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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10841
GREYHOUND LINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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)
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(214) 789-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 par value per share American Stock Exchange
10% Senior Notes, due July 31, 2001 American Stock Exchange
8.5% Convertible Subordinated Debentures, American Stock Exchange
due March 31, 2007
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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 the Form 10-K or any amendment to this
Form 10-K. / /
Aggregate market value of Common Stock held by non-affiliates of the
registrant based on the last reported sale price of the Common Stock on the
American Stock Exchange composite tape on March 1, 1995, was $100,292,000, which
value, solely for the purposes of this calculation, excludes shares held by
registrant's executive officers and directors. Such exclusion should not be
deemed a determination by the registrant that all such individuals are, in fact,
affiliates of the registrant.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES /X/ NO / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
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CLASS OF COMMON STOCK OUTSTANDING AT MARCH 1, 1995
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$.01 par value 53,743,682 shares
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement for the Registrant, to be filed
not later than 120 days after the end of the fiscal year covered by this report,
are incorporated into Part III by reference.
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GREYHOUND LINES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-K
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PAGE NO.
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PART I
Item 1. Business............................................................... 1
Item 2. Properties............................................................. 7
Item 3. Legal Proceedings...................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders.................... 12
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters................................................................ 13
Item 6. Selected Financial Data................................................ 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 16
Item 8. Financial Statements and Supplementary Data............................ 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................... 62
PART III
Item 10. Directors and Executive Officers of the Registrant..................... 63
Item 11. Executive Compensation................................................. 66
Item 12. Security Ownership of Certain Beneficial Owners and Management......... 66
Item 13. Certain Relationships and Related Transactions......................... 66
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........ 68
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PART I
ITEM 1. BUSINESS
GENERAL
Greyhound Lines, Inc. (the "Company") was incorporated in Delaware in 1986
to acquire the domestic bus operations of The Greyhound Corporation (which
subsequently changed its name to The Dial Corp and which is referred to herein
as "Dial"). The Company completed that acquisition in March 1987. Later in 1987,
the Company purchased most of the operating assets of Trailways Lines, Inc.
("Trailways") (the largest carrier in the National Trailways Bus System),
thereby becoming the only nationwide provider of intercity bus transportation
services in the United States. The Company currently provides scheduled
passenger service to more than 2,450 destinations with a fleet of approximately
1,900 buses and approximately 1,700 sales outlets. The Company also provides
package express delivery service and, in certain terminals, food service.
1994 RECAPITALIZATION
In the fourth quarter of 1994, the Company completed a two stage financial
restructuring (the "Financial Restructuring") which converted debt to equity and
provided it with additional capital and financial flexibility. In the first
stage of the Financial Restructuring, the Company replaced its existing
revolving credit facility with a new sixteen month $35.0 million revolving
credit agreement, which can be extended to three years at the option of the
Company. The second stage of the Financial Restructuring involved a
recapitalization which combined a conversion of the Company's 8.5% Convertible
Subordinated Debentures due March 31, 2007 (the "Convertible Debentures") into
equity with a Rights Offering (defined herein) to existing shareholders. In
November, the Company launched a tender offer for its Convertible Debentures
whereby each debenture (representing $1,000 in principal amount) would be
converted into approximately 256 shares of the Company's common stock ("Common
Stock"). The tender offer closed in late December 1994 with $89.0 million in
principal amount of the Convertible Debentures being converted into 22.8 million
shares of the Company's Common Stock. Simultaneously with the tender offer, the
Company commenced a rights offering to raise $35.0 million of new equity capital
(the "Rights Offering"). The fully subscribed Rights Offering also was completed
in late December 1994 and closed in January 1995 with 16.3 million shares of
Common Stock issued.
BUSINESS STRATEGY
As a transportation enterprise, many of the Company's operating expenses
become fixed costs or costs that cannot be reduced rapidly in response to
short-term changes in demand for its services when the Company establishes its
routes, schedules and related fleet requirements for a particular operating
cycle. Therefore, costs such as depreciation, amortization and lease expenses
related to the bus fleet and facilities, maintenance expenses, and driver
operations and customer service expenses generally do not vary proportionately
with short-term changes in demand for its services. However, since the Company's
reorganization under Chapter 11 (defined herein), management has pursued expense
reduction and cost containment programs designed to lower fleet and other
operating expenses while improving customer service. Those programs included the
standardization of the bus fleet, the replacement of older buses with new buses,
the implementation of a computerized fleet maintenance program and computerized
capacity management systems, centralized dispatching, revised baggage handling
procedures, personnel and overhead reductions, a reduction in terminal sizes and
the use of multi-modal terminals where appropriate. These efforts, as well as a
reduction in bus miles of 5.7%, have enabled the Company to reduce maintenance,
transportation and operating rent expenses by $47.1 million, $29.8 million and
$12.8 million, respectively, for the year ending December 31, 1994, compared to
the 1991 fiscal year.
In addition to its efforts to reduce operating costs, the Company has also
pursued programs intended to increase revenues. During August 1993, the Company
began operating a Transportation Reservation Itinerary Planning System ("TRIPS")
at 228 locations, representing approximately 73% of the Company's sales, and
introduced 1-800 telephone service. However, the Company experienced system
implementation problems
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related to TRIPS which resulted in long lines and inconvenienced passengers
during late 1993 and early 1994. In addition, the Company experienced
overwhelming call activity on its 1-800 telephone service, which resulted in the
inability of customers to obtain timely fare and schedule information by
telephone. In 1993, in response to these problems, the Company limited the
number of locations at which reservations were taken and reduced the calling
area for its 1-800 telephone service. The problems the Company experienced with
the TRIPS system adversely affected the quality of the service experienced by
the Company's customers in the second half of 1993 and in early 1994. The
Company has since simplified these systems and believes that it has corrected
its start-up problems through a combination of procedural changes as well as
hardware and software upgrades. These modifications have allowed these systems
to be successfully reintroduced on a broader basis. In late 1994, the Company
began accepting only prepaid reservations, which decreased the average call
length to the telephone information center thereby increasing the Company's call
capacity and responsiveness. In addition, the Company improved queuing
algorithms and increased staffing at its telephone information center. As a
result, the Company has increased the number of unique callers eventually
reaching the telephone information center from 70% to 80% in the summer and
early fall of 1994 to over 90% currently.
