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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
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 of (I.R.S. employer
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)
NONE
(Former name, former address and former fiscal year, if changed since last
report)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES [ ] NO [X]
As of May 5, 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-Q 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 H(1)(a) and (b) of Form 10-Q for filing Form
10-Q in a reduced disclosure format.
CO-REGISTRANTS
This Form 10-Q 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 March 31, 2003, 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
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Interim Consolidated Statements of Financial Position as of
March 31, 2003 (Unaudited) and December 31, 2002................................ 5
Interim Consolidated Statements of Operations for the
Three Months Ended March 31, 2003 and 2002 (Unaudited).......................... 6
Condensed Interim Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2003 and 2002 (Unaudited).......................... 7
Notes to Interim Consolidated Financial Statements (Unaudited)..................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................ 16
Item 4. Controls and Procedures................................................................... 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................................... 17
SIGNATURES.......................................................................................... 18
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
4
GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2003 2002
--------- -----------
(UNAUDITED)
Current Assets
Cash and cash equivalents ................................................. $ 5,255 $ 5,946
Accounts receivable, less allowance for doubtful accounts of $984 and $813 46,363 47,255
Inventories, less allowance for shrinkage of $276 and $271 ................ 9,672 9,530
Prepaid expenses .......................................................... 9,358 8,456
Other current assets ...................................................... 3,916 3,364
--------- ---------
Total Current Assets ................................................. 74,564 74,551
Property, plant and equipment, net of accumulated depreciation of
$255,223 and $244,485 ..................................................... 395,548 407,816
Investments in unconsolidated affiliates ...................................... 18,019 17,679
Insurance and security deposits ............................................... 30,328 30,357
Goodwill ...................................................................... 3,040 3,040
Intangible assets, net of accumulated amortization of $39,600 and $37,983 .... 29,248 27,880
--------- ---------
Total Assets ......................................................... $ 550,747 $ 561,323
========= =========
Current Liabilities
Accounts payable .......................................................... $ 31,916 $ 26,422
Accrued liabilities ....................................................... 60,876 62,758
Rents payable ............................................................. 11,632 19,423
Unredeemed tickets ........................................................ 8,444 13,119
Current portion of claims liability ....................................... 21,892 19,578
Current maturities of long-term debt ...................................... 3,533 4,364
--------- ---------
Total Current Liabilities ............................................ 138,293 145,664
Pension obligation ............................................................ 244,330 242,103
Claims liability .............................................................. 48,067 42,880
Long-term debt, net ........................................................... 228,829 211,839
Minority interests ............................................................ 2,993 3,300
Other liabilities ............................................................. 29,407 29,049
--------- ---------
Total Liabilities .................................................... 691,919 674,835
--------- ---------
Stockholder's 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 .......................................................... (218,654) (190,599)
Accumulated other comprehensive loss, net of tax benefit of $28,791 ....... (242,909) (243,304)
--------- ---------
Total Stockholder's Deficit .......................................... (141,172) (113,512)
--------- ---------
Total Liabilities and Stockholder's Deficit ............................ $ 550,747 $ 561,323
========= =========
The accompanying notes are an integral part of these statements.
