company's parent Laidlaw, offset by a decrease in management
incentive plan costs ($2.6 million).
Depreciation and amortization increased $3.8 million, or 8.5% for the year
ended December 31, 2001 compared to the same period in 2000. The increase is
primarily due to inflationary increases in the cost of recent capital
expenditures for buses, structures and capitalized software which, due to the
long-lived nature of the Company's assets, significantly exceeds the historical
cost basis of asset disposals.
19
Operating taxes and licenses expense increased $2.0 million, up 3.2% in
2001 compared to 2000 due to increased payroll taxes resulting from increased
wages, increased property and real estate taxes and unusual state fuel tax
refunds received in the prior year.
Operating rents decreased $12.4 million, down 14.6% for the year ended
December 31, 2001 compared to the same period in 2000. The decrease is mainly
due to the restructuring of the Port Authority license agreement. See Note 16 of
the Consolidated Financial Statements for further discussion.
Food services cost of goods sold increased $0.5 million, up 1.6% in 2001
compared to 2000 due primarily to increases in food costs and the addition of
new locations.
Other operating expenses decreased $1.9 million, down 29.2% for the year
ended December 31, 2001 compared to the same period in 2000. The decrease is due
to the write-down of an investment in 2000.
Interest expense increased $5.4 million, up 23.0% for the year ended
December 31, 2001 compared to the same period in 2000, due to an increase in the
average debt outstanding, partially offset by a reduction in rates.
For the year ended December 31, 2001, the Company's income tax benefit
includes a $2.5 million benefit for the recognition of previously unrecognized
deferred tax assets. Exclusive of this item, the Company would have recorded tax
expense at an effective rate of 143.1%, compared to a 38.0% rate in the prior
period. The lower level of pre-tax income in 2001 compared to 2000, combined
with the effects of non-deductible goodwill amortization and other permanent tax
differences, produces a higher effective rate.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements requires management to make
estimates and assumptions relating to the reporting of results of operations,
financial condition and related disclosure of contingent assets and liabilities
at the date of the financial statements. Actual results may differ from those
estimates under different assumptions or conditions. The following are the
Company's most critical accounting policies, which are those that require
management's most difficult, subjective and complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods.
Accounting for Income Taxes. The Consolidated Statements of Financial
Position reflects net deferred tax assets as of December 31, 2002 of $173.1
million, resulting from operating losses and other deductible temporary
differences that will reduce taxable income in future periods. Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" requires
that a valuation allowance be established when it is "more likely than not" that
all or a portion of net deferred tax assets will not be realized. A review of
all available positive and negative evidence needs to be considered, including
expected reversals of significant deductible temporary differences, a company's
recent financial performance, the market environment in which a company operates
and the length of operating loss carryforward periods. Furthermore, the weight
given to the potential effect of negative and positive evidence should be
commensurate with the extent to which it can be objectively verified. Therefore,
current operating losses and the reasonable likelihood of significant near-term
reversals of deductible temporary differences carry more weight than forecasted
future operating profits. With the decline in pension fund assets during 2002,
and attendant increase in projected pension funding (which will give rise to tax
deductions when made), the Company concluded that it was appropriate to
establish a full valuation allowance for its net deferred tax assets. As a
result, the valuation allowance for net deferred tax assets increased from $27.5
million at December 31, 2001, to $173.1 million at December 31, 2002. In
addition, the Company expects to provide a full valuation allowance on future
tax benefits until it can achieve an appropriate level of profitability that
demonstrates its ability to utilize existing operating loss carryforwards and
future tax deductions for projected pension contributions. In the event that
actual results differ from these estimates, or these estimates are adjusted in
future periods, or if there is a material change in the actual effective tax
rates or time period within which the underlying temporary differences become
taxable or deductible, the Company may need to change the valuation allowance.
Subsequent revisions to the valuation allowance could cause the Company's
provision for income taxes to vary significantly from period to period, although
cash tax payments would remain unaffected until the benefit of the NOL is
utilized.
20
Claims Liability. The Company establishes reserves for automobile
liability, general liability and worker's compensation claims that have been
reported but not paid and claims that have been incurred but not reported. These
reserves are developed using actuarial principles and assumptions which consider
a number of factors, including historical claim payment patterns and changes in
case reserves, the assumed rate of increase in health care costs and property
damage repairs, and the discount rate. The amount of these reserves could differ
from the Company's ultimate liability related to these claims due to changes in
the Company's accident reporting, claims payment and settlement practices or
claims reserve practices, as well as differences between assumed and future cost
increases and discount rates.
The Company may be liable for certain environmental liabilities and
clean-up costs in the various facilities presently or formerly owned or leased
by the Company. Additionally, the Company has potential liability with respect
to locations that the EPA has designated as Superfund sites. The Company has
recorded an environmental liability for those sites identified for potential
clean-up and/or remediation based upon the present value of estimated future
cash flows discounted at 8.0%. The future cash flows are estimated by the
Company's internal staff and outside environmental consultants based on testing
and remediation work plans that have been established for the various projects.
Management expects the majority of this environmental liability to be paid over
the next five to ten years. The recorded liability could differ from the
Company's ultimate liability due to timing and cost uncertainties related to
variations in the required scope of work that are inherent in any clean-up
project.
Valuation of Long-lived Assets. The Company's long-lived assets include
property and equipment (principally buses and real estate), investments in
affiliates, goodwill and other intangible assets (principally software). At
December 31, 2002, the Company's Consolidated Statements of Financial Position
reflects $407.8 million of net property and equipment and $48.6 million in
investments in affiliates, goodwill and other net intangible assets, accounting
for over 81% of the Company's total assets. Long-lived assets are assessed for
impairment at least annually or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Important factors which
could trigger an impairment review include significant underperformance relative
to historical or projected future operating results, significant changes in the
use of the acquired assets or the strategy for the overall business, and
significant negative industry or economic trends. An impairment loss is
recognized on property and equipment and other intangible assets when the
undiscounted cash flows estimated to be generated by those assets are less than
their carrying amount. An impairment loss is recognized on investments in
affiliates and goodwill when the fair value of the investee or reporting unit is
less than their carrying amount. The net carrying value of assets not deemed
recoverable are reduced to fair value. Estimates of fair value represent our
best estimate based on industry trends and reference to market rates and
transactions. The determination of fair value can be highly subjective,
especially for assets that are not actively traded or when market-based prices
are not available.
In assessing the recoverability of the Company's long-lived assets the
Company must make assumptions regarding estimated future cash flows and other
factors to determine whether an impairment exists. Cash flow estimates are based
on historical results adjusted to reflect our best estimate of future market and
operating conditions. If these estimates or their related assumptions change in
the future, or if actual results are materially different than those previously
estimated, the Company may be required to record impairment charges for these
assets not previously recorded. During 2002 the Company adopted SFAS 142 and
determined that the carrying value of its Bus Operations reporting unit exceeded
that unit's fair value. As a result, effective January 1, 2002, the Company
recorded a non-cash charge of $40.0 million as a cumulative effect of a change
in accounting for goodwill. The Company's remaining goodwill ($3.0 million)
relates to the Courier Services reporting unit where fair value exceeds carrying
value.
21
Pension. The determination of the Company's obligation and expense for
pension benefits is dependent on the selection of certain assumptions and
factors. These include assumptions about the discount rate, expected return on
plan assets and rate of future compensation increases as determined by
management. In addition, the Company's actuarial consultants also use factors to
estimate such items as retirement age and mortality rates. The assumptions and
factors used by the Company may differ materially from actual results due to
changing market and economic conditions, earlier or later retirement ages or
longer or shorter life spans of participants. These differences may result in a
significant impact to the amount of pension obligation or expense recorded by
the Company. Due to a reduction in interest rates and deterioration in plan
returns, during 2002 the Company was required to increase its additional minimum
pension liability by $191.8 million and recorded a $2.3 million increase in
pension expense.
NEW ACCOUNTING PRONOUNCEMENTS
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit. It also clarifies
that at the time a company issues a guarantee, the company must recognize an
initial liability for the fair market value of the obligations it assumes under
that guarantee and must disclose that information in its interim and annual
financial statements. The initial recognition and measurement provisions of FIN
45 apply on a prospective basis to guarantees issued on or modified after
December 31, 2002.
The Company generally uses operating lease financing with residual value
guarantees as the principal source of bus financing. The Company's accounting
policy has been to record a liability for the residual value guarantee only when
it was probable that the guarantee would exceed the estimated value of the buses
at lease expiration. As of December 31, 2002, no liability has been recorded by
the Company related to these guarantees and, to date; the Company has never
incurred any liability as a result of the residual value guarantees. Under FIN
45 the Company will now be required to estimate the fair value of the residual
value guarantees at lease inception for any future operating leases the Company
may enter into. The fair value of the guarantee will be recorded as a liability,
with the offsetting entry being recorded as prepaid rent (representing a payment
in kind made by the lessee when entering into the operating lease). The prepaid
rent will be amortized to operating rent expense over the lease term. The
liability for the guarantee would only be increased if, during the lease term,
it becomes probable that the guarantee would exceed the estimated value of the
buses at lease expiration by an amount that exceeds the recorded liability. If
at lease expiration the Company were not required to perform under the residual
value guarantee, the entire initial liability would then be reversed as a
reduction of operating rent expense. Based upon the Company's historic
experience the application of FIN 45 will result in somewhat higher operating
lease costs during the term of its future bus leases, with a reversal of those
costs being recognized at lease expiration.
22
LIQUIDITY AND CAPITAL RESOURCES
The Company requires significant cash flows to finance capital
expenditures, including bus acquisitions, and to meet its debt service and other
continuing obligations. As of December 31, 2002, the Company had $216.2 million
of outstanding debt, implicit debt equivalent to $301.6 million for off-balance
sheet bus operating leases and $42.0 million of outstanding letters of credit
(which principally support recorded claims liabilities). Additionally, as of
December 31, 2002, the Company had availability of $75.2 million under the
Revolving Credit Facility. The Company's principal sources of liquidity are
expected to be cash flow from operations (which is net of cash charges for
interest expense and lease payments under the Company's bus operating leases),
proceeds from operating lease or other equipment financing for new bus purchases
and borrowings under the Revolving Credit Facility. Over the three year period
ended December 31, 2002, cash provided by the Company's operating results
(defined as cash flow from operating activities before changes in operating
assets and liabilities) was an annual average of $54.8 million ($43.5 million in
2002). Additionally, over the three year period the Company obtained an annual
average of $40.2 million ($14.5 million in 2002) of term financing (principally
in the form of bus operating leases). Conversely, spending for capital
expenditures (including new bus purchases financed with bus operating leases or
other term debt) averaged $79.6 million per year during the three years ended
December 31, 2002 ($69.4 million in 2002). Additionally, over the three year
period principal payments on term debt and bus purchases at the expiration of
operating leases totaled an annual average of $7.6 million ($7.5 million in 2002
and projected to be $13.5 million in 2003). Generally new term financing
(including bus operating lease financing) must be obtained to support the
Company's annual capital expenditure needs. If new bus financing cannot be
obtained in the future, the Company would have to reduce capital expenditures,
resulting in an increase in fleet age and costs to operate the fleet.
Net cash provided by operating activities was $98.1 million, $51.0 million
and $32.5 million for the years ended December 31, 2002, 2001 and 2000,
respectively. Net cash provided by operating activities contains two components,
cash provided by the Company's operating results and cash provided by (or used
by) changes in operating assets and liabilities. Cash provided by the Company's
operating results was $43.5 million, $60.0 million and $61.0 million for the
years ended December 31, 2002, 2001 and 2000, respectively. The decline in cash
provided by operating results in 2002 is principally due to a reduction in
operating income offset somewhat by lower interest expense. Changes in operating
assets and liabilities provided cash of $54.6 million for the year ended
December 31, 2002, compared to uses of cash of $9.0 million and $28.5 million in
2001 and 2000, respectively. During 2002 the cash provided by changes in
operating assets and liabilities was principally due to increases in the
Company's claims liabilities, which are largely comprised of insurance reserves,
and reductions in accounts receivable. To support the increases in insurance
reserves, the Company's primary insurance carrier has required the Company to
issue $35 million in letters of credit as collateral through December 31, 2002.
The decrease in accounts receivable during 2002 was principally due to the year
ending on a Tuesday, thus resulting in the Company receiving all weekend
receipts prior to the year end and, therefore, reducing receivables from agents.
In 2001, net cash used by changes in operating assets and liabilities of $9.0
million was principally due to spending on software while the $28.5 million used
in 2000 was principally due to repayments of intercompany amounts due Laidlaw
and increases in accounts receivable.
Net cash used for investing activities was $56.1 million, $33.7 million
and $41.2 million for 2002, 2001 and 2000, respectively, principally due to
capital expenditures, consisting primarily of acquisitions of buses and real
estate and facility improvements, totaling $65.0 million, $36.0 million and
$63.7 million for 2002, 2001 and 2000, respectively.
Net cash (used) provided by financing activities was $(57.0) million,
$(6.6) million and $10.6 million for 2002, 2001 and 2000, respectively. The
decrease in cash provided by financing activities in 2002 is principally due to
paydowns on the Revolving Credit Facility.
The Revolving Credit Facility provides for advances up to a maximum of
$125 million based upon 85% of the appraised wholesale value of certain bus
collateral and 50% of the fair market value of certain real property collateral.
The Revolving Credit Facility has two interest rate options, prime and LIBOR. As
of December 31, 2002, borrowings under the Revolving Credit Facility were
available to the Company at prime rate plus 0.5% and LIBOR plus 2.0%. The
weighted-average interest rate for all Revolving Credit Facility borrowings was
4.5% at December 31, 2002. Borrowings under the Revolving Credit Facility mature
on October 24, 2004.
23
The Revolving Credit Facility is secured by liens on substantially all of
the assets of the Company and the stock and assets of certain of its
subsidiaries. Under the Revolving Credit Facility the Company is subject to
certain affirmative and negative operating and financial covenants, including
maximum total debt to EBITDA ratio; minimum EBITDA to interest ratio; minimum
shareholder's equity; limitation on non-bus capital expenditures; limitations on
additional liens, indebtedness, guarantees, asset disposals, advances,
investments and loans; and restrictions on the redemption or retirement of
certain subordinated indebtedness or equity interests, payment of dividends and
transactions with affiliates, including Laidlaw. At December 31, 2002, the
Company was in compliance with all such covenants.