The Company currently uses TRIPS to sell tickets, to manage revenue and
seat capacity, to quote fare and schedule information and, on a very limited
basis, sell tickets by mail. The Company currently uses TRIPS at 250 terminal
locations, an increase from the 232 locations using the system in January 1994.
Currently, more than 80% of the tickets sold by the Company, including reissues,
are TRIPS-issued tickets, compared to 65% in January 1994. Following the most
recent major system hardware and software upgrades in May 1994, TRIPS has
maintained a 99% system uptime and ticketing speed is comparable to the
Company's predecessor system. Notwithstanding the foregoing, management believes
that significant opportunities for improvement in its systems continue to exist
(e.g. cheaper communications, simplified applications, and less expensive
hardware for new, low volume selling locations).
The Company has experienced continuing declines in demand for its services,
primarily as a result of poor operations beginning in the latter half of 1993,
which included limited telephone answering capacity and ineffective pricing
strategies as well as the increasing availability and reliability of automobile
travel and, in certain markets, significant competition from regional bus
companies and discount airlines. In response, in mid-1994 the Company initiated
a review of all facets of its business, including its route structure,
schedules, city-pair offerings, marketing and pricing strategies, systems,
properties and personnel requirements. New management continued and refocused
this review. As a result, the Company is increasing its focus on the basic
operations of its business, including increasing telephone answering capacity,
improving on-time performance, restaffing the pricing function to actively
manage pricing in individual markets, reducing the use of deeply discounted
advance purchase tickets and introducing every day low pricing. Such a "back to
basics" strategy will seek to maximize the unique value of the national bus
network and will focus on serving both the long and short-haul markets while
connecting rural and urban America. The Company's new strategy will be supported
by a marketing campaign that integrates advertising, public relations, sales
promotion, and pricing.
The Company also plans to continue to de-emphasize the reservation portion
of its TRIPS system in order to simplify the ticketing process, reduce ticketing
time, provide for more responsive telephone service and expand TRIPS to serve
more selling locations. Plans to improve service also include opening an
additional telephone center, thus providing more telephone answering capacity
during peak times. Additionally, the Company is attempting to reestablish
relations with the regional bus carriers in order to enhance interline service
and possibly increase the use of shared terminals. The Company also plans to
increase its position in the charter business in the twelve to fifteen locations
where the Company has sufficient maintenance capabilities and transportation
management, and the Company will attempt to improve its position in its package
express delivery service through localized marketing strategies and price and
schedule improvements. Management is currently developing charter and package
express programs to determine their revenue potential and cost effectiveness.
During the implementation of these and other revenue and cost initiatives,
the full impact of expected cost savings and revenue increases may not be
achieved until the strategic and operational reorganization is substantially
complete. The Company believes that substantial progress will be made during
1995. However,
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full implementation of these revenue and cost initiatives will be achieved over
the next twelve to eighteen months.
MARKETS
Passengers. The Company's major passenger markets are large metropolitan
areas, although the business is geographically fragmented with the 50 largest
sales outlets accounting for approximately 54% of 1994 ticket sales and the 500
largest origin/destination city pairs making up approximately 23% of 1994 ticket
sales. Based on demographic studies, the Company believes that its potential
riders are concentrated in the northeastern, southern and industrial Midwestern
United States, as well as Texas and California. The typical passenger travels to
visit friends and relatives and generally has an annual income of below $25,000.
Based on market studies, the Company believes its customers are price sensitive
but relatively time insensitive. In many cases, the Company's passengers report
that they own automobiles considered sufficiently reliable for a trip of a
similar distance. The passengers usually make the decision to take a trip only a
short time before actually traveling.
Package Express. The Company's package express delivery service primarily
serves small commercial shippers that require rapid delivery of small parcels
within a fairly limited geographical area. Typical shipments include car repair
parts, computer parts and forms, fresh flowers, eyeglasses, medical and dental
supplies and certain pharmaceutical products. This portion of the Company's
business is strongest in the southern and western regions of the United States.
The Company is not a significant service provider in the document or letter
delivery business and discourages long-distance personal shipments. Depending on
the service chosen and the distance to the receiving location, the Company's
delivery time ranges from 4 to 48 hours. During 1994, the average parcel shipped
via the Company's package express delivery service weighed 19.14 pounds and was
shipped at an average sales price of $13.15 as compared to 19.31 pounds and
$13.00 during 1993.
Food Service. The Company's food service division manages facilities in
approximately 200 locations, which primarily serve the Company's passengers. The
operations include Company-operated facilities and contract concessionaires and
range in service levels from full-service cafeterias to vending machines only.
COMPETITION
Passengers. The Company's primary sources of competition for passengers
are airlines (primarily discount airlines), automobiles, and, in several
markets, regional bus companies and Amtrak. Recent trends in the travel market
include a consistent increase in discounted airline pricing and the emergence of
low-fare regional airlines. These regional airlines now compete in
intermediate-haul markets (400 to 700 miles) that formerly had little, if any,
low-cost airline travel available. In response, the Company and the bus industry
generally have reduced prices in these markets in an attempt to compete. Price
is the primary method of meeting airline competition and, consequently, the
Company is staffing to achieve a more timely response to specific market
changes.
The automobile is the most significant form of competition to the Company.
The out-of-pocket costs of operating an automobile are generally less than the
cost of bus travel, particularly for multiple traveler parties. The Company
meets this competitive trend through price and convenient scheduling. To some
extent, the Company is protected from the incremental economics of auto travel
since many of its customers travel alone. The lack of multiple, reliable cars
within a family, and fear of driving alone for long distances, serves to offset
the economic advantage of multi-person travel in a single car.
Competition from regional bus companies has increased materially during the
past several years. Price, frequency of service and express scheduling are the
current strategies of the Company to meet this competition. In addition, the
Company is moving to improve relations with regional bus carriers in an effort
to increase feed traffic, enhance interline travel and reduce station costs.
Regional bus companies currently service more routes competitive to the
Company than in the recent past. These competitors also possess operating
authority over numerous routes potentially competitive to the
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Company that they do not currently operate; however, based on market and
competitive conditions, the regional bus companies could operate such routes in
the future. The National Trailways Bus System has stated its intent to recreate
a national network to compete with Greyhound. To date, its efforts have been
unsuccessful. Since the bus industry competes with all intercity modes of
transportation and most bus routes are not self-sustaining with local traffic,
the Company intends to compete for local business, while also improving
long-haul traffic by rebuilding its entire network, both on a regional and
national basis.