5
GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
2003 2002
--------- ---------
(UNAUDITED)
OPERATING REVENUES
Passenger services .................................. $ 182,290 $ 188,197
Package express ..................................... 9,319 9,468
Food services ....................................... 9,570 9,818
Other operating revenues ............................ 16,552 14,851
--------- ---------
Total Operating Revenues ........................ 217,731 222,334
--------- ---------
OPERATING EXPENSES
Maintenance ......................................... 25,221 24,550
Transportation ...................................... 61,266 55,863
Agents' commissions and station costs ............... 43,007 43,308
Marketing, advertising and traffic .................. 6,000 4,881
Insurance and safety ................................ 17,563 16,160
General and administrative .......................... 31,587 32,694
Depreciation and amortization ....................... 12,783 12,376
Operating taxes and licenses ........................ 14,633 14,719
Operating rents ..................................... 21,102 19,615
Cost of goods sold - food services .................. 6,329 6,547
Other operating expenses ............................ 671 611
--------- ---------
Total Operating Expenses ........................ 240,162 231,324
--------- ---------
Operating Loss ............................................ (22,431) (8,990)
Interest Expense .......................................... 5,895 6,809
--------- ---------
Loss Before Income Taxes, Minority Interests and Cumulative
Effect of Accounting Change ........................ (28,326) (15,799)
Income Tax Provision (Benefit) ............................ 35 (9,480)
Minority Interests ........................................ (306) (1,094)
--------- ---------
Loss Before Cumulative Effect of Accounting Change ........ (28,055) (5,225)
Cumulative Effect of a Change in Accounting for Goodwill .. -- 37,564
--------- ---------
Net Loss .................................................. $ (28,055) $ (42,789)
========= =========
The accompanying notes are an integral part of these statements.
6
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
2003 2002
-------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................ $(28,055) $(42,789)
Cumulative effect of accounting change .................. -- 37,564
Non-cash expenses and gains included in net loss ........ 15,351 4,566
Net change in certain operating assets and liabilities .. (5,736) 11,363
-------- --------
Net Cash (Used for) Provided by Operating Activities (18,440) 10,704
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .................................... (3,031) (8,088)
Proceeds from assets sold ............................... 4,340 285
Other investing activities .............................. -- 161
-------- --------
Net Cash Provided by (Used for) Investing Activities 1,309 (7,642)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt and capital lease obligations .......... (1,003) (3,095)
Net change in revolving credit facility ................. 17,635 (9,128)
Other financing activities .............................. (192) (17)
-------- --------
Net Cash Provided by (Used for) Financing Activities 16,440 (12,240)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ..................... (691) (9,178)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................ 5,946 20,913
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 5,255 $ 11,735
======== ========
The accompanying notes are an integral part of these statements.
7
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited Interim Consolidated Financial
Statements of Greyhound Lines, Inc. and Subsidiaries ("Greyhound" or the
"Company") include all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the Company's financial position as of
March 31, 2003, the results of its operations for the three months ended March
31, 2003 and 2002 and cash flows for the three months ended March 31, 2003 and
2002. Due to the seasonality of the Company's operations, the results of its
operations for the interim period ended March 31, 2003 may not be indicative of
total results for the full year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations promulgated by the Securities and Exchange Commission. The
unaudited Interim Consolidated Financial Statements should be read in
conjunction with the audited Consolidated Financial Statements of Greyhound
Lines, Inc. and Subsidiaries and accompanying notes for the year ended December
31, 2002. Certain reclassifications have been made to the prior period
statements to conform them to the current period presentation.
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 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
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.
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 5 for further information.
2. OTHER COMPREHENSIVE INCOME
The Company includes unrealized gains and losses on available-for-sale
securities and changes in minimum pension liabilities as other comprehensive
income. For the three months ended March 31, 2003 and 2002, comprehensive loss
was $27.7 million and $42.6 million, respectively.
8
3. REVOLVING CREDIT FACILITY
As of March 31, 2003, the Company had outstanding borrowings under its previous
revolving credit facility of $25.4 million, issued letters of credit of $46.3
million and availability of $53.3 million. Under the terms of the Company's
previous revolving credit facility the Company was required to meet certain
financial covenants, including a minimum cash flow to interest expense ratio, a
maximum debt to cash flow ratio and a minimum level of net worth. Because
management was unable to determine with reasonable assurance whether the Company
would remain in compliance with these covenants in the future, the Company
initiated discussions with the agent bank in an effort to obtain modifications
to the agreement. On May 14, 2003, the Company entered into an amended and
restated revolving credit facility ("Revolving Credit Facility") superceding the
previous revolving credit facility. Changes to the agreement include, among
other things, a lower advance rate on buses, the addition of all remaining
unpledged buses to the collateral base, a modified advance rate on real estate
collateral, increased rates of interest on borrowings and letter of credit fees,
an increase in the letter of credit sub-facility, a lower minimum cash flow to
interest expense ratio and a higher maximum debt to cash flow ratio for the
balance of 2003, elimination of the minimum net worth covenant, the addition of
a minimum cash flow covenant and a waiver of any defaults arising under the
previous revolving credit facility with respect to the financial covenants for
the period ended March 31, 2003.