Based upon the Company's most current financial forecast, and after taking
into account the effect of the amendments discussed in Note 11 of the
Consolidated Financial Statements, management is unable to determine with
reasonable assurance whether the Company will remain in compliance with these
covenants in the future. As compliance with the covenants will not be known
until after the end of a quarter when actual results are available, the Company
has initiated discussions with the agent bank for the Revolving Credit Facility
in an effort to obtain modifications to the agreement that would provide
reasonable assurance that the Company will remain in compliance with the
covenants. Although the Company has been successful in obtaining necessary
amendments to the Revolving Credit Facility in the past, there can be no
assurances that the Company will obtain additional modifications or that the
cost of the modifications or other changes in the terms of the Revolving Credit
Facility would not have a material effect on the Company. In the event that
additional modifications suitable to the parties are not obtained, and further
assuming the Company fails to remain in compliance with the existing covenants,
the Company may be required to seek a replacement for the Revolving Credit
Facility from other financing sources. However, should alternate sources of
financing not be available, then the Company may not be able to satisfy its
obligations as they become due and may not be able to continue as a going
concern. As a result, the Company may not be able to realize its assets and
settle its liabilities in the normal course of operations.
BUS OPERATING LEASES
The Company generally uses lease financing with purchase options (residual
values) as the principal source of bus financing in order to achieve the lowest
net cost of bus financing. These leases typically have terms of seven years and
contain set residual values and residual value guarantees; although some leases
are for terms as long as twelve years and contain no residual values or residual
value guarantees. Because the Company generally retires buses after twelve to
fourteen years of operation, buses are typically purchased at lease expiration
at the residual value, or fair market value for those leases that do not contain
residual values.
Most of the leases are designed to qualify as operating leases for
accounting purposes and, as such, only the monthly lease payment is recorded in
the statement of operations and the liability and value of the underlying buses
are not recorded on the statement of financial position. Additionally, buses
acquired and financed with operating leases are not included as capital
expenditures on the statement of cash flows (except for certain sale-leaseback
transactions). At December 31, 2002, the net present value of future operating
lease payments, plus the residual value or estimated fair market value for those
leases that do not contain residual values, discounted at the rate implicit in
the lease was $301.6 million.
Of those operating leases that contain residual value guarantees, the
aggregate residual value at lease expiration is $145.0 million, of which the
Company has guaranteed $90.4 million. Based on current and historical used bus
values, management believes the value of the buses at lease expiration will
exceed the residual value guarantees, therefore, the Company has recorded no
liability related to the residual value guarantees. To date, the Company has
never incurred any liability as a result of residual value guarantees.
24
At December 31, 2002, the scheduled future lease payments, residual value
at lease expiration and estimated fair market value at lease expiration for
those leases which do not contain residual values under the Company's bus
operating leases are as follows (in thousands):
FAIR
LEASE RESIDUAL MARKET
PAYMENTS VALUE VALUE
-------- -------- --------
2003 $ 55,904 $ 3,768 $ 5,354
2004 52,171 14,199 --
2005 41,420 17,930 18,055
2006 22,464 28,599 6,712
2007 13,205 35,869 --
Thereafter 9,289 44,680 --
-------- -------- --------
Total $194,453 $145,045 $ 30,121
======== ======== ========
CAPITAL EXPENDITURES
The following table summarizes the number of new buses acquired (including
those buses acquired and financed using operating leases, capital leases or
vendor provided loans) and used buses disposed of for cash by the Company during
each of the last three years:
YEAR ENDED DECEMBER 31,
----------------------------
2002 2001 2000
------ ------ ------
Total new buses acquired 177 154 289
====== ====== ======
Used buses disposed of for cash 90 77 119
====== ====== ======
Under U.S. generally accepted accounting principals, long-lived assets
acquired that are financed with operating leases, capital leases or vendor
provided loans are considered non-cash transactions and, therefore, are not
reflected as capital expenditures in the statement of cash flows. The following
table reconciles the aggregate value of assets acquired by the Company,
including the value of assets financed with operating leases, capital leases and
vendor provided loans, to capital expenditures as reported in the Company's
Consolidated Statements of Cash Flows for the last three years (in thousands):
YEAR ENDED DECEMBER 31,
------------------------------------
2002 2001 2000
-------- -------- --------
New buses acquired, net of used bus disposals $ 50,879 $ 51,819 $ 76,341
Real estate, technology and other, net of disposals 18,548 26,501 14,678
-------- -------- --------
Aggregate value of net assets acquired 69,427 78,320 91,019
Proceeds from operating lease financing (12,760) (37,155) (50,652)
Proceeds from capital lease or vendor provided financing (486) (7,189) (3,165)
Buses purchased at operating lease expiration -- -- 3,474
-------- -------- --------
Capital expenditures, net of proceeds on disposals $ 56,181 $ 33,976 $ 40,676
======== ======== ========
25
LAIDLAW REORGANIZATION
On June 28, 2001, as part of a financial restructuring, Laidlaw USA, Inc.,
Laidlaw Inc., Laidlaw International Finance Corporation, Laidlaw Investments
Ltd., Laidlaw One, Inc. and Laidlaw Transportation, Inc. filed voluntary
petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the
United States Bankruptcy Court for the Western District of New York, under a
jointly administered case captioned, In re: Laidlaw USA, Inc., et al, Case No.
01-14099. On that date, Laidlaw Inc. and Laidlaw Investments Ltd. also filed
cases under the Canada Companies' Creditors Arrangement Act in the Ontario
Superior Court of Justice in Toronto, Canada, court file no. 01-CL-4178. Laidlaw
Inc. is the ultimate parent company of Greyhound. Neither Greyhound, nor any of
its subsidiaries were included in, or made party to, these reorganization
filings and proceedings.
The reorganization filings and proceedings do not cause a cross default
with any of the Company's debt which would place the Company's debt in default
with its financial institutions and, as of the date of this report, the Company
is in compliance with all covenants in its various debt agreements. Although the
outcome of the foregoing matters is uncertain, management believes that the
likely outcome will have no material impact on the Company's financial position,
cash flows or results of operations.
PBGC AGREEMENT AND POTENTIAL PENSION PLAN FUNDING REQUIREMENTS
The Company maintains nine defined benefit pension plans (the "Pension
Plans") that as of December 31, 2002 had a combined projected benefit obligation
("PBO"), discounted at 6.5%, of $768.0 million. The most significant of the
plans (the "ATU Plan") represents 90% of the PBO. Over the last two years the
PBO has increased $69.5 million as interest accretion on the obligation and the
effect of a decrease in the discount rate of 1.3% have more than offset
reductions due to benefit payments. Plan assets, however, have declined $216.1
million over the last two years due to losses on plan assets and benefit
payments. As a result, while plan assets had exceeded the PBO by $41.6 million
at December 31, 2000, the PBO now exceeds plan assets resulting in the plans
being underfunded by $244.0 million at December 31, 2002.
Laidlaw Inc., collectively with all of its wholly-owned U.S. subsidiaries,
including Greyhound (the "Laidlaw Group"), and the Pension Benefit Guaranty
Corporation ("PBGC"), have agreed to the principal economic terms relating to
claims asserted by the PBGC against Laidlaw regarding the funding levels of the
Pension Plans (the "PBGC Agreement"). Under the PBGC Agreement, upon Laidlaw's
emergence from bankruptcy (presently estimated to occur in April 2003), the
Laidlaw Group will contribute $50 million in cash to the Pension Plans and issue
common stock of Laidlaw equal in value to $50 million to a trust formed for the
benefit of the Pension Plans (the "Pension Plan Trust"). The trustee of the
Pension Plan Trust will sell the stock as soon as practicable, but in no event
later than the end of 2004. All proceeds from the stock sales will be
contributed directly to the Pension Plans. If the proceeds from the stock sales
exceed $50 million, the excess amount may be credited against any future
required minimum funding obligations. If the proceeds from the stock sales are
less than $50 million, the Laidlaw Group will be required to contribute the
amount of the shortfall in cash to the Pension Plans at the end of 2004.
Further, the Laidlaw Group will contribute an additional $50 million in cash to
the Pension Plans in June 2004. These contributions and transfers will be in
addition to the minimum funding obligations to the Pension Plans, if any,
required under current regulations.
26
Based upon current regulations and plan asset values at December 31, 2002,
and assuming annual investment returns exceed 3% and that the contributions
required under the PBGC Agreement are made along the timeframe outlined above,
the Company does not anticipate any significant additional minimum funding
requirements for the ATU Plan over the next several years. However, there is no
assurance that the ATU Plan will be able to earn the assumed rate of return,
that new regulations may prescribe changes in actuarial mortality tables and
discount rates, or that there will be market driven changes in the discount
rates, which would result in the Company being required to make significant
additional minimum funding contributions in the future.
SELF INSURANCE
The predecessor agency to the STB granted the Company authority to
self-insure its automobile liability exposure for interstate passenger service
up to a maximum level of $5.0 million per occurrence, which has been continued
by the DOT. To maintain self-insurance authority, the Company is required to
provide periodic financial information and claims reports, maintain a
satisfactory safety rating by the DOT, a tangible net worth of $10.0 million and
a $15.0 million trust fund (currently fully funded) to provide security for
payment of claims. At December 31, 2002, the Company's tangible net worth was
below the minimum required by the DOT to maintain self-insurance authority. The
Company is in discussions with the DOT in an attempt to obtain a waiver of the
net worth requirement or some other suitable modification so as to allow the
Company to continue to maintain its self-insurance authority.
Insurance coverage and risk management expenses are key components of the
Company's cost structure. Additionally, the Company is required by the DOT, some
states and some of its insurance carriers to maintain collateral deposits or
provide other security pursuant to its insurance program. At December 31, 2002,
the Company maintained $22.9 million of collateral deposits including the above
$15.0 million trust fund and had issued $35.0 million of letters of credit in
support of these programs. The loss or modification of self-insurance authority
from the DOT or a decision by the Company's insurers to modify the Company's
program substantially, by either increasing cost, reducing availability or
increasing collateral, could have a material adverse effect on the Company's
liquidity, financial condition, and results of operations.
NEW YORK PORT AUTHORITY
The Company operates out of its largest sales location, the Port
Authority, on a month-to-month basis pursuant to several lease agreements and a
license agreement. The Port Authority has been in discussions to develop the air
rights above the terminal and should an agreement on the development be reached
the Company would likely be required to temporarily relocate its operations
within the Port Authority. Such relocation, if required, could result in an
increase in the costs to operate out of the Port Authority and potentially
impact ticket and food service revenues.
27
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-K
Statements in this Form 10-K that are not purely historical facts,
including statements regarding our beliefs, expectations, intentions,
projections or strategies for the future, may be "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995. All forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially from the plans, intentions and expectations reflected in or
suggested by the forward-looking statements. Such risks and uncertainties
include, among others, the general economic condition of the United States and
the future level of bus travel demand; the impact of future terrorist incidents;
operational disruptions as a result of bad weather; the Company's future yields;
increased costs for security; the cost and availability of excess insurance
coverage and the Company's ability to retain authority to self-insure; the
impact of changes in fuel prices; the effect of future Government regulations;
potential pension plan funding requirements; limitations on financing
flexibility and availability due to the potential inability of the Company to
remain in compliance with covenants required under its various debt agreements,
changing credit markets and the uncertainty surrounding the outcome of the
Laidlaw Inc. reorganization proceedings; the ability to renew labor agreements
without incurring a work stoppage or slowdown; disruptions to Company operations
as a result of forced relocations; and other factors described from time to time
in the Company's publicly available Securities and Exchange Commission filings.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements to reflect events or circumstances that may arise
after the date of this filing.
28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk includes
"forward-looking statements" that involve risk and uncertainties. Actual results
could differ materially from these projections. The Company is currently exposed
to market risk from changes in commodity prices for fuel, investment prices and
interest rates. The Company does not use derivative instruments to mitigate
market risk, nor does the Company use market risk sensitive instruments for
speculative or trading purposes.
COMMODITY PRICES. The Company currently has exposure to commodity risk from its
fuel inventory and its advance purchase commitments for fuel. The Company has
fuel inventory at December 31, 2002, at a carrying value of $1.1 million. The
Company's fuel inventory is used in operations before a change in the market
price of fuel could have a material effect on the Company's results of
operations. Additionally, the Company has entered into advanced purchase
commitments for fuel whereby the Company has agreed to take delivery of a total
of 7.1 million gallons through August 2003 at a fixed price of $5.0 million. A
10% increase or decrease in the cost of fuel would not have a material effect on
this commitment or the Company's results of operations. For the year ended
December 31, 2002, the Company recorded $41.6 million in fuel expense (exclusive
of fuel taxes). While a 10% increase or decrease in the cost of fuel would have
a material effect on the Company's operating expenses, generally periods of
rising fuel costs have allowed the Company to increase average ticket prices and
periods of declining fuel costs have required the Company to lower ticket costs,
thus providing some hedge against fuel price fluctuations. However, due to the
competitive nature of the transportation industry, there can be no assurance
that the Company will be able to pass on increased fuel prices to its customers
by increasing its fares or that the timing of price increases will coincide with
the timing of the fuel cost increase. Likewise, increased price competition and
lower demand because of a decline in out-of-pocket costs for automobile use may
offset any potential benefit of lower fuel prices.
INVESTMENT PRICES. The Company currently has exposure in the market price of
investments in its available for sale securities. At December 31, 2002, the
Company has approximately $8.5 million of investments classified as available
for sale and a 10% decrease in the market price would not have a material effect
on the Company's financial position. As required by generally accepted
accounting principles, the Company has reported these investments at fair value,
with any unrecognized gains or losses excluded from earnings and reported in a
separate component of stockholder's equity.