Package Express. The Company faces intense competition in its package
express delivery service from local courier services, the U.S. Postal Service
and overnight, express and ground carriers. The Company is attempting to
stabilize its position in the industry by concentrating its efforts on in-house
telemarketing and on local marketing, utilizing terminal managers to solicit
local sales prospects and improve local operations.
Food Service. The captive nature of the food service operations in the
Company's terminals limits competition; however, in some locations proximity to
fast food outlets and convenience stores can pose a competitive factor.
SEASONALITY
The Company's business is seasonal in nature and generally follows the
pattern of the travel business as a whole, with peaks during the summer months
and the Thanksgiving and Christmas holiday periods. Historically, the Company
has experienced substantial seasonal variances in its cash flow.
1991 REORGANIZATION UNDER CHAPTER 11
In March 1990, substantially all the Company's bus drivers, clerical
workers and mechanics represented by the Amalgamated Transit Union (the "ATU")
went on strike following unsuccessful contract renewal negotiations. Although
the Company continued its operations by hiring replacement drivers as quickly as
possible, and most striking workers, other than drivers, returned to work, the
revenue losses and expenses associated with the strike exhausted the Company's
cash resources. In June 1990, the Company filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). The Company's
Chapter 11 plan of reorganization was confirmed by the United States Bankruptcy
Court for the Southern District of Texas, Brownsville Division (the "Bankruptcy
Court"), and the Company emerged from bankruptcy on October 31, 1991.
WORKFORCE
At January 31, 1995, the Company employed approximately 10,100 workers,
consisting of approximately 4,000 terminal employees, 3,400 drivers, 1,000
supervisory personnel, 900 mechanics, 300 clerical workers and 500 telephone
information clerks. Of the total workforce, 7,300 are full-time employees and
2,800 are part-time employees. Labor costs accounted for 34% of total operating
expenses in both 1993 and 1994.
At January 31, 1995, 47% of the Company's employees were represented by
collective bargaining agreements. The ATU represents the Company's drivers,
telephone information clerks, and certain of its terminal workers and mechanics.
On March 2, 1990, workers represented by the ATU commenced a strike against the
Company following unsuccessful contract renewal negotiations. In April 1993, the
Company, the ATU and the General Counsel of the National Labor Relations Board
("NLRB") jointly announced a proposed settlement of the strike and certain
related litigation. The principal terms of the settlement, which have now been
approved by the NLRB and Bankruptcy Court, involve (i) a new, six-year
collective bargaining agreement expiring on January 31, 1999, which contains
no-strike and no-lockout provisions, which the ATU membership ratified in May
1993, (ii) implementation of a return to work agreement, (iii) payment of
backpay to striking employees solely from certain assets held by a trust
established under the plan of reorganization, and (iv) dismissal of all
litigation between the parties (other than one issue related to the seniority of
drivers hired with previous commercial driving experience, which will be
resolved in the litigation before the NLRB and appeals, if any). See "ITEM 3.
LEGAL PROCEEDINGS -- Labor Litigation."
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In addition to the ATU-represented employees, at January 31, 1995,
approximately 380 mechanics and other maintenance employees in 20 maintenance
locations are represented by the International Association of Machinists and
Aerospace Workers (the "IAM"). The IAM-represented employees are governed by a
labor contract that expires on October 1, 1996. Also, the International
Brotherhood of Teamsters represents 61 terminal employees. During 1993 and 1994,
there was an increase in unionization efforts directed at the Company's terminal
employees. However, as of January 31, 1995, terminal employees at only five
terminals were unionized. Texas, New Mexico & Oklahoma Coaches, Inc., a
subsidiary of the Company, employs 127 drivers who are represented by the United
Transportation Union and 42 mechanics who are represented by the IAM.
TRADEMARKS
In connection with the Company's acquisition of the domestic bus operations
of Dial, Dial granted the Company a perpetual, exclusive license to use the
Greyhound name and trademark and the "image of the running dog" trademark in the
United States and Mexico for travel and transportation (except by water)
purposes pursuant to a trademark license agreement. These names and trademarks
have substantial consumer awareness.
In connection with the conclusion of the Company's Chapter 11
reorganization in 1991, the Company and Dial entered into a comprehensive
renegotiation of all of the Company's then effective agreements with Dial (the
"Dial Agreements"), including the trademark license agreement, pursuant to a
Claims Treatment Agreement (herein so called). At that time, Greyhound owed
substantial pre-petition royalties on the trademark license agreement and had
ongoing royalty obligations thereunder. Pursuant to the Claims Treatment
Agreement, the pre-petition royalty obligations, together with the other
pre-petition obligations owing on the Dial Agreements, were evidenced by a Cure
Note (herein so called), which has since been repaid.
As part of the Claims Treatment Agreement, each Dial Agreement was amended
to provide that it is a default thereunder and under the Cure Note if there
occurs (a) a default under the Claims Treatment Agreement, (b) a default under
any term or provision of the Company's Chapter 11 plan of reorganization
relating to the Company and Dial and its affiliates, (c) a default under any of
the other Dial Agreements, (d) any material change in the disclosure statement
relating to the Company's Chapter 11 plan of reorganization, or (e) a Change of
Control (as defined in the Senior Note Indenture). The Company does not believe
that any such defaults have occurred and Dial has not asserted to the contrary.
If any of the foregoing defaults occur, the Claims Treatment Agreement
purports to provide Dial the right, on ten days' prior written notice, to
accelerate all amounts due under the Cure Note and to terminate each of the Dial
Agreements. In a separate section of the Claims Treatment Agreement, however,
the right of Dial to terminate the Dial Agreements is purportedly waived. The
Cure Note and all other royalty obligations owing under the trademark license
agreement have now been paid in full and no licensing fees are currently owing
or payable for the continued use of the Greyhound name and trademark. Because
the license agreement is fully paid for, no amounts remain owing under the Cure
Note and the fact that the Claims Treatment Agreement contains a purported
waiver of the purported right to terminate the Dial Agreements, if Dial asserted
that one of the foregoing defaults has occurred or if one of such defaults in
fact occurs in the future, the Company would vigorously resist any attempt by
Dial to terminate the Dial agreements, including the trademark licensing
agreement.