Letters of credit or borrowings are available under the Revolving Credit
Facility based upon the total of 80% of the appraised wholesale value of bus
collateral, plus 65% of the quick sale value of certain real property
collateral, minus $20 million, subject to a maximum of $125 million, with a $70
million letter of credit sub-facility. Borrowings under the Revolving Credit
Facility are available to the Company at a rate equal to Wells Fargo Bank's
prime rate plus 1.5% per annum or LIBOR plus 3.5% per annum as selected by the
Company. Letter of credit fees are 3.5% per annum. Borrowings under the
Revolving Credit Facility mature on October 24, 2004. 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 cash flow ratio; minimum cash flow to
interest ratio; minimum cash flow; limitation on non-bus capital expenditures;
limitations on additional liens, indebtedness, guarantees, asset disposals,
advances, investments and loans; and restrictions on the redemption or
retirement of certain subordinated indebtedness or equity interests, payment of
dividends and transactions with affiliates, including Laidlaw. As of March 31,
2003, the Company was in compliance with all such covenants.
The financial covenants established for 2003 remain tight as they were set at
levels slightly below (in the case of the minimum cash flow to interest expense
ratio and minimum cash flow) or slightly above (in the case of the maximum debt
to cash flow ratio) the levels indicated in the Company's current financial
forecast. The Revolving Credit Facility further provides that the Company will
deliver to the agent bank its financial forecast for 2004 by no later than
September 2003, and the Company and the agent bank will negotiate in good faith
to determine new financial covenants for 2004. 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 in the future if needed, or that the cost of any future
modifications or other changes in the terms of the Revolving Credit Facility
would not have a material effect on the Company.
4. LEASE COMMITMENTS
The Company generally uses lease financing 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. 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 consolidated statements of operations and the liability and value of the
underlying buses are not recorded on the consolidated statements of financial
position.
In January 2003, the Company entered into a seven year operating lease covering
10 buses. The lease has an aggregate residual value at lease expiration of $1.4
million of which the Company has guaranteed $0.8 million. As required under
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others", the
Company recorded a liability, in an insignificant amount, for the estimated fair
value of the residual value guarantee imbedded in this lease.
9
5. MATERIAL CONTINGENCIES
PBGC AGREEMENT AND POTENTIAL PENSION PLAN FUNDING REQUIREMENTS
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 Company's pension plans (the "PBGC
Agreement"). Under the PBGC Agreement, upon Laidlaw's emergence from bankruptcy
(presently estimated to occur by early June 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.
The most significant of the pension plans (the "ATU Plan") represents 90% of the
total obligations of the pension plans. Based upon current regulations and plan
asset values at April 30, 2003, 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 Surface Transportation Board 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 Department of Transportation ("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, and continuing to date, 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. The loss or modification of
self-insurance authority from the DOT could have a material adverse effect on
the Company's liquidity, financial condition, and results of operations.
6. RELATED PARTY TRANSACTIONS
Included in accounts receivable on the Company's Interim Consolidated Statements
of Financial Position at March 31, 2003 and December 31, 2002, are amounts due
from Laidlaw or one of Laidlaw's subsidiaries of $4.2 million and $3.9 million,
respectively. Included in accounts payable at March 31, 2003 and December 31,
2002, are amounts due to Laidlaw or one of Laidlaw's subsidiaries of $6.3
million and $4.1 million, respectively.
10
ITEM 2. 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. The Company's consolidated 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 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 operating
cash flows are also seasonal with a disproportionate amount of the Company's
annual operating cash flows being generated during the peak travel periods. 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 the fiscal quarter,
may also affect the Company's quarterly results of operations.