INTEREST RATE SENSITIVITY. The Company currently has exposure to interest rates
from its long-term debt as it relates to the Company's Revolving Credit Facility
and the Laidlaw subordinated debt. The Revolving Credit Facility utilizes a
variable rate based on prime and LIBOR. As of December 31, 2002, the Revolving
Credit Facility utilized prime plus 0.5% and LIBOR plus 2.0% with an outstanding
balance of $7.8 million. The weighted-average interest rate for all Revolving
Credit Facility borrowings was 4.5% at December 31, 2002. Borrowings under the
Revolving Credit Facility mature on October 24, 2004.
The Laidlaw subordinated debt matures 91 days after the maturity of the
Revolving Credit Facility. Interest on the debt accrues at the Applicable
Federal Rate (1.8% at December 31, 2002) and is payable at maturity. The
outstanding balance as of December 31, 2002 was $35.9 million.
A 10% increase or decrease in variable interest rates would not have a material
effect on the Company's results of operations or cash flows.
The table below presents principal cash flows and related weighted average
interest rates by contractual maturity dates for fixed rate debt as of December
31, 2002:
Long Term Debt:
2003 2004 2005 2006 2007 THEREAFTER TOTAL FAIR VALUE
------- ------- ------- ------- ------- ---------- ---------- ----------
Fixed Rate Debt (in thousands) $ 3,502 $ 3,022 $ 2,001 $ 3,945 $156,206 $ 2,252 $ 170,928 $120,238
Average Interest Rate 8.4% 8.6% 9.7% 9.7% 11.4% 10.4% 11.2% --
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO.
--------
Report of Independent Accountants.................................................................. 31
Consolidated Statements of Financial Position as of December 31, 2002 and 2001..................... 32
Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000......... 33
Consolidated Statements of Stockholder's Equity (Deficit) for the Years Ended December 31, 2002,
2001 and 2000................................................................................. 34
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000......... 35
Notes to Consolidated Financial Statements......................................................... 36
Schedule II - Valuation and Qualifying Accounts - For the Years Ended December 31, 2002, 2001
and 2000...................................................................................... 56
30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Greyhound Lines, Inc:
In our opinion, the consolidated financial statements listed in the
accompanying index, present fairly, in all material respects, the financial
position of Greyhound Lines, Inc. and its subsidiaries at December 31, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and the financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Notes 2 and 8 to the consolidated financial statements,
the Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets", as of January 1, 2002.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 11
to the financial statements, the Company may not be in compliance with the
financial covenants of its revolving credit facility beginning with the first
quarter of 2003 which raises substantial doubt about its ability to continue as
a going concern. Management's plans in regards to this matter are also described
in Note 11. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ PRICEWATERHOUSECOOPERS LLP
- -------------------------------
PricewaterhouseCoopers LLP
Dallas, Texas
March 26, 2003
31
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
-------------------------
2002 2001
---------- ----------
Current Assets
Cash and cash equivalents ................................................. $ 5,946 $ 20,913
Accounts receivable, less allowance for doubtful accounts of $813 and $915 47,255 59,977
Inventories, less allowance for shrinkage of $271 and $177 ................ 9,530 8,409
Prepaid expenses .......................................................... 8,456 7,158
Current portion of deferred tax assets .................................... -- 12,238
Other current assets ...................................................... 3,364 2,154
---------- ----------
Total Current Assets ................................................ 74,551 110,849
Property, plant and equipment, net of accumulated depreciation of $244,485
and $229,502 ............................................................. 407,816 412,027
Investments in unconsolidated affiliates ..................................... 17,679 15,896
Deferred income taxes ........................................................ -- 48,609
Insurance and security deposits .............................................. 30,357 29,142
Goodwill ..................................................................... 3,040 43,087
Intangible assets, net of accumulated amortization of $37,983 and $34,487 .... 27,880 28,847
---------- ----------
Total Assets ........................................................ $ 561,323 $ 688,457
========== ==========
Current Liabilities
Accounts payable ......................................................... $ 26,422 $ 24,638
Accrued liabilities ...................................................... 62,758 66,961
Rents payable ............................................................ 19,423 11,839
Unredeemed tickets ....................................................... 13,119 12,001
Current portion of claims liability ...................................... 19,578 2,935
Current maturities of long-term debt ..................................... 4,364 7,975
---------- ----------
Total Current Liabilities ........................................... 145,664 126,349
Pension obligation ........................................................... 242,103 46,432
Claims liability ............................................................. 42,880 18,615
Long-term debt ............................................................... 211,839 272,591
Minority interests ........................................................... 3,300 6,166
Other liabilities ............................................................ 29,049 30,385
---------- ----------
Total Liabilities ................................................... 674,835 500,538
Commitments and Contingencies (Notes 1, 2, 11, 14, 15 and 16)
Stockholder's Equity (Deficit)
Common stock (1,000 shares authorized; par value $.01; 587 shares issued) -- --
Capital in excess of par value .......................................... 320,391 320,391
Retained deficit ........................................................ (190,599) (79,003)
Accumulated other comprehensive loss, net of tax benefit of $28,791 ..... (243,304) (53,469)
---------- ----------
Total Stockholder's Equity (Deficit) ................................ (113,512) 187,919
---------- ----------
Total Liabilities and Stockholder's Equity (Deficit) ................ $ 561,323 $ 688,457
========== ==========
The accompanying notes are an integral part of these statements.
32
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-------------------------------------------
2002 2001 2000
----------- ----------- -----------
Operating Revenues
Passenger services ................................. $ 849,771 $ 876,921 $ 873,391
Package express .................................... 39,966 41,222 42,441
Food services ...................................... 42,164 43,673 43,042
Other operating revenues ........................... 60,013 60,604 55,443
----------- ----------- -----------
Total Operating Revenues ..................... 991,914 1,022,420 1,014,317
----------- ----------- -----------
Operating Expenses
Maintenance ........................................ 100,845 101,819 94,692
Transportation ..................................... 245,273 256,701 253,970
Agents' commissions and station costs .............. 183,151 190,445 185,772
Marketing, advertising and traffic ................. 27,819 35,536 31,535
Insurance and safety ............................... 76,994 59,868 52,629
General and administrative ......................... 126,319 129,703 125,472
Depreciation and amortization ...................... 50,635 48,911 45,067
Operating taxes and licenses ....................... 61,718 63,161 61,209
Operating rents .................................... 80,262 72,527 84,912
Cost of goods sold - food services ................. 27,937 29,275 28,812
Other operating expenses ........................... 6,580 4,562 6,447
----------- ----------- -----------
Total Operating Expenses ..................... 987,533 992,508 970,517
----------- ----------- -----------
Operating Income ...................................... 4,381 29,912 43,800
Interest Expense ...................................... 25,409 28,963 23,542
----------- ----------- -----------
Income (Loss) Before Income Taxes, Minority
Interest and Cumulative Effect of Accounting Change (21,028) 949 20,258
Income Tax Provision (Benefit) ........................ 52,621 (1,092) 7,702
Minority Interests .................................... (2,100) 55 (14)
----------- ----------- -----------
Income (Loss) Before Cumulative Effect
of Accounting Change .............................. (71,549) 1,986 12,570
Cumulative Effect of a Change in Accounting
for Goodwill (Note 8) ............................. 40,047 -- --
----------- ----------- -----------
Net Income (Loss) ..................................... $ (111,596) $ 1,986 $ 12,570
=========== =========== ===========
The accompanying notes are an integral part of these statements.
33
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ACCUMULATED TOTAL
CAPITAL IN OTHER COMPREHENSIVE
COMMON STOCK EXCESS OF RETAINED COMPREHENSIVE INCOME
SHARES AMOUNT PAR VALUE DEFICIT LOSS (LOSS)
------ ------ --------- ------- ---- ------
BALANCE, JANUARY 1, 2000 ...................... 587 $ -- $ 322,613 $ (92,182) $ (2,525)
Dividends on preferred stock .................. -- -- -- (1,333) --
Redemption of preferred stock ................. -- -- (13,096) -- --
Purchase and cancellation of shares ........... -- -- (256,884) -- --
Issuance of stock to Laidlaw .................. -- -- 268,604 -- --
Comprehensive Income (Loss):
Adjustment for minimum pension
obligation, net of tax of $1,396 ....... -- -- -- -- (2,593) $ (2,593)
Net Income ................................. -- -- -- 12,570 -- 12,570
---------
Total Comprehensive Income ...... $ 9,977
--------- --------- --------- --------- --------- =========
BALANCE, DECEMBER 31, 2000 .................... 587 -- 321,237 (80,945) (5,118)
Dividends on preferred stock .................. -- -- -- (44) --
Redemption of preferred stock ................. -- -- (846) -- --
Comprehensive Income (Loss):
Market value adjustment for securities held,
net of tax of $89 ...................... -- -- -- -- 166 $ 166
Adjustment for minimum pension
obligation, net of tax of $26,124 ...... -- -- -- -- (48,517) (48,517)
Net Income ................................. -- -- -- 1,986 -- 1,986
---------
Total Comprehensive (Loss) ...... $ (46,365)
--------- --------- --------- --------- --------- =========
BALANCE, DECEMBER 31, 2001 .................... 587 -- 320,391 (79,003) (53,469)
Comprehensive Income (Loss):
Market value adjustment for securities held -- -- -- -- 1,995 $ 1,995
Adjustment for minimum pension
obligation ............................. -- -- -- -- (191,830) (191,830)
Net Loss ...................................... -- -- -- (111,596) -- (111,596)
---------
Total Comprehensive (Loss) ...... $(301,431)
--------- --------- --------- --------- --------- =========
BALANCE, DECEMBER 31, 2002 .................... 587 $ -- $ 320,391 $(190,599) $(243,304)
========= ========= ========= ========= =========
The accompanying notes are an integral part of these statements.
34
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-------------------------------------
2002 2001 2000
--------- --------- ---------
Cash Flows From Operating Activities
Net Income (Loss) ........................................ $(111,596) $ 1,986 $ 12,570
Cumulative effect of accounting change ................... 40,047 -- --
Non-cash expenses and gains included in net income (loss)
Depreciation and amortization .......................... 50,635 48,911 45,067
Other non-cash expenses and gains, net ................. 64,368 9,087 3,385
Net Change in Certain Operating Assets and Liabilities
Accounts receivable .................................... 10,777 (2,045) (11,093)
Inventories ............................................ (1,283) (621) (294)
Prepaid expenses ....................................... (1,675) (2,311) 847
Other current assets ................................... (1,013) 783 626
Insurance and security deposits ........................ (445) (4,450) (2,472)
Intangible assets ...................................... (5,340) (7,082) (5,312)
Accounts payable ....................................... 1,393 (85) 899
Due to Laidlaw ......................................... 4,025 -- (18,904)
Accrued liabilities and rents payable .................. 8,646 (15,232) 14,683
Claims liability ....................................... 40,908 13,256 981
Unredeemed tickets ..................................... 1,118 251 (206)
Other liabilities ...................................... (2,461) 8,557 (8,304)
--------- --------- ---------
Net Cash Provided by Operating Activities ........... 98,104 51,005 32,473
--------- --------- ---------
Cash Flows From Investing Activities
Capital expenditures ................................... (64,994) (36,011) (63,735)
Proceeds from assets sold .............................. 8,813 2,035 23,059
Payments for business acquisitions, net of cash acquired -- (1,320) --
Other investing activities ............................. 99 1,548 (521)
--------- --------- ---------
Net Cash Used for Investing Activities .............. (56,082) (33,748) (41,197)
--------- --------- ---------
Cash Flows From Financing Activities
Payments on debt and capital lease obligations ......... (7,412) (5,765) (5,812)
Redemption of Preferred Stock .......................... -- (3,497) (52,399)
Proceeds from issuance of Common Stock to Laidlaw ...... -- -- 268,604
Purchase of Common Stock from Laidlaw .................. -- -- (256,884)
Redemption of 8 1/2% Debentures ........................ (122) (32) (205)
Payment of Preferred Stock dividends ................... -- (44) (2,241)
Net change in revolving credit facility ................ (50,218) (4,148) 62,148
Proceeds from equipment borrowings ..................... 1,240 7,850 --
Other financing activities ............................. (477) (914) (2,576)
--------- --------- ---------
Net Cash (Used) Provided by Financing Activities .... (56,989) (6,550) 10,635
--------- --------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents ........ (14,967) 10,707 1,911
Cash and Cash Equivalents, Beginning of Year ................ 20,913 10,206 8,295
--------- --------- ---------
Cash and Cash Equivalents, End of Year ...................... $ 5,946 $ 20,913 $ 10,206
========= ========= =========
The accompanying notes are an integral part of these statements.
35
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
1. BACKGROUND AND OPERATING ENVIRONMENT
Greyhound Lines, Inc. and subsidiaries ("Greyhound" or the "Company") is
the only nationwide provider of scheduled intercity bus service in the United
States. The Company provides various services including scheduled passenger
service, package express service, travel services and food service at certain
terminals. The Company's operations include a nationwide network of terminal and
maintenance facilities, a fleet of approximately 2,900 buses and approximately
1,700 sales outlets. The Company's wholly-owned operating subsidiaries include
Texas, New Mexico & Oklahoma Coaches, Inc. ("TNM&O"), Vermont Transit Co., Inc.
("Vermont Transit"), Carolina Coach Company ("Carolina Coach"), Valley Transit
Co., Inc., On Time Delivery Service, Inc., LSX Delivery, L.L.C., Greyhound
Xpress Delivery, L.L.C., Greyhound Shore Services, L.L.C., and Rockford Coach
Lines, L.L.C. Additionally, the Company maintains investments in several other
companies, principally joint ventures with Mexico-based bus carriers and
U.S.-based carriers that primarily serve Spanish-speaking markets. The Company
is subject to regulation by the Department of Transportation (the "DOT") and
certain states.
On March 16, 1999, the Company's stockholders approved the Agreement and
Plan of Merger with Laidlaw Inc. ("Laidlaw") pursuant to which the Company
became a wholly owned subsidiary of Laidlaw (the "Merger). The consolidated
financial statements of the Company do not reflect any purchase accounting
adjustments relating to the Merger.