GOVERNMENT REGULATION
The Interstate Commerce Commission. Entry into the interstate/intercity
bus industry is regulated by the Interstate Commerce Commission (the "ICC").
Once granted, an ICC license may be suspended or revoked if the licensee fails
to comply with ICC regulations or orders or with the conditions or restrictions
of its license. Since the Company's formation in late 1986, no ICC license
granted to it has been suspended or revoked. ICC regulation of the
interstate/intercity bus industry also includes, among other things,
establishment of consumer protection rules and standards for scheduled passenger
service, specification of routes for
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scheduled passenger service operators, imposition of reporting and record
retention requirements, establishment of regulations for the filing of tariffs
(price lists), enforcement of liability insurance requirements (see
"-- Insurance Coverage") established by the Department of Transportation, and
authorization of any merger or acquisition resulting in common control of two or
more ICC regulated carriers. As the largest and only nationwide bus operator,
the Company is subject to close supervision by the ICC and is subject to
occasional complaints filed by other bus competitors. At present, the ICC is
undergoing a "sunset" review by Congress and the ultimate disposition of its
regulatory functions is unknown.
The Department of Transportation. The Department of Transportation (the
"DOT") regulates motor carrier safety, including drivers' qualifications, duties
and hours of service, parts and accessories necessary for safe operation,
accident reporting, inspection and maintenance and the minimum amounts of
personal injury and property liability insurance a carrier must maintain. In
addition, the DOT has issued regulations prescribing procedures for inspection,
surveillance and measurement of noise emissions by motor vehicles operated by
motor carriers to determine whether those vehicles conform to noise emission
standards promulgated by the United States Environmental Protection Agency (the
"EPA"). Periodically, the Company is subject to inspection or audit by the DOT
to determine compliance with DOT regulations and to establish a "safety" rating
of the Company. As a condition to self-insurance authority granted by the ICC
(see "Insurance Coverage"), the Company must maintain a "satisfactory" safety
rating from DOT. All of the buses in the Company's fleet contain engines that
comply with, or are grandfathered from compliance with, EPA regulations. The
Company's buses are subject to periodic inspection to ensure compliance with
state and federal emission standards. On occasion, the Company is subject to
nominal fines and citations when its buses are determined to be in
non-compliance with noise or emission standards.
State Regulations. The Company has received authority to conduct
intrastate operations in the continental United States and in the District of
Columbia and, therefore, is subject to state regulation of its intrastate
operations. State laws governing motor vehicles necessitate registration of
buses in jurisdictions depending on the amount and nature of use in such state.
State regulations, in some cases, apply to interstate carriers which, when
traveling across a state, carry intrastate passengers. In those cases, the ICC
has power to authorize intrastate entry and to preempt state exit and rate
regulation, but the carrier still may be subject to state regulations relating
to size and weight limitations, service adequacy, safety standards, insurance
tariff filings and financial transactions, including mergers or acquisitions not
regulated by the ICC and securities issuances. Because these types of
regulations may vary from state to state, the Company is burdened by the
necessity of complying with inconsistent state regulations. Recent legislation
was adopted by Congress pre-empting state regulation of regular route passenger
fares of ICC-regulated bus operators and, after January 1, 1995, the rates for
their transportation of newspaper, express and other property.
Other. In addition, the Company is subject to regulations under the
Americans with Disabilities Act (the "ADA"), the Civil Rights Act of 1964, as
amended, and the Occupational Safety and Health Act. Under the ADA, the Company
must make new buses acquired after July 1996 accessible to disabled persons. The
ADA does not require the retrofitting of existing buses with lift equipment. The
DOT is currently considering proposed regulations regarding bus access and
whether new buses should be equipped with lift equipment or whether alternative
forms of stationary terminal-based lift devices should be permitted. The form of
required access is uncertain as of the date of this filing, but the expense of
compliance, once the new regulations take effect could be material to the
Company's results of operations. The Company expects that new buses with
built-in lift devices will be more costly to purchase, by as much as $10,000 to
$25,000 per bus, and will be more costly to maintain.
INSURANCE COVERAGE
The ICC has 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. To maintain self-insurance authority, the ICC
requires the Company to maintain a tangible net worth of $10.0 million and to
maintain a $15.0 million trust fund (currently fully funded) to provide security
for payment of claims. At December 31, 1994, the Company's tangible net worth
was $134.6 million. Subsequent to the ICC grant, thirty-eight states and the
District of Columbia also granted the Company the right to self-insure its
intrastate automobile
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liability exposure. The Company maintains comprehensive automobile liability,
general liability and property insurance to insure its assets and operations
subject to a $1.5 million per occurrence self-insured retention or deductible,
and maintains workers' compensation insurance, subject to a $1.0 million per
occurrence self-insured retention or deductible.
In November 1994, United Bus Owners of America filed a petition with the
ICC requesting that the ICC review the Company's self-insurance authority. The
Company filed a response to the petition, which remains pending. A decision by
the ICC to revoke that authority would have a material adverse effect on the
future liquidity and operations of the Company. A decision by the ICC to require
additional contributions to the trust fund could have such an effect, depending
on the amount of additional funds required to be deposited.
As part of its operational restructuring, the Company is increasing its
insurance staff, adding loss prevention programs and re-engineering claims
management. As with the ICC self-insurance programs described above, 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 future liquidity and operations of the
Company. (See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Capital Resources and Liquidity").
ENVIRONMENTAL MATTERS
The Company may be liable for certain environmental liabilities and
clean-up costs relating to underground fuel storage tanks and systems in the
various facilities presently or formerly owned or leased by the Company. Based
upon surveys conducted by Company personnel, 75 locations have been identified
as sites requiring potential clean-up and/or remediation as of December 31,
1994. Of this number, eight locations are surplus properties currently held for
sale. The Company has estimated the cost of the clean-up of these eight sites to
be $1.8 million of which $400,000 is indemnifiable by Dial pursuant to indemnity
obligations arising out of the 1987 acquisitions of the domestic bus operations
of Dial. The Company has estimated the clean-up and/or remediation costs for the
remaining sites to be $4.5 million, of which $500,000 is indemnifiable by Dial.