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations as a
percentage of total operating revenue for the quarters ended March 31, 2003 and
2002:
THREE MONTHS ENDED
MARCH 31,
2003 2002
---- ----
OPERATING REVENUES
Passenger services....................................... 83.7% 84.6%
Package express.......................................... 4.3 4.3
Food services............................................ 4.4 4.4
Other operating revenues................................. 7.6 6.7
----- -----
Total Operating Revenues............................. 100.0 100.0
----- -----
OPERATING EXPENSES
Maintenance.............................................. 11.6 11.0
Transportation........................................... 28.1 25.1
Agents' commissions and station costs.................... 19.7 19.5
Marketing, advertising and traffic....................... 2.8 2.2
Insurance and safety..................................... 8.1 7.3
General and administrative............................... 14.5 14.7
Depreciation and amortization............................ 5.9 5.6
Operating taxes and licenses............................. 6.7 6.6
Operating rents.......................................... 9.7 8.8
Cost of goods sold - food services....................... 2.9 2.9
Other operating expenses................................. 0.3 0.3
----- -----
Total Operating Expenses............................. 110.3 104.0
----- -----
Operating Loss............................................... (10.3) (4.0)
Interest Expense............................................. 2.7 3.1
Income Tax Provision (Benefit)............................... 0.0 (4.3)
Minority Interests........................................... (0.1) (0.5)
Cumulative Effect of Change in Accounting for Goodwill....... 0.0 16.9
----- -----
Net Loss..................................................... (12.9) (19.2)
===== =====
11
The following table sets forth certain operating data for the Company for the
quarters ended March 31, 2003 and 2002. Certain statistics have been adjusted
and restated from that previously published to provide consistent comparisons.
THREE MONTHS ENDED
MARCH 31, PERCENTAGE
2003 2002 CHANGE
---------- ----------- ----------
Regular Service Miles (000's)..................................... 72,419 78,130 (7.3%)
Total Bus Miles (000's)........................................... 74,884 80,412 (6.9%)
Passenger Miles (000's)........................................... 1,797,633 2,001,096 (10.2%)
Passengers Carried (000's)........................................ 4,967 5,457 (9.0%)
Average Trip Length (passenger miles/passengers carried).......... 362 367 (1.4%)
Load (avg. number of passengers per regular service mile)......... 24.8 25.6 (3.1%)
Load Factor (% of available seats filled)......................... 49.1% 50.8% (3.4%)
Yield (regular route revenue/passenger miles)..................... $ 0.1014 $ 0.0940 7.9%
Average Ticket Price.............................................. $ 36.70 $ 34.49 6.4%
Total Revenue Per Total Bus Mile.................................. $ 2.908 $ 2.765 5.2%
Operating Loss Per Total Bus Mile................................. $ (0.300) $ (0.112) 158.9%
Cost Per Total Bus Mile:
Maintenance................................................. $ 0.337 $ 0.305 10.5%
Transportation.............................................. $ 0.818 $ 0.695 17.7%
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE SAME PERIOD IN 2002
Operating Revenues. Total operating revenues decreased $4.6 million, down 2.1%,
for the three months ended March 31, 2003, compared to the same period in 2002.
Passenger services revenues decreased $5.9 million, or 3.1%, for the three
months ended March 31, 2003, compared to the same period in 2002. The decrease
is principally due to the following: reduced revenue in the Hispanic passenger
markets due to the shut-down of operations at one of the Company's subsidiaries
during the third quarter of 2002; severe winter weather in February 2003 that
resulted in the temporary suspension of service and lost sales in the Northeast
U.S.; the placement of Easter (which occurs in the second quarter of 2003 but
occurred in the first quarter of 2002); and the increase in the terror alert
level as a result of the war in Iraq. The 10.2% reduction in passenger miles
caused by the above factors was significantly offset by a 7.9% increase in yield
due to price increases and a shorter average trip length.