On June 28, 2001, as part of a financial restructuring, Laidlaw USA, Inc.,
Laidlaw Inc., Laidlaw International Finance Corporation, Laidlaw Investments
Ltd., Laidlaw One, Inc. and Laidlaw Transporation, Inc. filed voluntary
petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the
United States Bankruptcy Court for the Western District of New York, under a
jointly administered case captioned, In re: Laidlaw USA, Inc., et al, Case No.
01-14099. On that date, Laidlaw Inc. and Laidlaw Investments Ltd. also filed
cases under the Canada Companies' Creditors Arrangement Act in the Ontario
Superior Court of Justice in Toronto, Canada, court file no. 01-CL-4178. Laidlaw
is the ultimate parent company of Greyhound. Neither Greyhound nor any of its
subsidiaries were included in, or made party to, these reorganization filings
and proceedings.
In December 2002, Laidlaw agreed to the principal economic terms of a
settlement of claims asserted in the bankruptcy proceedings by the Pension
Benefit Guaranty Corporation ("PBGC") relating to the current pension
obligations of Greyhound. See Note 16 for further information.
The reorganization filings and proceedings do not cause a cross default
with any of the Company's debt which would place the Company's debt in default
with its financial institutions and, as of the date of this report, the Company
is in compliance with all covenants in its various debt agreements. Although the
outcome of the foregoing matters is uncertain, management believes that the
likely outcome will have no material impact on the Company's financial position,
cash flows or results of operations.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company. Investments in companies that are 20% to 50% owned ("affiliates")
are accounted for using the equity method. All significant intercompany
transactions and balances have been eliminated.
36
Certain Reclassifications
Certain reclassifications have been made to the prior period statements to
conform them to the current year presentation.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments that are part of
the Company's cash management portfolio. These investments are highly liquid and
have original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market, with costs
determined using the weighted average method.
Property, Plant and Equipment
Property, plant and equipment, including capitalized leases, are recorded
at cost, including interest during construction, if any. Depreciation is
recorded over the estimated useful lives or lease terms and range from three to
twenty years for structures and improvements, four to eighteen years for revenue
equipment, and five to ten years for all other items. The Company principally
uses the straight-line method of depreciation for financial reporting purposes
and accelerated methods for tax reporting purposes. Maintenance costs are
expensed as incurred, and renewals and betterments are capitalized.
Investments in Equity and Debt Securities
At December 31, 2002, the Company held one equity security and several
debt securities which are classified as "available-for-sale" securities and
reported at fair value. Any temporary gains and losses associated with changes
in market value of the securities are excluded from operating results and are
recognized as a separate component of stockholder's equity until realized. Fair
value of securities is determined based on market prices and gains and losses
are determined using the securities' cost.
Goodwill
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("SFAS 142") "Accounting for Goodwill and Other
Intangible Assets" and, as a result, the Company ceased to amortize goodwill. In
lieu of amortization, SFAS 142 requires that goodwill be reviewed for impairment
at least annually or whenever events or changes in circumstances indicate the
carrying value may not be recoverable. Under SFAS 142, goodwill impairment is
deemed to exist if the net book value of a reporting unit exceeds its estimated
fair value. To determine estimated fair value of the reporting units the Company
utilizes both a discounted cash flow methodology as well as the implied values
of comparable companies.
Debt Issuance Costs
Costs incurred related to the issuance of debt are deferred, and such
costs are amortized to interest expense over the life of the related debt.
Software Development Costs
Direct costs of materials and services consumed in developing or obtaining
internal use software and certain payroll costs for employees directly
associated with internal use software projects are capitalized. Amortization of
these costs begins when the software is available for its intended use and is
recognized on a straight-line basis over the estimated useful life which
generally range from five to ten years.
37
Claims Liability
The Company maintains comprehensive automobile liability, general
liability, worker's compensation and property insurance to insure its assets and
operations. The Company had previously purchased insurance through Laidlaw with
coverage subject to a $50,000 deductible for physical damage to Company property
and no deductible for all other claims. Effective September 1, 2001, the Company
has purchased coverage from third-party insurers for claims up to $5.0 million
with coverage subject to a $3.0 million deductible for automobile liability; a
$1.0 million deductible for general liability; and a $1.0 million deductible for
both workers' compensation. The Company purchases excess coverage for automobile
liability, general liability and workers' compensation insurance through Laidlaw
for claims which exceed $5.0 million. The Company has continued to purchase from
Laidlaw coverage for physical damage to Company property and business
interruption subject to a $50,000 deductible.
Claims resolved against the Company, which do not exceed the deductible,
are paid out of operating cash flows. A claims liability has been established
for these claims payments and is based on an assessment of actual claims and
claims incurred but not reported, discounted at 5.5%. The reserve is developed
using actuarial principles and assumptions which consider a number of factors,
including historical claim payment patterns and changes in case reserves, the
assumed rate of increase in health care costs and property damage repairs, and
the discount rate. The amount of these reserves could differ from the Company's
ultimate liability related to these claims due to changes in the Company's
accident reporting, claims payment and settlement practices or claims reserve
practices, as well as differences between assumed and future cost increases and
discount rates. This liability also includes an estimate of environmental
liabilities. The environmental liability includes all sites identified for
potential clean-up and/or remediation and represents the present value of
estimated cash flows discounted at 8.0%.
Revenue Recognition
Passenger services revenue is recognized when transportation is provided
rather than when a ticket is sold. The amount of passenger ticket sales not yet
recognized as revenue is reflected as unredeemed tickets on the Consolidated
Statements of Financial Condition. Evaluations of this estimated liability are
performed periodically and any adjustments are included in results of operations
during the periods in which the evaluations are completed. These adjustments
relate primarily to differences between the Company's statistical estimation of
refunds, travel dates, interline transactions, and sales from manual locations,
for which the final settlement or travel occurs in periods subsequent to the
sale of the related tickets at amounts or for travel dates other than as
originally estimated. Because the majority of the Company's customers purchase
their tickets on the day of departure, the liability for unredeemed tickets, and
any related adjustments, have been materially consistent from year to year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Long-Lived Assets
Identifiable intangibles and long-lived assets are assessed for impairment
at least annually or whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Important factors which could trigger
an impairment review include significant underperformance relative to historical
or projected future operating results, significant changes in the use of the
acquired assets or the strategy for the overall business, and significant
negative industry or economic trends. If indicators of impairment are present,
management evaluates the carrying value of property and equipment and
intangibles in relation to the projection of future undiscounted cash flows of
the underlying assets. Projected cash flows are based on historical results
adjusted to reflect management's best estimate of future market and operating
conditions, which may differ from actual cash flow.
38
New Accounting Pronouncements
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit. It also clarifies
that at the time a company issues a guarantee, the company must recognize an
initial liability for the fair market value of the obligations it assumes under
that guarantee and must disclose that information in its interim and annual
financial statements. The initial recognition and measurement provisions of FIN
45 apply on a prospective basis to guarantees issued on or modified after
December 31, 2002.
The Company generally uses operating lease financing with residual value
guarantees as the principal source of bus financing. The Company's accounting
policy has been to record a liability for the residual value guarantee only when
it was probable that the guarantee would exceed the estimated value of the buses
at lease expiration. As of December 31, 2002, no liability has been recorded by
the Company related to these guarantees and, to date; the Company has never
incurred any liability as a result of the residual value guarantees. Under FIN
45 the Company will now be required to estimate the fair value of the residual
value guarantees at lease inception for any future operating leases the Company
may enter into. The fair value of the guarantee will be recorded as a liability,
with the offsetting entry being recorded as prepaid rent (representing a payment
in kind made by the lessee when entering into the operating lease). The prepaid
rent will be amortized to operating rent expense over the lease term. The
liability for the guarantee would only be increased if, during the lease term,
it becomes probable that the guarantee would exceed the estimated value of the
buses at lease expiration by an amount that exceeds the recorded liability. If
at lease expiration the Company were not required to perform under the residual
value guarantee, the entire initial liability would then be reversed as a
reduction of operating rent expense. Based upon the Company's historic
experience the application of FIN 45 will result in somewhat higher operating
lease costs during the term of its future bus leases, with a reversal of those
costs being recognized at lease expiration.
3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES
Cash paid for interest was $24.7 million, $27.4 million and $22.4 million
for the years ended December 31, 2002, 2001 and 2000, respectively. There were
no cash payments for federal income taxes for the years ended December 31, 2002
and 2001. During the year ended December 31, 2000, the Company made cash
payments of $5.8 million to Laidlaw for the Company's share of federal income
taxes, based upon the Company's separate taxable income, included by Laidlaw on
its U.S. consolidated tax return for the tax year ended August 31, 1999.
In 2002, non-cash investing and financing activities included $0.5 million
of equipment acquired with seller provided financing. In 2001, non-cash
investing and financing activities included $7.2 million of buses acquired with
seller provided financing. In 2000, non-cash investing and financing activities
included the issuance of $33.3 million of subordinated debt to Laidlaw in
satisfaction of accounts payable due from the Company to Laidlaw and $3.2
million of buses acquired under a capital lease.
4. INVENTORIES
Inventories consisted of the following (in thousands):
DECEMBER 31,
---------------------
2002 2001
-------- --------
Service parts ............................ $ 6,745 $ 5,822
Fuel ..................................... 1,056 700
Food service operations .................. 2,000 2,064
-------- --------
Total Inventories ..................... 9,801 8,586
Less: Allowance for shrinkage ......... (271) (177)
-------- --------
Inventories, net ................... $ 9,530 $ 8,409
======== ========
39
5. PREPAID EXPENSES
Prepaid expenses consisted of the following (in thousands):
DECEMBER 31,
---------------------
2002 2001
-------- --------
Taxes and licenses ....................... $ 1,007 $ 2,773
Insurance ................................ 4,352 2,102
Rents .................................... 2,114 660
Other .................................... 983 1,623
-------- --------
Prepaid expenses ....................... $ 8,456 $ 7,158
======== ========
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
DECEMBER 31,
---------------------
2002 2001
-------- --------
Land and improvements ....................... $ 88,206 $ 90,000
Structures and improvements
Owned ..................................... 142,447 139,042
Capitalized leased assets ................. 1,013 1,172
Lease interests ........................... 4,376 4,376
Leasehold improvements .................... 45,932 42,272
Revenue equipment
Owned ..................................... 273,806 256,324
Capitalized leased assets ................. 13,242 18,005
Leasehold improvements .................... 6,827 7,906
Furniture and fixtures ...................... 59,282 66,449
Vehicles, machinery and equipment ........... 17,170 15,983
-------- --------
Property, plant and equipment ............... 652,301 641,529
Accumulated depreciation ................ (244,485) (229,502)
-------- --------
Property, plant and equipment, net .. $407,816 $412,027
======== ========
Accumulated depreciation of capitalized leased revenue equipment amounted
to $4.7 million and $5.4 million at December 31, 2002, and 2001, respectively.
7. INSURANCE AND SECURITY DEPOSITS
Insurance and security deposits consisted of the following (in thousands):
DECEMBER 31,
---------------------
2002 2001
-------- --------
Insurance deposits ....................... $ 22,906 $ 22,241
Security deposits ........................ 6,533 5,862
Other .................................... 918 1,039
-------- --------
Insurance and security deposits .. $ 30,357 $ 29,142
======== ========
The Company is required by the DOT, some states and some of its insurance
carriers to maintain collateral deposits or provide other security pursuant to
its insurance program. In addition to the collateral deposits reflected in the
table above, at December 31, 2002 the Company has also issued $35.0 million of
letters of credit in support of these programs.
40
8. GOODWILL AND INTANGIBLE ASSETS
During 2002 the Company completed the initial impairment assessment as
required by SFAS 142 and determined that the carrying value of its Bus
Operations reporting unit exceeded that unit's fair value. As a result,
effective January 1, 2002, the Company recorded a non-cash charge of $40.0
million as a cumulative effect of a change in accounting for goodwill. The
Company's remaining goodwill ($3.0 million) relates to the Courier Services
reporting unit where fair value exceeds carrying value and is no longer being
amortized.
In connection with adopting SFAS 142 the Company reassessed the useful
lives and classification of its identifiable intangible assets and, with the
exception of the useful life of trademarks, determined that the useful lives and
classifications continue to be appropriate. Trademarks, which had previously
been amortized over a fifteen year life, are now considered to have an
indefinite life and are no longer amortized. During 2002 the Company completed
an impairment test on its trademarks as required by SFAS 142 which did not
result in an impairment charge.
The following table provides information relating to the Company's
amortized and unamortized intangible assets as of December 31, 2002 and December
31, 2001 (in thousands):
DECEMBER 31, 2002 DECEMBER 31, 2001
-------------------------- --------------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
-------- ------------ -------- ------------
Long-lived intangible assets:
Software $ 50,998 $ 31,008 $ 46,070 $ 27,154
Debt issuance costs 7,428 3,895 9,758 4,825
Deferred lease costs 3,847 2,904 3,847 2,357
Other 277 176 346 151
-------- -------- -------- --------
Total $ 62,550 $ 37,983 $ 60,021 $ 34,487
======== ======== ======== ========
Indefinite-lived intangible assets:
Trademark $ 3,313 $ 3,313
======== ========
Amortization expense for intangible assets for the years ended December
31, 2002, 2001 and 2000 was $6.8 million, $6.4 million and $5.1 million,
respectively. Estimated amortization expense, excluding the effect of costs that
may be capitalized in future periods, for the year ended December 31, 2003 and
the four succeeding years are as follows: $6.7 million (2003); $5.3 million
(2004); $4.4 million (2005); $3.3 million (2006) and $1.8 million (2007).