The Company has recorded a $900,000 receivable from Dial for the indemnification
at December 31, 1994. The Company has no reason to believe that Dial will not
fulfill its indemnification obligations to the Company. However, if Dial does
not fulfill such obligations, the Company could have liability with respect to
those matters. The indemnification obligations of Dial were the subject of the
Claims Treatment Agreement (see -- "Trademarks"). Additionally, the Company has
been designated as a potentially responsible party by the EPA at four Superfund
sites where the Company and other parties face exposure for costs related to the
clean-up of those sites. The Company believes its liability at these sites will
be settled for an immaterial amount because its involvement at the sites was as
a de minimis generator of wastes disposed of at the sites. In light of the
minimal involvement, the Company has been negotiating to be released from
liability in return for the payment of immaterial settlement amounts. The
Company has recorded a total environmental reserve of $6.0 million, including
the $1.8 million for the surplus properties, at December 31, 1994, for
noncapitalizable expenses related to the sites identified for potential clean-up
and/or remediation. The reserve amount for the remaining sites is based on
discounted cash flows at a discount rate of 8%. Management believes that
adequate accruals have been made related to all known environmental matters.
ITEM 2. PROPERTIES
LAND AND BUILDINGS
At January 31, 1995, the Company used 562 pieces of real property in its
operations, of which 162 properties are owned and 400 are leased. Of those
properties, 444 are bus terminals, 35 are maintenance facilities, and the
remaining properties consist of driver dormitories, parking/storage lots, office
buildings and a telephone information center. The Company's properties vary in
size from approximately 100 square feet to approximately 215,000 square feet.
The Company leases ten of its key facilities from Dial, nine of which are leased
pursuant to a master lease agreement that expires in 1997. Under the master
lease agreement, Dial may terminate the lease as to each or up to nine of the
leased properties on six months' notice. Dial is actively marketing at least
three of the master lease properties. Should one or more of those properties be
sold, the
7
<PAGE> 10
Company expects to receive a termination notice. The Company believes the
current makeup of its properties is adequate for its operations, and based on
its recent experience, that it will be able to find suitable replacement
properties on acceptable terms for any properties the Company chooses to replace
or which are condemned or for which leases are not renewed or are otherwise
terminated (including those properties leased from Dial). The master lease
agreement is one of the Dial Agreements subject to the Claims Treatment
Agreement (see "ITEM 1. BUSINESS -- Trademarks").
BUSES
At January 31, 1995, the Company, including its three operating
subsidiaries, operated a fleet of approximately 1,900 buses. Of those buses,
approximately 700 are owned and 1,200 are leased. All but 181 of these buses are
from one manufacturer, Motor Coach Industries International, Inc. ("MCII"). The
Company must purchase at least 75% of its bus requirements, if any, from MCII
pursuant to a bus purchase requirements contract that continues through March
18, 1998.
Beginning in 1992 and continuing through 1994, the Company improved the
quality, reliability and efficiency of its bus fleet by acquiring new buses and
not renewing leases on certain older buses. As a result, the average age of the
fleet was 6.4 years on January 31, 1995, 6.4 years on January 31, 1994 and 9.5
years on January 31, 1993. During 1994, the Company took delivery of 151 new
buses. New buses are generally more reliable than older buses and, due in part
to warranty coverage, are less costly to maintain. Newer buses, as well as older
buses with newer engines, are also more fuel efficient than buses with older
engines. In addition, the Company has reduced maintenance costs and increased
operating efficiencies through the reduction in the number of makes and models
of buses and types of engines used in its fleet. The Company is also continuing
its "Continuous Quality Maintenance" program to better control repair costs and
improve fleet reliability. In 1994, average scheduled miles operated per bus was
127,000 miles, compared to 125,000 miles in 1993 and 108,000 miles in 1992. As a
result of its revenue development activities, the Company does not expect its
bus utilization to continue to increase.
ITEM 3. LEGAL PROCEEDINGS
LABOR LITIGATION
The ATU strike in March 1990 resulted in two related proceedings, one
before the NLRB and the other related to the Company's Chapter 11
reorganization. In April 1993, the Company, the ATU and the General Counsel of
the NLRB jointly announced a proposed settlement of the strike and certain
related litigation. The proposed settlement was approved by an Administrative
Law Judge of the NLRB in September 1994, the full NLRB in February 1995 and by
the Bankruptcy Court in March 1995.
The settlement resulted in the dismissal of all litigation between the ATU,
NLRB and the Company, with the exception of one issue related to the Company's
1990 granting of seniority to drivers hired with previous commercial driving
experience, which issue will be resolved in litigation before the NLRB and
appeals, if any. In September 1994, an Administrative Law Judge of the NLRB
issued a ruling finding that the granting of seniority to drivers with previous
commercial driving experience constituted an unfair labor practice by the
Company. The Company has appealed this ruling.
If the Company were to ultimately lose this litigation, after all appeals,
it may be exposed to liability to drivers hired after March 1990 that would lose
their experience-based seniority credit. Liability to drivers hired before March
1990 who might lose their experienced-based seniority was resolved in the
aforementioned settlement. Based on the assessment of the liability exposure it
could face in settling these claims, the Company does not believe that this
liability would have a material adverse effect on its business, results of
operations or financial condition.
DEPARTMENT OF JUSTICE INVESTIGATION
In March 1994, the Antitrust Division of the U.S. Department of Justice
(the "DOJ") initiated an antitrust investigation to determine whether there is,
has been, or may be a violation by the Company of
8
<PAGE> 11
Sections 1 and 2 of the Sherman Act by conduct or activities constituting a
restraint of trade, monopolization or an attempt to monopolize. This
investigation principally involves the competitive impact of (i) the Company's
computerized reservation system, including the provision of fare and scheduling
information via telephone, (ii) the Company's decision to discontinue publishing
its bus schedules in an industry publication and (iii) various provisions
contained in agreements with bus carriers using the Company's terminals. Under
DOJ procedures, this investigation is preliminary in nature and seeks to
determine whether the DOJ should file a complaint against the Company.
Pursuant to this investigation, the DOJ served a civil investigative demand
("CID") on the Company in March 1994. The CID required the Company to answer
various interrogatories and to produce certain documents. In July 1994, the
Company completed the production of documents and answered the interrogatories
required by the CID. In November 1994, the DOJ's staff contacted counsel for the
Company and indicated that they believed that one of the several business
practices investigated, a provision contained in agreements with bus carriers
using the Company's terminals, violated Section 1 of the Sherman Act. The
Company believes that the subject provision does not violate that antitrust law.