Package express revenues decreased $0.1 million, or 1.6%, for the three months
ended March 31, 2003, compared to the same period in 2002 principally due to a
1.0% decline in shipping days during 2003. Sales per shipping day were down
slightly during the quarter as reduced standard product deliveries (the
traditional, low value, terminal to terminal market segment) were almost
completely offset by increases in Daily Direct, a guaranteed same day or early
next morning service, as well as Authorized Shipping Outlet sales for United
Parcel Service.
Food services revenues decreased $0.2 million, or 2.5%, for the three months
ended March 31, 2003, compared to the same period in 2002 primarily due to the
decrease in passenger traffic.
Other operating revenues increased $1.7 million, or 11.5%, for the three months
ended March 31, 2003, compared to the same period in 2002. The increase is
principally due to increased charter services and increases in "meet and greet"
services provided to cruise lines.
12
Operating Expenses. Total operating expenses increased $8.8 million, or 3.8%,
for the three months ended March 31, 2003, compared to the same period in 2002.
Maintenance costs increased $0.7 million, or 2.7%, for the three months ended
March 31, 2003, compared to the same period in 2002. On a per-mile basis,
maintenance cost increased by 10.5% principally due to a higher average fleet
age, wage increases for mechanics and increased repairs and maintenance expenses
for garage properties.
Transportation expenses which consist primarily of fuel costs and driver wages,
increased $5.4 million, or 9.7%, for the three months ended March 31, 2003,
compared to the same period in 2002. During the first quarter of 2003 the
average cost per gallon of fuel was $0.99 per gallon, compared to $0.64 per
gallon during the same period in 2002, resulting in increased costs of $4.4
million. Additionally, driver hiring and training costs were $1.8 million higher
during the first quarter of 2003 compared to 2002 due to increased hiring of new
drivers. The increase in fuel and driver hiring costs was offset somewhat by
reduced costs due to fewer miles operated. On a per-mile basis, excluding the
effects of fuel price changes and driver hiring costs, transportation expenses
increased by 5.8% during the first quarter of 2003, due mainly to contractual
driver wage increases and fewer miles operated in the Company's subsidiaries
which generally operate at a lower driver wage rate per mile than in the
Greyhound Lines unit.
Agents' commissions and station costs decreased $0.3 million, or 0.7%, for the
three months ended March 31, 2003, compared to the same period in 2002. The
decrease is primarily due to lower commissions from decreased ticket sales,
offset somewhat by increased security costs.
Marketing, advertising and traffic expenses increased $1.1 million, or 22.9% for
the three months ended March 31, 2003, compared to the same period in 2002. The
increase is principally due to significantly curtailed advertising spending in
the prior year period due to management's belief that advertising would not
stimulate discretionary travel so closely following the events of September 11,
2001.
Insurance and safety costs increased $1.4 million, or 8.7% for the three months
ended March 31, 2003, compared to the same period in 2002. The increase is
primarily due to an increase in the cost of excess insurance coverage and growth
in the average cost per claim due principally to medical cost inflation.
General and administrative expenses decreased $1.1 million, or 3.4%, for the
three months ended March 31, 2003, compared to the same period in 2002 due to
lower management incentive plan costs ($1.5 million) due to the decline in
financial performance and decreased wages and other costs due to lower business
volumes, offset by increased pension plan costs of $1.1 million.
Depreciation and amortization increased by $0.4 million, or 3.3%, for the three
months ended March 31, 2003, compared to the same period in 2002. The increase
is primarily due to inflationary increases in the cost of recent capital
expenditures which, due to the long-lived nature of the Company's assets,
significantly exceeds the historical cost basis of asset disposals.
Operating taxes and licenses expense decreased slightly for the three months
ended March 31, 2003, compared to the same period in 2002. Decreased fuel taxes
as a result of a decline in miles operated were largely offset by increased
property taxes.
Operating rents increased $1.5 million, or 7.6%, for the three months ended
March 31, 2003, compared to the same period in 2002. The increase is mainly due
to higher casual bus rentals as a result of the increase in charter revenue and
the placement of Christmas (which resulted in more return traffic occurring in
January 2003 than occurred in January 2002).