Actual results of operations for the years ended December 31, 2001 and
2000 and adjusted results of operations for the years ended December 31, 2001
and 2000 had the Company applied the provisions of SFAS 142 in that period are
as follows (in thousands):
DECEMBER 31,
---------------------
2001 2000
------ -------
Reported net income $1,986 $12,570
Add: goodwill and trademark amortization,
net of tax 2,111 2,053
------ -------
Adjusted net income $4,097 $14,623
====== =======
41
9. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
DECEMBER 31,
---------------------------
2002 2001
--------- ---------
Compensation, benefits and payroll-related taxes........................ $ 28,109 $ 26,889
Unvouchered invoices.................................................... 10,984 11,010
Interest................................................................ 3,937 4,083
Operating, property and income taxes.................................... 1,048 6,360
Other expenses.......................................................... 18,680 18,619
--------- ---------
Accrued liabilities............................................. $ 62,758 $ 66,961
========= =========
10. BENEFIT PLANS
Pension Plans
The Company has nine defined benefit pension plans. The first plan (the
"ATU Plan") covers approximately 14,000 current and former employees, fewer than
1,000 of which are active employees of the Company. The ATU Plan was closed to
new participants on October 31, 1983 and over 85% of its participants are over
the age of 50. The ATU Plan provides normal retirement benefits to the covered
employees based upon a percentage of average final earnings, reduced pro rata
for service of less than 15 years. Under the terms of the Company's collective
bargaining agreement participants in the ATU Plan continue to accrue benefits as
long as no contributions are due from the Company. The ATU Plan actuary advised
the Company and the union that the decline in the stock market during 2001 had
made it likely that contributions to the ATU Plan would be required in calendar
year 2002. The Company and union met and agreed to freeze service and wage
accruals effective March 15, 2002. The second plan covered salaried employees
through May 7, 1990, when the plan was curtailed. The third plan is a
multi-employer pension plan, instituted in 1992, to cover certain union
mechanics represented by the International Association of Machinists and
Aerospace Workers. The fourth plan covered substantially all employees at
Vermont Transit through June 30, 2000, when the plan was curtailed. The
remaining plans are held by TNM&O and Carolina Coach and cover substantially all
of their salaried and hourly personnel. It is the Company's policy to fund the
minimum required contribution under existing laws.
YEARS ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
---------- ---------- ----------
COMPONENTS OF NET PERIODIC PENSION COST: (IN THOUSANDS)
Service Cost................................................... $ 1,680 $ 4,828 $ 4,953
Interest Cost.................................................. 50,097 51,405 51,966
Expected Return on Assets...................................... (46,827) (53,191) (58,725)
Amortization of Actuarial Loss................................. 1,120 692 438
--------- --------- ---------
Net Periodic Pension Expense (Income).......................... $ 6,070 $ 3,734 $ (1,368)
========= ========= ==========
42
YEARS ENDED DECEMBER 31,
-----------------------------
2002 2001
---------- ----------
CHANGE IN BENEFIT OBLIGATION: (IN THOUSANDS)
Benefit Obligation at Beginning of Year ................... $ 713,505 $ 698,473
Service Cost .............................................. 1,680 4,828
Interest Cost ............................................. 50,097 51,405
Plan Participants' Contributions .......................... 250 448
Actuarial Loss ............................................ 77,719 37,201
Benefits Paid ............................................. (75,273) (78,850)
---------- ----------
Benefit Obligation at End of Year ......................... $ 767,978 $ 713,505
---------- ----------
CHANGE IN PLAN ASSETS:
Fair Value of Plan Assets at Beginning of Year ............ $ 656,888 $ 740,098
Actual Return on Plan Assets .............................. (60,137) (7,473)
Employer Contributions .................................... 2,228 2,665
Plan Participants' Contributions .......................... 250 448
Benefits Paid ............................................. (75,273) (78,850)
---------- ----------
Fair Value of Plan Assets at End of Year .................. $ 523,956 $ 656,888
---------- ----------
Funded Status ............................................. $ (244,022) $ (56,617)
Unrecognized Prior Service Cost ........................... (7,862) --
Unrecognized Net Loss ..................................... 284,126 92,700
---------- ----------
Prepaid Benefit Cost (Net Amount Recognized) .............. $ 32,242 $ 36,083
========== ==========
AMOUNTS RECOGNIZED IN THE STATEMENTS OF FINANCIAL POSITION:
Accrued Benefit Liability ................................. $ (242,103) $ (46,432)
Accumulated Other Comprehensive Loss ...................... 274,345 82,515
---------- ----------
Prepaid Benefit Cost (Net Amount Recognized) .............. $ 32,242 $ 36,083
========== ==========
In determining the benefit obligations and service costs for the Company's
defined benefit pension plans, the following assumptions were used:
YEARS ENDED DECEMBER 31,
--------------------------
2002 2001
---------- ---------
WEIGHTED-AVERAGE ASSUMPTIONS FOR END OF YEAR DISCLOSURE:
Discount Rate .......................................... 6.50% 7.25%
Rate of Salary Progression ............................. 4.51% 4.10%
Expected Long-Term Rate of Return on Plan Assets ....... 7.28% 7.52%
Statement of Financial Accounting Standards No. 87, "Employers Accounting
for Pensions," required the Company to record an increase in the minimum
liability of $191.8 million as of December 31, 2002, $48.5 million, net of a tax
benefit of $26.1 million, as of December 31, 2001 and an increase in the minimum
liability of $2.6 million, net of a tax benefit of $1.4 million, as of December
31, 2000. These amounts are reflected as a component of comprehensive income
(loss).
43
As of December 31, 2002, seven of the Company's pension plans have
accumulated benefit obligations in excess of plan assets, for which the
projected benefit obligations, accumulated benefit obligations and fair value of
plan assets are $767,787, $765,774 and $523,748, respectively. As of December
31, 2001, five of the Company's pension plans have accumulated benefit
obligations in excess of plan assets, for which the projected benefit
obligations, accumulated benefit obligations and fair value of plan assets are
$705,271, $697,388 and $649,417, respectively. As of December 31, 2002, seven of
the Company's pension plans have projected benefit obligations in excess of plan
assets, for which the projected benefit obligations, accumulated benefit
obligations and fair value of plan assets are $767,787, $765,774 and $523,748,
respectively. As of December 31, 2001, seven of the Company's pension plans have
projected benefit obligations in excess of plan assets, for which the projected
benefit obligations, accumulated benefit obligations and fair value of plan
assets are $713,310, $704,302 and $656,680, respectively.
Plan assets consist primarily of government-backed securities, corporate
equity securities, guaranteed insurance contracts, annuities and corporate debt
obligations.
Included in the above is a multi-employer pension plan, instituted in
1992, to cover certain union mechanics, for which the Company made contributions
of $0.8 million and $0.7 million for the years ended December 31, 2002 and 2001,
respectively.
Cash or Deferred Retirement Plans
The Company sponsors 401(k) cash or deferred retirement plans that cover
substantially all of its ongoing salaried, hourly and represented employees.
Costs to the Company related to these plans were $3.3 million, $3.1 million, and
$3.3 million for the years ended December 31, 2002, 2001 and 2000, respectively.
Other Plans
A contributory trusteed health and welfare plan has been established for
all active hourly employees represented by the ATU National Local 1700 for
drivers, mechanics, and the Omaha Ticket Information Center. Other employees who
are represented by a collective bargaining agreement may be under a Greyhound
contributory health and welfare plan or a multi-employer plan established by the
respective union. A contributory health and welfare plan has been established
for salaried employees and all other hourly employees who are not represented by
collective bargaining agreements. For the years ended December 31, 2002, 2001
and 2000, the Company incurred costs of $32.3 million, $28.5 million, and $27.5
million, respectively, related to these plans. No post-retirement health and
welfare plans exist.
The Company also has a defined contribution Supplemental Executive
Retirement Plan (the "SERP"), which covers only key executives of the Company.
For the years ended December 31, 2002, 2001 and 2000, the Company incurred costs
of $0.8 million, $0.8 million and $0.7 million, respectively, related to the
SERP.
44
11. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
DECEMBER 31,
---------------------------
2002 2001
--------- ---------
Secured Indebtedness
Revolving bank loan, prime plus 0.5% or LIBOR plus 2.0% (weighted average
4.5% at December 31, 2002 and 4.0% at
December 31, 2001) due 2004 ........................................... $ 7,782 $ 58,000
Capital lease obligations (weighted average 10.0% at December 31, 2002
and 9.8% at December 31, 2001) due through 2033 ....................... 8,695 16,143
Real estate and equipment notes (weighted average 8.5% at December
31, 2002 and 9.7% at December 31, 2001) due through 2010 .............. 7,173 15,526
Unsecured Indebtedness
11 1/2% Senior notes, due 2007 .......................................... 150,000 150,000
Laidlaw subordinated debt (1.8% at December 31, 2002 and
2.5% at December 31, 2001) due 2005 ................................... 35,920 35,036
8 1/2% Convertible debentures, due 2007 ................................. 5,383 5,613
Other long-term debt (weighted average 7.8% at December 31, 2002
and 7.9% at December 31, 2001) due through 2004 ....................... 1,250 248
--------- ---------
Long-term debt ............................................................ 216,203 280,566
Less current maturities ................................................. (4,364) (7,975)
--------- ---------
Long-term debt, net ................................................. $ 211,839 $ 272,591
========= =========
At December 31, 2002, maturities of long-term debt for the next five years
ending December 31 and all years thereafter, are as follows (in thousands):
2003............................................. $ 4,364
2004............................................. 11,042
2005............................................. 38,177
2006............................................. 4,164
2007............................................. 156,206
Thereafter....................................... 2,250
----------
$ 216,203
==========
Revolving Credit Facility
The Company is party to a $125 million revolving credit facility, with a
$50 million letter of credit sub-facility, ("Revolving Credit Facility") with
Foothill Capital Corporation ("Foothill"). Letters of credit or borrowings are
available under the Revolving Credit Facility subject to a maximum of $125
million based upon 85% of the appraised wholesale value of certain bus
collateral and 50% of the fair market value of certain real property collateral.
As of December 31, 2002, the Company had outstanding borrowings under the
Revolving Credit Facility of $7.8 million, issued letters of credit of $42.0
million and availability of $75.2 million. Borrowings under the Revolving Credit
Facility were available to the Company at December 31, 2002 at a rate equal to
Wells Fargo Bank's prime rate plus 0.5% per annum or LIBOR plus 2.0% as selected
by the Company. The interest rates are subject to quarterly adjustment based
upon the Company's ratio of debt to earnings before interest, taxes,
depreciation and amortization as defined in the agreement ("EBITDA") for the
four previous quarters. Letter of credit fees are based on the then applicable
LIBOR margin. The Revolving Credit Facility is secured by liens on substantially
all of the assets of the Company and the stock and assets of certain of its
subsidiaries. The Revolving Credit Facility is subject to certain affirmative
and negative operating and financial covenants, including maximum total debt to
EBITDA ratio; minimum EBITDA to interest ratio; minimum shareholder's equity;
limitation on non-bus capital expenditures; limitations on additional liens,
indebtedness, guarantees, asset disposals, advances, investments and loans; and
restrictions on the redemption or retirement of certain subordinated
indebtedness or equity interest, payment of dividends and transactions with
affiliates, including Laidlaw.
45
In July 2002, the Company amended the Revolving Credit Facility to extend
the maturity date one year, to October 24, 2004, increase the letter of credit
sub-facility to $50 million and modify certain definitions. The definition of
consolidated cash flow was amended to exclude any loss recognized in connection
with an asset sale. Additionally, the definition of consolidated net worth was
amended to exclude up to $43.1 million in reductions in consolidated
stockholder's equity due to impairment adjustments related to goodwill as a
result of the implementation of SFAS 142.
In November 2002, the Company executed an additional amendment to the
Revolving Credit Facility further modifying the definition of consolidated cash
flow and consolidated net worth. The definition of consolidated cash flow was
amended such that cash flow excludes pension expense and instead is reduced by
pension contributions (unless Laidlaw provides the funding for the
contributions). The definition of consolidated net worth was amended to exclude
up to $30 million of reductions in consolidated stockholder's equity due to the
recognition of a minimum pension liability for periods prior to June 30, 2002,
and for any additional reductions recorded during the period commencing July 1,
2002 and ending December 31, 2002. Additionally, the definition for consolidated
net worth was amended to exclude reductions due to deferred tax adjustments
recorded in 2002. The amendment also requires the Company to have at all times
during the term of the agreement either borrowing availability of $20 million or
a borrowing base (as defined in the agreement) of $145 million.
Under the Revolving Credit Facility the Company is required to meet
certain financial covenants, including a minimum consolidated cash flow to
interest expense ratio, a maximum indebtedness to cash flow ratio and a minimum
level of consolidated net worth. At December 31, 2002, the Company was in
compliance with all such covenants. Based upon the Company's most current
financial forecast, and after taking into account the effect of the amendments
discussed above, management is unable to determine with reasonable assurance
whether the Company will remain in compliance with these covenants in the
future. As compliance with the covenants will not be known until after the end
of a quarter when actual results are available, the Company has initiated
discussions with Foothill in an effort to obtain modifications to the agreement
that would provide reasonable assurance that the Company will remain in
compliance with the covenants. Although the Company has been successful in
obtaining necessary amendments to the Revolving Credit Facility in the past,
there can be no assurances that the Company will obtain additional modifications
or that the cost of the modifications or other changes in the terms of the
Revolving Credit Facility would not have a material effect on the Company. In
the event that additional modifications suitable to the parties are not
obtained, and further assuming the Company fails to remain in compliance with
the existing covenants, the Company may be required to seek a replacement for
the Revolving Credit Facility from other financing sources. However, should
alternate sources of financing not be available, then the Company may not be
able to satisfy its obligations as they become due and may not be able to
continue as a going concern. As a result, the Company may not be able to realize
its assets and settle its liabilities in the normal course of operations.
11 1/2% Senior Notes
The Company's 11 1/2% Senior Notes due 2007 (the "11 1/2% Senior Notes")
bear interest at the rate of 11 1/2% per annum, payable each April 15 and
October 15. The 11 1/2% Senior Notes are redeemable at the option of the Company
in whole or in part, at any time on or after April 15 of the year indicated, at
redemption prices of 103.834% in 2003, 101.917% in 2004 and 100% in 2005 and
thereafter plus any accrued but unpaid interest. The 11 1/2% Senior Note
indenture contains certain covenants that, among other things, limit the ability
of the Company to incur additional indebtedness, pay dividends or make other
distributions, repurchase equity interests or subordinated indebtedness, create
certain liens, sell assets or enter into certain mergers or consolidations. As
of December 31, 2002, the Company was in compliance with all such covenants.
Laidlaw Subordinated Debt
The intercompany loan is subordinate to the Revolving Credit Facility and
matures 91 days after the maturity of the Revolving Credit Facility. Interest on
the loan accrues at the Applicable Federal Rate and is payable at maturity.