The DOJ has requested that the Company enter into a consent decree enjoining the
Company from enforcing the subject provision in its terminal license agreements.
In 1993, the ICC's Office of Economics conducted an assessment of
essentially the same issues involved in the DOJ investigation. In July 1993, the
ICC issued a report concluding that, although the Company has initiated many
business and technological practices that affect the bus industry, the Company
has not intentionally mistreated other carriers or engaged in any
anti-competitive practices. In September 1994, the ICC voted to discontinue any
further potential rulemaking action with respect to the issues it investigated
in 1993.
Given the preliminary nature of the DOJ investigation, the Company cannot
assess the impact, if any, on its business or financial condition or results of
operations. If the DOJ's investigation is in fact limited to the single
provision in the terminal license agreements, the Company believes that the
investigation will not have a material impact on the Company's business,
financial condition or results of operations.
OKLAHOMA SALES TAX CLAIM
In January 1991, the Oklahoma Tax Commission ("OTC") filed a proof of claim
with the Bankruptcy Court in connection with the Company's Chapter 11 bankruptcy
case. That claim related to sales taxes which the OTC alleged were due and owing
by the Company on interstate bus tickets sold in Oklahoma. The OTC claim
involved a proposed tax assessment of approximately $908,000. The Company
objected to the claim on the basis that the tax the OTC proposed to assess was
an improper burden on interstate commerce in violation of the Commerce Clause of
the United States Constitution. In February 1993, the Bankruptcy Court denied
the OTC's claim in its entirety, finding that the Oklahoma sales tax on
interstate travel was unconstitutional. The OTC subsequently appealed the
Bankruptcy Court's decision to the U.S. District Court for the Southern District
of Texas, Brownsville Division (the "District Court"), which affirmed the
Bankruptcy Court's ruling in October 1993. In November 1993, the OTC appealed
the case to the United States Circuit Court of Appeals for the Fifth Circuit
(the "Fifth Circuit"). The decision of the Fifth Circuit is being held in
abeyance pending the United States Supreme Court's decision in another case
brought by the OTC against another bus carrier involving the same issues. In
November 1994, oral argument was held before the United States Supreme Court
involving the OTC's claim against the other bus carrier. If the OTC were to
ultimately prevail in the litigation, the Company would be obligated to pay the
tax assessment. Additionally, the OTC would likely file another tax assessment
covering the tax due for the period subsequent to the original claim filed with
the Bankruptcy Court.
SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION
On August 23, 1994, a purported class action lawsuit was filed by Joseph
Sonnenberg, a purported owner of the Company's Common Stock, against the Company
and certain of its former officers and directors. The suit seeks unspecified
damages for securities law violations as a result of statements made in public
reports and
9
<PAGE> 12
press releases and to securities analysts during 1993 and 1994 that are alleged
to have been false and misleading. The suit, filed in the United States District
Court for the Northern District of Texas, is styled Sonnenberg v. Greyhound Bus
Lines, Inc., Frank J. Schmieder and Michael Doyle, Civil Action No. 3-94CV-
1793G.
On October 5, 1994, a purported class action lawsuit was filed by Bruce
Doniger, a purported owner of the Company's Convertible Debentures, against the
Company and certain of its former officers and directors. The suit seeks
unspecified damages for securities law violations as a result of statements made
in public reports and press releases and to securities analysts in 1993 and 1994
that are alleged to have been false and misleading. The suit, filed in the
United States District Court for the Northern District of Texas, is styled Bruce
Doniger v. Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle,
Civil Action No. 3-94CV-2135X.
On October 20, 1994, a purported class action lawsuit was filed by M.
Murray Van De Velde, a purported owner of the Company's Convertible Debentures,
against the Company and certain of its former officers and directors. The suit
seeks unspecified damages for securities law violations as a result of
statements made in public reports and press releases and to securities analysts
during 1993 and 1994 that are alleged to have been false and misleading. The
suit, filed in the United States District Court for the Northern District of
Texas, is styled M. Murray Van De Velde v. Greyhound Bus Lines, Inc., Frank J.
Schmieder and J. Michael Doyle, Civil Action No. 3-94CV-2240R.
On October 21, 1994, a purported class action lawsuit was filed by Emile
Gladstone, a purported owner of the Company's Senior Notes, against the Company,
certain of its former officers and directors, and Smith Barney Inc. The suit
seeks unspecified damages for securities law violations as a result of
statements made in public reports and press releases and to securities analysts
during 1993 and 1994 that are alleged to have been false and misleading. The
suit, filed in the United States District Court for the Northern District of
Texas, is styled Emile Gladstone v. Greyhound Lines, Inc., Smith Barney Inc.,
Charles J. Lee, Charles A. Lynch, Frank J. Schmieder and J. Michael Doyle, Civil
Action No. 3-94CV-2258J.
On October 25, 1994, a purported class action lawsuit was filed by Lawrence
Robbins, a purported owner of the Company's Common Stock, against the Company, a
present officer, certain former officers and directors, and Smith Barney
Shearson. The suit seeks unspecified damages for securities law violations as a
result of statements made in public reports and press releases and to securities
analysts during 1993 and 1994 that are alleged to have been false and
misleading. The suit, filed in the United States District Court for the Northern
District of Texas, is styled Lawrence Robbins v. Greyhound Bus Lines, Inc.,
Frank J. Schmieder, J. Michael Doyle, Charles Lynch, Phillip W. Taff, Robert R.
Duty, Ralph Borland, Don T. Seaquist, Charles Lee and Smith Barney Shearson,
Civil Action No. 3-94CV-2270H.
On November 2, 1994, a purported class action lawsuit was filed by The
Witness Organization Pension Plan & Trust Dated 5-30-86, Philip H. deRoulet,
Trustee, a purported owner of the Company's Convertible Debentures, against the
Company and certain of its former officers and directors. The suit seeks
unspecified damages for securities law violations as a result of statements made
in public reports and press releases and to securities analysts during 1993 and
1994 that are alleged to have been misleading. The suit, filed in the United
States District Court for the Northern District of Texas, is styled The Witness
Organization Pension Plan & Trust Dated 5-30-86, Philip H. deRoulet, Trustee v.
Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action
No. 3-94CV-2332G.
On December 12, 1994, a purported class action lawsuit was filed by the
State Board of Administration of Florida and Louisiana State Employees
Retirement System, purported owners of the Company's Common Stock, against the
Company and certain of its former officers and directors. The suit seeks
unspecified damages for securities law violations and common law fraud and
deceit as a result of statements made in public reports and press releases and
to securities analysts during 1993 and 1994 that are alleged to have been
misleading. The suit, filed in the United States District Court for the Northern
District of Texas, is styled State Board of Administration of Florida and
Louisiana State Employees Retirement System v. Greyhound Lines, Inc., J. Michael
Doyle, Charles A. Lynch, Frank J. Schmieder, and "John Doe" and "Richard Roe,"
Civil Action No. 3-94-CV-2694-R. Although this case has been filed, it has not
yet been served on any defendants.
10
<PAGE> 13
All the purported class action cases above (with the exception of State
Board of Administration of Florida and Louisiana State Employees Retirement
System v. Greyhound Lines, Inc., J. Michael Doyle, Charles A. Lynch, Frank J.
Schmieder, and "John Doe" and "Richard Roe," Civil Action No. 3-94-CV-2694-R,
which has not yet been served on any defendants) have been transferred to the
Court in which the first purported class action suit is pending. A joint
pretrial order has been entered in the class action litigation which
consolidates for pretrial and discovery purposes all of the stockholders actions
and, separately, all of the debtholders actions. The joint pretrial order
requires plaintiffs to file consolidated amended complaints and excuses answers
to the original complaints. Plaintiffs' complaints are not yet due. When filed,
the Company will have forty-five days to answer or otherwise respond, unless the
time is extended.
With respect to State Board of Administration of Florida and Louisiana
State Employees Retirement System v. Greyhound Lines, Inc., J. Michael Doyle,
Charles A. Lynch, Frank J. Schmieder, and "John Doe" and "Richard Roe," Civil
Action No. 3-94-CV-2694-R, this suit has not yet been served on any defendants,
and thus no answer or other response by the defendants is required. It is
expected that, if served, one of the parties will seek to transfer this case to
the Court where the other purported class actions are pending for consolidation
under the joint pretrial order.
On November 2, 1994, a shareholder derivative lawsuit was filed by Harvey
R. Rice, a purported owner of the Company's Common Stock, against present
directors and former officers and directors of the Company and the Company as a
nominal defendant. The suit seeks to recover monies obtained by certain
defendants by allegedly trading in the Company's securities on the basis of
non-public information and to recover monies for certain defendants' alleged
fraudulent dissemination of false and misleading information concerning the
Company's financial condition and future business prospects. The suit, filed in
the Delaware Court of Chancery, New Castle County, is styled Harvey R. Rice v.
Frank J. Schmieder, J. Michael Doyle, Charles A. Lynch, Richard J. Caley, Thomas
F. Meagher, Thomas G. Plaskett, Kenneth R. Norton, Robert B. Gill, Alfred E.
Osborne, Jr., J. Patrick Foley, Charles J. Lee and Greyhound Lines, Inc., Civil
Action No. 13854.
Pursuant to a stipulation, the current deadline for all defendants to
answer, move or otherwise plead with respect to the derivative complaint is not
yet due.
The above cases have been on file for only a short period of time, and no
discovery has been conducted with respect to the claims. Based on a review of
the litigation, a limited investigation of the underlying facts and discussions
with legal and outside counsel, the Company does not believe that the outcome of
this litigation would have a material adverse effect on its business and
financial condition. The Company intends to defend against the actions
vigorously. To the extent permitted by Delaware law, the Company is obligated to
indemnify and bear the cost of defense with respect to lawsuits brought against
its officers and directors. The Company maintains directors' and officers'
liability insurance that provides certain coverage for itself and its officers
and directors against claims of the type asserted in the subject litigation. The
Company has notified its insurance carriers of the asserted claims.
On January 23, 1995, the Company received notice that the Securities and
Exchange Commission is conducting a formal, non-public investigation into
possible securities laws violations allegedly involving the Company and certain
of its present and former officers, directors and employees and other persons.
The order of investigation states that the SEC is exploring possible insider
trading activities, as well as possible violations of the federal securities
laws relating to the adequacy of the Company's public disclosures with respect
to problems with its passenger reservation system implemented in 1993 and
lower-than-expected earnings for 1993. In addition, the SEC investigation will
examine the adequacy of the Company's record keeping with respect to the
passenger reservation system and its internal accounting controls. Although the
SEC has not announced the targets of the investigation, it does not appear from
the order that the Company is a target of the insider trading portion of the
investigation. The Company is fully cooperating with the SEC. The probable
outcome of this investigation cannot be predicted at this early stage in the
proceeding.
INTERNAL REVENUE SERVICE EXAMINATION
The Internal Revenue Service (the "IRS") has conducted an examination of
the Company's consolidated federal tax returns for the years 1987, 1988 and
1989. The IRS and the Company entered into Closing
11
<PAGE> 14
Agreements As To The Determination Of Specific Matters, dated February 13, 1992,
and October 7, 1992, wherein the Company agreed to certain income adjustments
resulting in additional tax assessments of approximately $1 million in the
aggregate for the years examined. Remaining issues resulting in potential income
tax expense and interest of $1.8 million are being contested and are scheduled
to be litigated. If resolved against the Company, management does not believe
that such adverse outcome would have a material adverse effect on its business,
financial condition or results of operations.
INVOLUNTARY CHAPTER 11 FILING
On November 2, 1994, the Company received from certain persons claiming to
own in excess of 25% of the aggregate principal amount of the outstanding
Convertible Debentures a purported notice of acceleration of the entire
principal amount of the Convertible Debentures. Concurrently, a subset of those
persons filed an involuntary petition under Chapter 11 of the Bankruptcy Code
against the Company in the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division. The case was styled In re Greyhound, Case
No. 394-36594-RCM-11. On December 19, 1994, in anticipation of the completion of
the Company's Financial Restructuring, the involuntary bankruptcy petition was
dismissed upon joint motion of the Company and the petitioning creditors. The
Financial Restructuring was successfully completed in December 1994, and
approximately 90% of the aggregate principal amount of the outstanding
Convertible Debentures was tendered to the Company in return for Common Stock.