Food services cost of goods sold decreased $0.2 million, or 3.3%, for the three
months ended March 31, 2003, compared to the same period in 2002, primarily due
to the decrease in food services revenues.
Other operating expenses for the three months ended March 31, 2003, were
comparable to the same period in 2002.
13
Interest expense decreased $0.9 million, or 13.4%, for the three months ended
March 31, 2003, compared to the same period in 2002 due to a decrease in average
debt outstanding.
During the third quarter of 2002 the Company established a full valuation
allowance for its deferred tax assets, as a result no income tax benefit has
been recognized for the three months ended March 31, 2003.
Minority interests for the three months ended March 31, 2003, reflects the
minority partners share of current year losses in the Company's hispanic joint
ventures. The joint ventures had lower losses during the three months ended
March 31, 2003 as compared to 2002.
During the first quarter of 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 as a
cumulative effect of a change in accounting principle.
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 March 31, 2003, the Company had $232.4 million of outstanding
debt, implicit debt equivalent to $292.1 million for off-balance sheet bus
operating leases and $46.3 million of outstanding letters of credit (which
principally support recorded claims liabilities). 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.
Generally new term financing (including bus operating lease financing) must be
obtained to support the Company's annual capital expenditure needs.
Additionally, the Company is currently limited under the terms of its senior
note indenture as to how much additional indebtedness may be incurred. If new
bus financing cannot be obtained in the future, or is limited pursuant to the
senior note indenture, the Company would have to reduce capital expenditures,
resulting in an increase in fleet age and costs to operate the fleet.
Net cash used by operating activities for the three months ended March 31, 2003
was $18.4 million, a decrease of $29.1 million from the $10.7 million provided
during the same period of 2002. The decrease is due to the increased operating
loss during the first quarter of 2003 and reductions in rents payable and
unredeemed tickets. The reduction in rents payable is principally due to the
timing of uneven rent payments on a large bus lease. The reduction in unredeemed
tickets is due to the placement of Easter (which occurred towards the end of
March in 2002 but did not occur until late April in 2003). Net cash provided by
investing activities for the first quarter of 2003 was $1.3 million compared to
$7.6 million used for investing activities during the same period of 2002.
During the first quarter of 2003 the Company had lower capital expenditures and
increased proceeds due to a sale-leaseback on some of the Company's buses. Net
cash provided by financing activities in the first quarter of 2003 was $16.4
million, principally from borrowings under the Revolving Credit Facility, versus
$12.2 million used for financing activities, principally repayment of advances
under the Revolving Credit Facility, during the same period in 2002.
As of March 31, 2003, the Company had outstanding borrowings under its previous
revolving credit facility of $25.4 million, issued letters of credit of $46.3
million and availability of $53.3 million. Under the terms of the Company's
previous revolving credit facility the Company was required to meet certain
financial covenants, including a minimum cash flow to interest expense ratio, a
maximum debt to cash flow ratio and a minimum level of net worth. Because
management was unable to determine with reasonable assurance whether the Company
would remain in compliance with these covenants in the future, the Company
initiated discussions with the agent bank in an effort to obtain modifications
to the agreement. On May 14, 2003, the Company entered into an amended and
restated revolving credit facility ("Revolving Credit Facility") superceding the
previous revolving credit facility. Changes to the agreement include, among
other things, a lower advance rate on buses, the addition of all remaining
unpledged buses to the collateral base, a modified advance rate on real estate
collateral, increased rates of interest on borrowings and letter of credit fees,
an increase in the letter of credit sub-facility, a lower minimum cash flow to
interest expense ratio and a higher maximum debt to cash flow ratio for the
balance of 2003, elimination of the minimum net worth covenant, the addition of
a minimum cash flow covenant and a waiver of any defaults arising under the
previous revolving credit facility with respect to the financial covenants for
the period ended March 31, 2003.