46
8 1/2% Convertible Debentures
Interest on the 8 1/2% Convertible Subordinated Debentures due 2007
("Convertible Debentures") is payable semiannually (each March 31 and September
30). The Convertible Debentures may be converted into $525.27 in cash per $1,000
principal amount of Convertible Debentures.
12. INCOME TAXES
Tax Allocation Agreement
The Company is a member of Laidlaw's U.S. consolidated tax return group
("U.S. Group") and subject to a tax allocation agreement. The Company is
allocated its share of the tax liability of the U.S. Group or receives a benefit
for any losses used by the U.S. Group based on its separate taxable income or
loss.
Income Tax Provision
The income tax provision (benefit) consisted of the following (in
thousands):
YEARS ENDED DECEMBER 31,
------------------------------------------
2002 2001 2000
-------- -------- --------
Current
Federal .................................. $ (8,990) $ (5,908) $ 2,087
State .................................... 764 1,487 1,525
-------- -------- --------
Total Current ...................... (8,226) (4,421) 3,612
-------- -------- --------
Deferred
Federal .................................. 60,961 4,544 5,137
State .................................... (114) (1,215) (1,047)
-------- -------- --------
Total Deferred ..................... 60,847 3,329 4,090
-------- -------- --------
Income tax provision (benefit) ..... $ 52,621 $ (1,092) $ 7,702
======== ======== ========
Effective Tax Rate
The difference between the actual income tax provision (benefit) and the
tax provision (benefit) computed by applying the statutory federal income tax
rate to earnings before taxes is attributable to the following (in thousands):
YEARS ENDED DECEMBER 31,
------------------------------------------
2002 2001 2000
-------- -------- --------
Tax at statutory tax rate ........................... $ (7,360) $ 332 $ 7,090
State income taxes, net of federal benefit .......... 423 177 311
Increase in beginning of the year valuation allowance 60,847 2,450 --
Other ............................................... (1,289) (4,051) 301
-------- -------- --------
Income tax provision (benefit) ................... $ 52,621 $ (1,092) $ 7,702
======== ======== ========
47
Deferred Tax Assets
Significant components of deferred income taxes were as follows (in
thousands):
DECEMBER 31,
----------------------------
2002 2001
--------- ---------
Deferred Tax Assets
Federal and state NOL carryforwards ................. $ 69,977 $ 71,216
Claims liabilities .................................. 21,878 7,561
Other accrued expenses and liabilities .............. 10,564 11,248
Pension liabilities ................................. 86,186 17,114
Other deferred tax assets ........................... 762 1,858
--------- ---------
Total deferred tax assets ......................... 189,367 108,997
--------- ---------
Deferred Tax Liabilities
Tax over book depreciation and amortization ......... 16,074 20,502
Other deferred tax liabilities ...................... 145 148
--------- ---------
Total deferred tax liabilities .................... 16,219 20,650
--------- ---------
Net deferred tax assets ............................... 173,148 88,347
Valuation allowance ................................... (173,148) (27,500)
--------- ---------
Net deferred tax assets, net of valuation allowance $ -- $ 60,847
========= =========
The Company has significant net deferred tax assets resulting from
operating losses and other deductible temporary differences that will reduce
taxable income in future periods. Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" requires that a valuation allowance be
established when it is "more likely than not" that all or a portion of net
deferred tax assets will not be realized. A review of all available positive and
negative evidence needs to be considered, including expected reversals of
significant deductible temporary differences, a company's recent financial
performance, the market environment in which a company operates and the length
of operating loss carryforward periods. Furthermore, the weight given to the
potential effect of negative and positive evidence should be commensurate with
the extent to which it can be objectively verified. Therefore, current operating
losses and the reasonable likelihood of significant near-term reversals of
deductible temporary differences carry more weight than forecasted future
operating profits. With the decline in pension fund assets during 2002, and
attendant increase in projected pension funding (which will give rise to tax
deductions when made), the Company concluded that it was appropriate to
establish a full valuation allowance for its net deferred tax assets. As a
result, the valuation allowance for net deferred tax assets increased from $27.5
million at December 31, 2001, to $173.1 million at December 31, 2002. In
addition, the Company expects to provide a full valuation allowance on future
tax benefits until it can achieve an appropriate level of profitability that
demonstrates its ability to utilize existing operating loss carryforwards and
future tax deductions for projected pension contributions. During 2001, the
Company recorded a $2.5 million increase in the valuation allowance for net
operating losses from prior years.
48
Availability and Amount of NOL's
As a result of the ownership changes in 1992 and 1999, Section 382 of the
Internal Revenue Code places an annual limitation on the amount of federal net
operating loss ("NOL") carryforwards which the Company and the U.S. Group may
utilize. Consequently, the Company's NOL carryforwards are subject to an annual
limitation of $22.2 million and a fifteen to twenty year carryforward period.
The NOL carryforwards of $178.0 million expire as follows (in thousands):
2005............................................. $ 29,572
2006............................................. 2,866
2007............................................. 9,818
2008............................................. 17,685
2009............................................. 29,913
2010............................................. 19,670
2011............................................. 18,826
2018............................................. 46,811
2019............................................. 951
2020............................................. 145
2021............................................. 1,048
2022............................................. 688
----------
$ 177,993
==========
In addition, the Company has a $2.3 million capital loss carryforward
which expires August 2007.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating the fair value disclosures for its financial instruments. For cash
and cash equivalents, accounts receivable and revolving bank loans, the carrying
amounts reported in the Consolidated Statements of Financial Position
approximate fair value. The fair values of the short-term deposits and long-term
insurance deposits and security deposits are based upon quoted market prices at
December 31, 2002 and 2001, where available. For the portion of short-term
deposits and long-term insurance deposits where no quoted market price is
available, the carrying amounts are believed to approximate fair value. For the
Laidlaw indebtedness and other long-term debt, the fair values are estimated
using discounted cash flow analysis, based upon the Company's incremental
borrowing rates for similar types of borrowing arrangements. The fair values of
the Senior Notes and the Convertible Debentures were based upon quoted market
prices at December 31, 2002 and 2001.
The carrying amounts and fair values of the Company's financial
instruments are as follows (in thousands):
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Other Current Assets
Other Deposits ........................... $ 167 $ 167 $ 231 $ 231
Investment in Equity Securities ............ 2,010 2,010 947 947
Insurance and Security Deposits
Insurance Deposits ....................... 22,906 22,906 22,241 22,241
Security Deposits ........................ 6,533 6,533 5,862 5,862
Long-Term Debt
Laidlaw subordinated debt ................ (35,920) (30,006) (35,036) (30,930)
11 1/2% Senior Notes ..................... (150,000) (101,535) (150,000) (138,000)
8 1/2% Convertible Subordinated Debentures (5,383) (2,827) (5,613) (2,948)
Other Long-term Debt ..................... (17,118) (17,421) (31,917) (35,678)
49
14. LEASE COMMITMENTS
The Company leases certain vehicles and terminals from various parties
pursuant to capital and operating lease agreements expiring at various dates
through 2033. The leases on most of the vehicles contain certain purchase
provisions or residual value guarantees and have terms of typically seven years.
Of those leases that contain residual value guarantees, the aggregate residual
value at lease expiration is $145.0 million, of which the Company has guaranteed
$90.4 million. To date, the Company has never incurred any liability as a result
of residual value guarantees.
For the years ended December 31, 2002, 2001 and 2000, rental expenses for
all operating leases (net of sublease rental income of approximately $3.3
million, $3.5 million and $3.5 million, respectively) amounted to $76.0 million,
$61.5 million and $71.0 million, respectively. Rental expenses for bus operating
leases, excluding casual rents and other short term leases during peak periods,
amounted to $54.0 million, $49.5 million and $48.1 million in 2002, 2001 and
2000, respectively.
At December 31, 2002, scheduled future minimum payments (excluding any
payment related to the residual value guarantee which may be due upon
termination of the lease) for the next five years ending December 31, under
capital leases and non-cancelable operating leases are as follows (in
thousands):
CAPITAL OPERATING
LEASES LEASES
--------- ----------
2003........................................................... $ 2,420 $ 73,733
2004........................................................... 2,047 68,316
2005........................................................... 2,046 54,664
2006........................................................... 3,948 33,608
2007........................................................... 332 22,612
Thereafter..................................................... 488 37,622
--------- ----------
Total minimum lease payments........................... 11,281 $ 290,555
==========
Amounts representing interest.............................. 2,586
---------
Present value of minimum lease payments................ $ 8,695
=========
15. LEGAL MATTERS
Golden State Indictment
In December 2001, Gonzalez, Inc. d/b/a Golden State Transportation
("Golden State") and 22 current and former employees and agents of Golden State
were indicted as part of a 42-count federal criminal proceeding. The case, filed
before the United States District Court for the District of Arizona, is styled
U.S. v. Gonzalez, Inc, et al., Case No. CR 01-1696-TUC-RCC. Two superseding
indictments have been issued in this proceeding adding 44 additional criminal
counts against Golden State and certain individual defendants, including two
newly indicted defendants. The indictment alleges that the defendants were
engaged in a conspiracy, spanning over an almost three-year period, to transport
and harbor illegal aliens within the United States and to launder money. Golden
State has pleaded not guilty to the charges.
On August 20, 2002, the Government filed an in rem civil forfeiture action
against the parcels of real property owned by Golden State. The case, filed
before the United States District Court for the District of Arizona, is styled
U.S. v. 130 North 35th Avenue, Phoenix, Arizona, et al., Case No. CV
02-409-TUC-RCC.
The foregoing criminal and civil cases seek a forfeiture of substantially
all of Golden State's owned assets. At this stage in the proceedings, the
probable outcome of these cases cannot be predicted. Neither Greyhound Lines,
Inc., nor any of its other subsidiaries have been charged in these preceedings.
50
Although Golden State continued to operate following the original
indictment, the resultant legal costs and a decline in business consumed
substantially all available cash. Golden State was in the process of
implementing a plan to restructure their operations in a manner that would
improve profitability and cash flow. However, the Government's potential
forfeiture claims impaired Golden State's ability to raise money utilizing their
real property. Faced with funding insurance renewal premiums in advance and a
lack of immediate working capital, Golden State ceased operations effective
August 30, 2002 and filed a voluntary petition for bankruptcy on September 30,
2002 in the United States Bankruptcy Court for the District of Arizona in a case
styled In re: Gonzalez, Inc. d/b/a Golden State Transportation, Case No.
02-15508-PHX-GBN.
The Company had leased 40 buses to Golden State (the "Lease Buses") and
guaranteed third party leases of an additional 27 of Golden State's buses (the
"Guarantee Buses"). As a result of defaults under the bus leases between Golden
State and the Company, Golden State returned all of the Lease Buses to the
Company. Additionally, the Company took an assignment of the leases for all of
the Guarantee Buses. The Company has retained the buses for use in revenue
service.
During the year ended December 31, 2002 the Company recorded a $4.0
million charge principally from the write-off of the investment in, and accounts
receivable due from, Golden State. The Company has filed a proof of claim in the
Golden State bankruptcy seeking recovery of these accounts receivables and for
damages accruing as a result of defaults under the leases relating to Lease
Buses and Guarantee Buses.
The Company has a 51.4% ownership interest in Golden State. However,
because control of Golden State no longer rests with the Company, effective
August 31, 2002, Golden State's future results of operations and financial
condition will no longer be included in the Company's consolidated financial
statements.
Other Legal Proceedings
In addition to the matter discussed above, the Company is a defendant in
various lawsuits arising in the ordinary course of business, primarily cases
involving personal injury and property damage claims and employment-related
claims. Although these lawsuits involve a variety of different facts and
theories of recovery, the majority arise from traffic accidents involving buses
operated by the Company. The vast majority of these claims are covered by
insurance for amounts in excess of the deductible portion of the policies.
Management believes that there are no proceedings either threatened or pending
against the Company relating to such personal injury, property damage and
employment-related claims that, if resolved against the Company, would
materially exceed the amounts recorded as estimated liabilities by the Company.
16. COMMITMENTS AND CONTINGENCIES
PBGC Agreement and Potential Pension Plan Funding Requirements
The Company maintains nine defined benefit pension plans (the "Pension
Plans") that as of December 31, 2002 had a combined projected benefit obligation
("PBO"), discounted at 6.5%, of $768.0 million. The most significant of the
plans (the "ATU Plan") represents 90% of the PBO. Over the last two years the
PBO has increased $69.5 million as interest accretion on the obligation and the
effect of a decrease in the discount rate of 1.3% have more than offset
reductions due to benefit payments. Plan assets, however, have declined $216.1
million over the last two years due to losses on plan assets and benefit
payments. As a result, while plan assets had exceeded the PBO by $41.6 million
at December 31, 2000, the PBO now exceeds plan assets resulting in the plans
being underfunded by $244.0 million at December 31, 2002.
51
Laidlaw Inc., collectively with all of its wholly-owned U.S. subsidiaries,
including Greyhound (the "Laidlaw Group"), and the PBGC, have agreed to the
principal economic terms relating to claims asserted by the PBGC against Laidlaw
regarding the funding levels of the Pension Plans (the "PBGC Agreement"). Under
the PBGC Agreement, upon Laidlaw's emergence from bankruptcy (presently
estimated to occur in April 2003), the Laidlaw Group will contribute $50 million
in cash to the Pension Plans and issue common stock of Laidlaw equal in value to
$50 million to a trust formed for the benefit of the Pension Plans (the "Pension
Plan Trust"). The trustee of the Pension Plan Trust will sell the stock as soon
as practicable, but in no event later than the end of 2004. All proceeds from
the stock sales will be contributed directly to the Pension Plans. If the
proceeds from the stock sales exceed $50 million, the excess amount may be
credited against any future required minimum funding obligations. If the
proceeds from the stock sales are less than $50 million, the Laidlaw Group will
be required to contribute the amount of the shortfall in cash to the Pension
Plans at the end of 2004. Further, the Laidlaw Group will contribute an
additional $50 million in cash to the Pension Plans in June 2004. These
contributions and transfers will be in addition to the minimum funding
obligations to the Pension Plans, if any, required under current regulations.
Based upon current regulations and plan asset values at December 31, 2002,
and assuming annual investment returns exceed 3% and that the contributions
required under the PBGC Agreement are made along the timeframe outlined above,
the Company does not anticipate any significant additional minimum funding
requirements for the ATU Plan over the next several years. However, there is no
assurance that the ATU Plan will be able to earn the assumed rate of return,
that new regulations may prescribe changes in actuarial mortality tables and
discount rates, or that there will be market driven changes in the discount
rates, which would result in the Company being required to make significant
additional minimum funding contributions in the future.
Insurance Coverage
The predecessor agency to the STB granted the Company authority to
self-insure its automobile liability exposure for interstate passenger service
up to a maximum level of $5.0 million per occurrence, which has been continued
by the DOT. To maintain self-insurance authority, the Company is required to
provide periodic financial information and claims reports, maintain a
satisfactory safety rating by the DOT, a tangible net worth of $10.0 million and
a $15.0 million trust fund (currently fully funded) to provide security for
payment of claims. At December 31, 2002, the Company's tangible net worth was
below the minimum required by the DOT to maintain self-insurance authority. The
Company is in discussions with the DOT in an attempt to obtain a waiver of the
net worth requirement or some other suitable modification so as to allow the
Company to continue to maintain its self-insurance authority.
Insurance coverage and risk management expenses are key components of the
Company's cost structure. Additionally, the Company is required by the DOT, some
states and some of its insurance carriers to maintain collateral deposits or
provide other security pursuant to its insurance program. At December 31, 2002,
the Company maintained $22.9 million of collateral deposits including the above
$15.0 million trust fund and had issued $35.0 million of letters of credit in
support of these programs. The loss or modification of self-insurance authority
from the DOT or a decision by the Company's insurers to modify the Company's
program substantially, by either increasing cost, reducing availability or
increasing collateral, could have a material adverse effect on the Company's
liquidity, financial condition, and results of operations.
52
Environmental Matters
The Company may be liable for certain environmental liabilities and
clean-up costs at the various facilities presently or formerly owned or leased
by the Company. Based upon surveys conducted solely by Company personnel or its
experts, 31 active and nine inactive locations have been identified as sites
requiring potential clean-up and/or remediation as of December 31, 2002.
Additionally, the Company is potentially liable with respect to five active and
seven inactive locations which the Environmental Protection Agency ("EPA") has
designated as Superfund sites. The Company, as well as other parties designated
by the EPA as potentially responsible parties, face exposure for costs related
to the clean-up of those sites. Based on the EPA's enforcement activities to
date, the Company believes its liability at these sites will not be material
because its involvement was as a de minimis generator of wastes disposed of at
the sites. In light of its minimal involvement, the Company has been negotiating
to be released from liability in return for the payment of nominal settlement
amounts.
The Company has recorded a total environmental liability of $6.8 million
at December 31, 2002 of which approximately $1.3 million is indemnifiable by the
predecessor owner of the Company's domestic bus operations, now known as Viad
Corp. The environmental liability relates to sites identified for potential
clean-up and/or remediation and represents the present value of estimated cash
flows discounted at 8.0%. The Company expects the majority of this environmental
liability to be paid over the next five to ten years. As of the date of this
report, the Company is not aware of any additional sites to be identified, and
management believes that adequate accruals have been made related to all known
environmental matters.
New York Port Authority
The Company operated out of its largest sales location, the Port Authority
Bus Terminal of New York (the "Port Authority"), on a month-to-month basis
pursuant to a license agreement which expired in 1994. The Company's fee was
based upon a fixed charge for dedicated space, a fixed charge for each departing
bus and a percentage of certain ticket sales. Because the majority of the other
bus operators utilizing the Port Authority are principally commuter or local
transit operators which are exempt from paying license fees on their sales, the
Company had paid a disproportionate share of the total fees received from bus
operators that use the Port Authority relative to the Company's share of bus
departures, passengers, bus gates or square footage utilized. The Company had
been negotiating with the Port Authority for several years to structure a
market-based fee for the renewal of the license agreement and, beginning in June
1999, without Port Authority concurrence, began paying a lower fixed fee in lieu
of a percentage of sales. The lower fee payment was based on the Company's
research of the local real estate market in Midtown Manhattan and transportation
facilities nationwide, both of which demonstrated that this fee reflected fair
market value. Nevertheless, because the Company did not yet have Port Authority
concurrence for the new fee structure, the Company continued to accrue for the
license fee based upon the 1994 agreement.
In May 2001, the Port Authority and the Company reached an agreement in
principle related to fees for the periods June 1999 through March 31, 2001 (the
"arrearage"), as well as on the form of the ongoing license fees. In August
2001, the Company and the Port Authority executed the arrearage agreement. The
agreement on the arrearage calls for payment to the Port Authority of $12
million over a 10-year period, interest free. The terms of the agreement
required an initial lump sum payment of $1 million and equal monthly
installments of $91,667 thereafter. In the second quarter of 2001, the Company
recorded a reduction in operating rents of approximately $7.5 million which
represented the accrued rent outstanding to the Port Authority at March 31, 2001
less the present value, using a discount rate of 11%, of the $12 million payback
agreement. The present value of the payback agreement, less the current portion,
is classified as part of other liabilities while the current portion is
classified as part of rents payable on the Consolidated Statements of Financial
Position. Additionally, effective April 1, 2001, with Port Authority
concurrence, the Company began paying the monthly license fee based upon a flat
fee per gate utilized and bus departure. The license fee expense recorded by the
Company utilizing this new methodology is significantly lower than the fee as
calculated under the expired agreement. The Company and the Port Authority are
currently negotiating the final details of the license agreement.
53
The Port Authority has been in discussions to develop the air rights above
the terminal and should an agreement on the development be reached the Company
would likely be required to temporarily relocate its operations within the Port
Authority. Such relocation, if required, could result in an increase in the
costs to operate out of the Port Authority and potentially impact ticket and
food service revenues.
17. RELATED PARTY TRANSACTIONS
Following the Merger and through August 31, 2001, the Company had
purchased its insurance through Laidlaw subject to a $50,000 deductible for
property damage claims and no deductible for all other claims. Effective
September 1, 2001, the Company purchased excess coverage for automobile
liability, general liability and workers' compensation insurance through Laidlaw
for claims which exceed $5.0 million and continued to purchase from Laidlaw
coverage for physical damage to Company property and business interruption
subject to a $50,000 deductible. For the years ended December 31, 2002, 2001 and
2000, the Company has recorded $5.9 million, $33.3 million and $44.2 million in
insurance expense under these programs, respectively, which the Company believes
is comparable to the cost under its previous and current third-party insurance
programs.
During the years ended December 31, 2002 and 2001, the Company received a
refund of $3.3 million and $4.7 million, respectively, from Laidlaw for the
Company's share of federal income taxes, based upon the Company's separate
taxable loss, utilized by Laidlaw on its U.S. consolidated tax return. During
the year ended December 31, 2000, the Company made cash payments of $5.8 million
to Laidlaw for the Company's share of federal income taxes, based upon the
Company's separate taxable income, included by Laidlaw on its U.S. consolidated
tax return for the tax year ended August 31, 1999.
During 2000, the Company issued $33.3 million of subordinated debt to
Laidlaw in satisfaction of accounts payable due from the Company to Laidlaw.
Additionally, during the years ended December 31, 2002 and 2001 the Company
accrued interest on this note of $0.9 million and $1.4 million, respectively. At
December 31, 2002 and 2001, $35.9 million and $35.0 million, respectively was
outstanding on this note including accrued interest.
Laidlaw provides certain management services to the Company including risk
management, income tax and treasury services. During the years ended December
31, 2002, 2001 and 2000, Laidlaw charged the Company $1.6 million, $3.8 million
and $2.3 million for these services, respectively.
Laidlaw has provided credit support in the form of corporate guarantees
and letters of credit for certain of the Company's operating leases. As of
December 31, 2002, Laidlaw has guaranteed $107.8 million of future minimum lease
payments on buses under lease by the Company, and has provided $22.0 million in
letters of credit.
The Company's SERP has been funded, through a rabbi trust, with a $3.0
million letter of credit issued by Laidlaw.
Management of the Company is responsible for managing Greyhound Canada
Transportation Corp. and affiliated companies ("GCTC"), an affiliated company
owned by Laidlaw. GCTC's primary business consists of scheduled passenger
service, package express service and travel services in Canada. Management
services provided to GCTC include oversight of the accounting and finance,
strategic planning, real estate, telephone information center, information
technology, travel services, marketing and pricing, internal audit and
maintenance functions. During the years ended December 31, 2002 and 2001, the
Company charged GCTC $1.4 million and $0.5 million, respectively for these
services. Additionally, during 2002, the Company sold buses to GCTC, which
resulted in a recorded gain of $0.3 million on gross proceeds from the sale of
approximately $5.7 million.
54
The Company makes available to Hotard Coaches, Inc. ("Hotard"), an
affiliated company engaged in the travel services business in the U.S., a
revolving credit line subject to a maximum availability of $4.0 million.
Borrowings are available at a rate equal to the prime rate plus 2.5%, and mature
the earlier of October 23, 2004 or upon 30 days notice by the Company. The
revolving credit line is secured by liens on substantially all of the assets of
Hotard. At December 31, 2002 and 2001, outstanding borrowings were $3.4 million
and $0.7 million, respectively. During the year ended December 31, 2002 and
2001, the Company received $0.2 million and $0.1 million, respectively of
interest income pursuant to this revolving credit line.
The Company provides 20 buses, subject to intermediate term operating
leases, and insurance coverage to Hotard. Additionally, the Company purchases
charter services from Hotard, principally for transport of cruise ship
passengers in connection with our travel services business. During the year
ended December 31, 2002, the Company received lease and insurance income of $0.4
million and purchased $0.3 million of charter services from Hotard.
The Company provides 28 buses, subject to intermediate term operating
leases, to Roesch Lines, a division of Laidlaw Transit Services, Inc., an
affiliated company owned by Laidlaw. Roesch Lines is primarily engaged in
providing charter services in the U.S. Additionally, the Company will purchase
charter services from Roesch Lines, principally for transport of cruise ship
passengers in connection with our travel services business. During the years
ended December 31, 2002 and 2001, the Company received lease income of $0.3
million and $0.1 million, respectively, and purchased $0.9 million and $2.2
million, respectively, of charter services from Roesch Lines.
Included in accounts receivable on the Company's Consolidated Statements
of Financial Position at December 31, 2002 and 2001 are amounts due from
Laidlaw, GCTC, Hotard and Roesch of $3.9 million and $2.8 million, respectively.
Included in accounts payable on the Company's Consolidated Statements of
Financial Position at December 31, 2002 are amounts payable to Laidlaw, Hotard
and Roesch of $4.1 million.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the years ended December
31, 2002 and 2001 are as follows (in thousands):
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 2002 QUARTER QUARTER QUARTER QUARTER
---------------------------- ---------- ---------- ---------- ----------
Operating revenues ........................ $ 222,334 $ 249,964 $ 280,770 $ 238,846
Operating expenses ........................ 231,324 249,154 263,633 243,422
---------- ---------- ---------- ----------
Operating income (loss) ................... (8,990) 810 17,137 (4,576)
Interest expense .......................... 6,809 6,702 6,122 5,776
Income tax provision (benefit) ............ (9,480) 804 66,155 (4,858)
Minority interest ......................... (1,094) (465) (271) (270)
Cumulative effect of a change in accounting
for goodwill ........................... (37,564) -- (2,483) --
---------- ---------- ---------- ----------
Net income (loss) ......................... $ (42,789) $ (6,231) $ (57,352) $ (5,224)
========== ========== ========== ==========
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 2001 QUARTER QUARTER QUARTER QUARTER
---------------------------- ---------- ---------- ---------- ----------
Operating revenues ........................ $ 228,697 $ 264,938 $ 289,930 $ 238,855
Operating expenses ........................ 240,709 250,060 260,027 241,712
---------- ---------- ---------- ----------
Operating income (loss) ................... (12,012) 14,878 29,903 (2,857)
Interest expense .......................... 7,312 7,651 7,011 6,989
Income tax provision (benefit) ............ (8,440) 3,087 10,136 (5,875)
Minority interest ......................... (128) 154 553 (524)
---------- ---------- ---------- ----------
Net income (loss) ......................... $ (10,756) $ 3,986 $ 12,203 $ (3,447)
========== ========== ========== ==========
55
SCHEDULE II
GREYHOUND LINES, INC. AND SUBSIDIARIES (a)
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
-------------- ---------- ---------- ---------- ---------- ---------
December 31, 2000:
Allowance for Doubtful Accounts...... $ 402 $ 535 $ 202 $ (741) (b) $ 398
Inventory Reserves................... 226 -- -- (197) (e) 29
Accumulated Amortization of
Intangible Assets................. 31,825 5,769 -- (23) (c) 37,571
Claims Liability..................... 7,313 105 1,763 (887) (d) 8,294
--------- --------- --------- --------- ---------
Total Reserves and Allowances... $ 39,766 $ 6,409 $ 1,965 $ (1,848) $ 46,292
========= ========= ========= ========= =========
December 31, 2001:
Allowance for Doubtful Accounts...... $ 398 $ 1,064 $ 316 $ (863) (b) $ 915
Inventory Reserves................... 29 158 -- (10) (e) 177
Accumulated Amortization of
Intangible Assets................. 37,571 7,052 -- (10,136) (c) 34,487
Claims Liability..................... 8,294 14,327 -- (1,071) (d) 21,550
--------- --------- --------- --------- ---------
Total Reserves and Allowances... $ 46,292 $ 22,601 $ 316 $ (12,080) $ 57,129
========= ========= ========= ========= =========
December 31, 2002:
Allowance for Doubtful Accounts...... $ 915 $ 773 $ 253 $ (1,128) (b) $ 813
Inventory Reserves................... 177 80 41 (27) (e) 271
Accumulated Amortization of
Intangible Assets................. 34,487 6,807 -- (3,311) (c) 37,983
Claims Liability..................... 21,550 55,130 -- (14,222) (d) 62,458
--------- --------- --------- ---------- ---------
Total Reserves and Allowances... $ 57,129 $ 62,790 $ 294 $ (18,688) $ 101,525
========= ========= ========= ========== =========
- --------
(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.