14
The financial covenants established for 2003 remain tight as they were set at
levels slightly below (in the case of the minimum cash flow to interest expense
ratio and minimum cash flow) or slightly above (in the case of the maximum debt
to cash flow ratio) the levels indicated in the Company's current financial
forecast. The Revolving Credit Facility further provides that the Company will
deliver to the agent bank its financial forecast for 2004 by no later than
September 2003, and the Company and the agent bank will negotiate in good faith
to determine new financial covenants for 2004. 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 in the future if needed, or that the cost of any future
modifications or other changes in the terms of the Revolving Credit Facility
would not have a material effect on the Company.
PBGC AGREEMENT AND POTENTIAL PENSION PLAN FUNDING REQUIREMENTS
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 Company's pension plans (the "PBGC
Agreement"). Under the PBGC Agreement, upon Laidlaw's emergence from bankruptcy
(presently estimated to occur by early June 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.
The most significant of the pension plans (the "ATU Plan") represents 90% of the
total obligations of the pension plans. Based upon current regulations and plan
asset values at April 30, 2003, 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 Surface Transportation Board 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 Department of Transportation ("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, and continuing to date, 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. The loss or modification of
self-insurance authority from the DOT could have a material adverse effect on
the Company's liquidity, financial condition, and results of operations.
15
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q
Statements in this Form 10-Q 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the disclosures provided
in Item 7A. Quantitative and Qualitative Disclosures About Market Risk as set
forth in the Company's 2002 Form 10-K.
ITEM 4. 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
Quarterly Report on Form 10-Q, 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.
16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(B) REPORTS ON FORM 8-K
None
17
SIGNATURES
Pursuant to the requirements 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.
Date: May 15, 2003
GREYHOUND LINES, INC.
By: /s/ Jeffrey W. Sanders
---------------------------------
Jeffrey W. Sanders
Senior Vice President and
Chief Financial Officer
ATLANTIC GREYHOUND LINES OF
VIRGINIA, INC.
By: /s/ Jeffrey W. Sanders
---------------------------------
Jeffrey W. Sanders
Senior Vice President and
Chief Financial Officer
GLI HOLDING COMPANY
By: /s/ Jeffrey W. Sanders
---------------------------------
Jeffrey W. Sanders
Senior Vice President and
Chief Financial Officer
GREYHOUND de MEXICO, S.A. de C.V.
By: /s/ Cheryl W. Farmer
---------------------------------
Cheryl W. Farmer
Examiner
SISTEMA INTERNACIONAL de
TRANSPORTE de AUTOBUSES, INC.
By: /s/ Cheryl W. Farmer
---------------------------------
Cheryl W. Farmer
Senior Vice President and
Chief Financial Officer
TEXAS, NEW MEXICO & OKLAHOMA
COACHES, INC.
By: /s/ Jeffrey W. Sanders
---------------------------------
Jeffrey W. Sanders
Senior Vice President and
Chief Financial Officer
T.N.M. & O. TOURS, INC.
By: /s/ Jeffrey W. Sanders
---------------------------------
Jeffrey W. Sanders
Senior Vice President and
Chief Financial Officer
VERMONT TRANSIT CO., INC.
By: /s/ Jeffrey W. Sanders
---------------------------------
Jeffrey W. Sanders
Senior Vice President and
Chief Financial Officer
18
CERTIFICATIONS
I, Craig R. Lentzsch, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Greyhound Lines, Inc
and Subsidiaries;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 we
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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 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
quarterly report whether or not 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: May 15, 2003
/s/ Craig R. Lentzsch
-------------------------------
Craig R.Lentzsch, President and Chief
Executive Officer
19
I, Jeffrey W. Sanders, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Greyhound Lines, Inc
and Subsidiaries;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 we
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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 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
quarterly report whether or not 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: May 15, 2003
/s/ Jeffrey W. Sanders
--------------------------------
Jeffrey W. Sanders, Senior Vice President
and Chief Financial Officer
20
Index to Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
21