(b) Write-off of uncollectible receivables, net of recovery of receivables
previously written-off.
(c) Write-off or amortization of other assets and deferred costs.
(d) Payments of settled claims.
(e) Write-off of inventory shrinkage.
56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
57
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included in the Laidlaw Inc. Form 6-K dated March 25, 2003
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information included in the Laidlaw Inc. Form 6-K dated March 25, 2003
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information included in the Laidlaw Inc. Form 6-K dated March 25, 2003
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included in the Laidlaw Inc. Form 6-K dated March 25, 2003
is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
We have established disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to the officers who certify the Company's financial
reports and to other members of senior management and the Board of Directors.
Based on their evaluation as of a date within 90 days of the filing date
of this Annual Report on Form 10-K, the principal executive officer and
principal financial officer of Greyhound Lines, Inc. and subsidiaries have
concluded that Greyhound Lines Inc. and subsidiaries disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934) are effective to ensure that the information required to
be disclosed by Greyhound Lines, Inc. and subsidiaries in reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms.
There were no significant changes in Greyhound Lines, Inc. and
subsidiaries internal controls or in other factors that could significantly
affect those controls subsequent to the date of their most recent evaluation.
58
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) CERTAIN DOCUMENTS FILED AS PART OF THE FORM 10-K
1. AND 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES
The following financial statements and financial statement schedule are
set forth in Item 8 of this report. Financial statement schedules not included
in this report have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto. Financial
statements for fifty percent or less owned companies accounted for by the equity
method have been omitted because, considered in the aggregate, they have not
been considered to constitute a significant subsidiary.
PAGE NO.
--------
Report of Independent Accountants............................... 31
Consolidated Statements of Financial Position at December 31,
2002 and 2001................................................. 32
Consolidated Statements of Operations for the Years ended
December 31, 2002, 2001 and 2000.............................. 33
Consolidated Statements of Stockholder's Equity (Deficit) for
the Years Ended December 31, 2002, 2001 and 2000.............. 34
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000.............................. 35
Notes to Consolidated Financial Statements...................... 36
Schedule II - Valuation and Qualifying Accounts................. 56
3. EXHIBITS
3.1 --Restated Certificate of Incorporation of Greyhound Lines,
Inc. (7)
3.2 --Bylaws of Greyhound Lines, Inc. (7)
4.1 --Indenture governing the 8 1/2% Convertible Subordinated
Debentures due March 31, 2007, including the form of 8 1/2%
Convertible Subordinated Debentures due March 31, 2007. (1)
4.2 --First Supplemental Indenture to the 8 1/2% Convertible
Subordinated Debentures Indenture between the Registrant and
Shawmut Bank Connecticut, N.A., as Trustee. (2)
4.3 --Second Supplemental Indenture to the 8 1/2% Convertible
Subordinated Debentures Indenture between the Registrant and
State Street Bank and Trust Company, as trustee. (7)
4.4 --Indenture, dated April 16, 1997, by and among the Company,
the Guarantors and PNC Bank, N.A., as Trustee. (3)
4.5 --First Supplemental Indenture dated as of July 9, 1997
between the Registrant and PNC Bank, N.A. as Trustee. (16)
4.6 --Second Supplemental Indenture dated as of August 25, 1997
between the Registrant and PNC Bank, N.A. as Trustee. (16)
4.7 --Third Supplemental Indenture dated as of February 1, 1999,
between the Registrant and Chase Manhattan Trust Company as
Trustee. (8)
4.8 --Fourth Supplemental Indenture dated as of May 14, 1999,
between the Registrant and Chase Manhattan Trust Company as
Trustee. (8)
4.9 --Form of 11 1/2% Series A Senior Notes due 2007. (3)
4.10 --Form of 11 1/2% Series B Senior Notes due 2007. (5)
4.11 --Form of Guarantee of 11 1/2% Series A and B Senior Notes.
(5)
4.12 --Indenture dated April 16, 1997, by and between the Company
and U.S. Trust of Texas, N.A., as Trustee. (4)
10.1 --Greyhound Lines, Inc. Supplemental Executive Retirement
Plan. (12)
10.2 --First Amendment to Supplemental Executive Retirement Plan.
(12)
10.3 --Second Amendment to Supplemental Executive Retirement
Plan. (7)
59
10.4 --Supplemental Executive Retirement Plan Trust Agreement (7)
10.5 --Second Amended Employment Agreement dated March 16, 1999,
between Registrant and Craig R. Lentzsch. (7)
10.6 --Second Amended Employment Agreement dated March 16, 1999,
between Registrant and John Werner Haugsland. (7)
10.7 --First Amendment to the Second Amended Executive Employment
Agreement dated December 1999 between Registrant and John
Warner Haugsland. (9)
10.8 --Affiliated Companies Demand Loan Agreement dated March 16,
1999, between the Registrant and Laidlaw Transportation Inc.
(9)
10.9 --Tax Allocation Agreement dated June 1, 1982, between the
Registrant and Laidlaw Transportation Inc. (9)
10.10 --Loss Portfolio Transfer Agreement dated December 31, 1999,
between the Registrant and Laidlaw Transportation Inc. (9)
10.11 --Memorandum of Agreement, dated September 30, 1998, between
the Registrant and the Amalgamated Transit Union National
Local 1700. (6)
10.12 --1998 Stock Option Plan for ATU Represented Drivers and
Mechanics, dated July 22, 1998. (6)
10.13 --Greyhound Lines, Inc. Change in Control Severance Pay
Program. (6)
10.14 --Form of Change in Control Agreement between the Company
and certain officers of the Company. (6)
10.15 --Loan and Security Agreement among Greyhound Lines, Inc.,
as Borrower, the Financial Institutions named as Lenders,
and Foothill Capital Corporation as Agent dated October 24,
2000. (10)
10.16 --Intercompany Agreement dated as of October 24, 2000,
between Registrant and Laidlaw Transportation, Inc. (11)
10.17 --Termination Agreement dated as of October 24, 2000,
between Registrant and Laidlaw Transportation, Inc. (11)
10.18 --Amendment Number One to Loan and Security Agreement among
Greyhound Lines, Inc., as Borrower, the Financial
Institutions named as Lenders, and Foothill Capital
Corporation as Agent dated November 14, 2001 (13)
10.19 --Amendment Number Two to Loan and Security Agreement among
Greyhound Lines, Inc., as Borrower, the Financial
Institutions named as Lenders, and Foothill Capital
Corporation as Agent dated July 24, 2002 (14)
10.20 --Amendment Number Three to Loan and Security Agreement
among Greyhound Lines, Inc., as Borrower, the Financial
Institutions named as Lenders, and Foothill Capital
Corporation as Agent dated July 26, 2002 (15)
10.21 --Amendment Number Four to Loan and Security Agreement among
Greyhound Lines, Inc., as Borrower, the Financial
Institutions named as Lenders, and Foothill Capital
Corporation as Agent dated November 11, 2002 (15)
21 --Subsidiaries of the Registrant. (16)
99.1 --Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (16)
- ----------
(1) Incorporated by reference from the Company's Registration Statement on
Form S-1 (File No. 33-47908) regarding the Registrant's Common Stock and
10% Senior Notes Due 2001 held by the Contested Claims Pool Trust.
(2) Incorporated herein by reference from the Registrant's Issuer Tender Offer
Statement on Schedule 13E-4 (File No. 5-41800).
(3) Incorporated by reference from the Company's Registration Statement on
Form S-4 regarding the Company's 11 1/2% Series B Senior Notes due 2007.
(4) Incorporated by reference from the Company's Registration Statement on
Form S-3 regarding the Company's 8 1/2% Convertible Exchangeable preferred
Stock, Common Stock and 8 1/2% Convertible Subordinated Debentures due
2009.
(5) Incorporated by reference from Amendment 1 to Form S-4 filed on June 27,
1997.
60
(6) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998.
(7) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.
(8) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.
(9) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999.
(10) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on October 27, 2000.
(11) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2000.
(12) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2001.
(13) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on January 17, 2002.
(14) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 2002.
(15) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 2002.
(16) Filed herewith.
(b) REPORTS ON FORM 8-K
On December 19, 2002, the Company filed a current report on Form 8-K with
the Securities and Exchange Commission reporting Other Events. No financial
statements were included.
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Dallas
and the State of Texas, on March 28, 2003.
GREYHOUND LINES, INC.
By: /s/ CRAIG R. LENTZSCH
-------------------------------------
Craig R. Lentzsch
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ KEVIN E. BENSON Director March 28, 2003
- ---------------------------------------
Kevin E. Benson
/s/ DOUGLAS A. CARTY Director March 28, 2003
- ---------------------------------------
Douglas A. Carty
/s/ CRAIG R. LENTZSCH Director, President and Chief March 28, 2003
- --------------------------------------- Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JEFFREY W. SANDERS Senior Vice President and March 28, 2003
- --------------------------------------- Chief Financial Officer
Jeffrey W. Sanders (Principal Financial Officer)
/s/ CHERYL W. FARMER Vice President and Controller March 28, 2003
- --------------------------------------- (Principal Accounting Officer)
Cheryl W. Farmer
CO-REGISTRANTS
ATLANTIC GREYHOUND LINES OF VIRGINIA, INC.
By:
/s/ CRAIG R. LENTZSCH Director, Chairman of the Board, March 28, 2003
- -------------------------------------- President and Chief Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JACK W. HAUGSLAND Director March 28, 2003
- --------------------------------------
Jack W. Haugsland
/s/ JEFFREY W. SANDERS Senior Vice President and March 28, 2003
- -------------------------------------- Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and Accounting
Officer)
62
GLI HOLDING COMPANY
By:
/s/ CRAIG R. LENTZSCH Director, President and March 28, 2003
- ------------------------------------------ Chief Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JACK W. HAUGSLAND Director March 28, 2003
- ------------------------------------------
Jack W. Haugsland
/s/ JEFFREY W. SANDERS Senior Vice President and March 28, 2003
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and Accounting
Officer)
GREYHOUND de MEXICO, S.A. de C.V.
By:
/s/ CRAIG R. LENTZSCH Director and President March 28, 2003
- ------------------------------------------ (Principal Executive Officer)
Craig R. Lentzsch
/s/ JACK W. HAUGSLAND Director March 28, 2003
- ------------------------------------------
Jack W. Haugsland
/s/ JEFFREY W. SANDERS Director March 28, 2003
- ------------------------------------------
Jeffrey W. Sanders
/s/ CHERYL W. FARMER Examiner March 28, 2003
- ------------------------------------------ (Principal Financial and Accounting
Cheryl W. Farmer Officer)
SISTEMA INTERNACIONAL de TRANSPORTE de AUTOBUSES, INC.
By:
/s/ JEFFREY W. SANDERS Director, President, and March 28, 2003
- ------------------------------------------
Jeffrey W. Sanders Chief Executive Officer
(Principal Executive Officer)
/s/ ALFONSO PENEDO Director March 28, 2003
- ------------------------------------------
Alfonso Penedo
/s/ CHERYL W. FARMER Senior Vice President and March 28, 2003
- ------------------------------------------ Chief Financial Officer
Cheryl W. Farmer (Principal Financial and Accounting
Officer)
63
TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC.
By:
/s/ CRAIG R. LENTZSCH Director and Chief March 28, 2003
- ------------------------------------------ Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JACK W. HAUGSLAND Director March 28, 2003
- ------------------------------------------
Jack W. Haugsland
/s/ GREGORY ALEXANDER Director March 28, 2003
- ------------------------------------------
Gregory Alexander
/s/ ROBERT D. GREENHILL Director March 28, 2003
- ------------------------------------------
Robert D. Greenhill
/s/ JEFFREY W. SANDERS Senior Vice President and March 28, 2003
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and Accounting
Officer)
T.N.M. & O. TOURS, INC.
By:
/s/ CRAIG R. LENTZSCH Director and Chief March 28, 2003
- ------------------------------------------ Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JACK W. HAUGSLAND Director March 28, 2003
- ------------------------------------------
Jack W. Haugsland
/s/ GREGORY ALEXANDER Director March 28, 2003
- ------------------------------------------
Gregory Alexander
/s/ ROBERT D. GREENHILL Director March 28, 2003
- ------------------------------------------
Robert D. Greenhill
/s/ RICHARD M. PORTWOOD Director March 28, 2003
- ------------------------------------------
Richard M. Portwood
/s/ JEFFREY W. SANDERS Senior Vice President and March 28, 2003
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and Accounting
Officer)
64
VERMONT TRANSIT CO., INC.
By:
/s/ CRAIG R. LENTZSCH Director, President and March 28, 2003
- ------------------------------------------ Chief Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JACK W. HAUGSLAND Director March 28, 2003
- ------------------------------------------
Jack W. Haugsland
/s/ GREGORY ALEXANDER Director March 28, 2003
- ------------------------------------------
Gregory Alexander
/s/ JEFFREY W. SANDERS Senior Vice President and March 28, 2003
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and Accounting
Officer)
65
CERTIFICATIONS
I, Craig R. Lentzsch, certify that:
1. I have reviewed this annual report on Form 10-K of Greyhound Lines, Inc
and Subsidiaries;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003
/s/ Craig R. Lentzsch
--------------------------------
Craig R.Lentzsch, President and
Chief Executive Officer
66
I, Jeffrey W. Sanders, certify that:
1. I have reviewed this annual report on Form 10-K of Greyhound Lines, Inc
and Subsidiaries;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003
/s/ Jeffrey W. Sanders
----------------------------------
Jeffrey W. Sanders, Senior Vice
President and Chief Financial
Officer
67
INDEX TO EXHIBITS
EXHIBIT NO DESCRIPTION
- ---------- -----------
4.5 First Supplemental Indenture dated as of July 9, 1997, between
the Registrant and PNC Bank, N.A., as Trustee.
4.6 Second Supplemental Indenture dated as of August 25, 1997,
between the Registrant and PNC Bank, N.A., as Trustee.
21 Subsidiaries of the Registrant
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
68