In January 1995, the Company made the interest payment on the Convertible
Debentures that remained outstanding, thus curing existing defaults thereunder.
OTHER LEGAL PROCEEDINGS
In addition to the litigation 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. 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
selfretention or deductible portion of the policies. Therefore, based on the
Company's assessment of known claims and its historical claims payout pattern
and discussion with legal and outside counsel and risk management personnel,
management believes that there is no proceeding either threatened or pending
against the Company or its subsidiaries relating to such personal injury and/or
property damage claims arising out of the ordinary course of business that, if
resolved against the Company, would be likely to have a material adverse effect
on its business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
An amendment to the Company's Restated Certificate of Incorporation was
approved at a special meeting of stockholders on December 21, 1994. The
amendment increased the number of shares of Common Stock of the Company
authorized for issuance from 50,000,000 shares to 100,000,000 shares,
principally to permit the consummation of the Financial Restructuring of the
Company that was completed in December 1994 (see "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"). The
amendment required an affirmative vote of at least two-thirds of the outstanding
shares of Common Stock. At the time of the meeting, there were 14,668,244 shares
of Common Stock outstanding. Total stockholder votes for, against and
abstentions on the proposal were 9,922,196, 150,347, and 57,606, respectively.
There were no broker non-votes.
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<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Common Stock, par value $.01 per share, (the "Common Stock") of the
Company is listed on the American Stock Exchange under the symbol "BUS." The
following table sets forth the high and low sale prices for the Company's Common
Stock during the periods indicated as reported by the American Stock Exchange:
<TABLE>
<CAPTION>
HIGH LOW
----- ----
<S> <C> <C>
First Quarter 1993....................................... $18 1/2 $ 10 7/8
Second Quarter 1993...................................... 22 3/4 16 3/4
Third Quarter 1993....................................... 22 11 1/8
Fourth Quarter 1993...................................... 15 3/8 11 1/8
First Quarter 1994....................................... $12 1/2 $ 9 1/2
Second Quarter 1994...................................... 11 6 1/4
Third Quarter 1994....................................... 6 7/8 1 3/4
Fourth Quarter 1994...................................... 3 1 1/8
January 1, 1995 - March 1, 1995.......................... 2 1/16 1 1/4
</TABLE>
HOLDERS
The number of shares of Common Stock outstanding as of March 1, 1995, was
53,743,682. The Company has issued 53,852,874 shares of Common Stock, of which
109,192 shares are currently held by the Company as treasury stock. As of March
1, 1995, there were approximately 14,895 recordholders of Common Stock.
DIVIDENDS
The holders of Common Stock are entitled to dividends, when and as declared
by the Board of Directors of the Company, provided that the Company has funds
legally available for the payment of dividends and is not otherwise restricted
from the payment of dividends. The Company's existing secured credit agreement
and the indenture governing the Senior Notes (defined herein) limit cash
dividends paid by the Company on its Common Stock. The Company has not paid any
dividends on the Common Stock since the issuance of the Common Stock in October
1991, and does not anticipate paying dividends on the Common Stock at any time
in the foreseeable future.
CONVERTIBLE DEBENTURES
At December 31, 1994, the Company had outstanding $9.9 million principal
amount of its Convertible Debentures which are convertible at the option of the
holder at any time prior to maturity, unless previously redeemed, into Common
Stock at the conversion price of $12.375 per share, subject to adjustment in
certain events (see Note 12 to the December 31, 1994, Consolidated Financial
Statements). Following completion of the Financial Restructuring, the conversion
price of $12.375 per share remains unchanged. In December 1994, the Company
completed the Financial Restructuring in which approximately $89.0 million of
its Convertible Debentures were converted into approximately 22.8 million shares
of the Company's Common Stock (see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS").
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<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
Except for "Other Data" and "Operating Data," the following information has
been extracted from the audited Consolidated Financial Statements of the Company
for each of the respective periods. The Company's results of operations for the
ten months ended October 31, 1991, and the year ended December 31, 1990, are not
representative of normal operations, and thus, are not comparable to its results
of operations for subsequent periods due to the effects of the strike that began
on March 2, 1990, and the Company's subsequent Chapter 11 reorganization. See
"ITEM 1. BUSINESS -- 1991 Reorganization Under Chapter 11" included elsewhere in
this filing. Additionally, as a result of the adoption of fresh start financial
reporting upon emergence from bankruptcy and the consolidation, pursuant to the
Company's Chapter 11 plan of reorganization, of the operations of the Company
and its subsidiaries and previously unconsolidated affiliates under a
centralized corporate structure, the Statement of Operations Data for the ten
months ended October 31, 1991 and for the year ended December 31, 1990, are not
comparable to the Statement of Operations Data and the Operating Data presented
for later periods, and the Statement of Financial Position Data presented as of
December 31, 1990, is not comparable to the Statement of Financial Position Data
presented as of any later date. The following financial data, as it relates to
the Company, should be read in conjunction with "ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "ITEM 1.
BUSINESS" and the Consolidated Financial Statements of Greyhound Lines, Inc. and
Subsidiaries included elsewhere in this filing.
FIVE-YEAR STATISTICAL SUMMARY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS TEN MONTHS YEAR
DECEMBER 31, ENDED ENDED ENDED
-------------------------------------- DECEMBER 31, OCTOBER 31, DECEMBER 31,
1994 1993 1992 1991 1991 1990
----------- ----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues...................... $ 616,331 $ 666,496 $ 692,981 $ 124,937 $ 609,751 $ 706,663
Operating expenses
Transportation services............... 645,761 593,501 604,094 109,888 583,968 767,147
Depreciation and amortization......... 36,046 33,154 33,499 5,255 24,478 28,630
Interest expense........................ 33,456 30,832 35,297 6,038 15,557 29,947
Reorganization costs(a)................. -- -- -- -- 83,150 57,067
Income tax provision (benefit)(b)....... 16,862 6,253 9,142 1,580 (355) (692)
Income (loss) before discontinued
operations, extraordinary items and
cumulative effect of a change in
accounting principle(b)............... (115,794) 8,594 10,949 2,176 (97,047) (175,436)
Discontinued operations(c).............. -- -- -- -- -- 19,385
Income (loss) before extraordinary items
and cumulative effect of a change in
accounting principle(b)............... (115,794) 8,594 10,949 2,176 (97,047) (194,821)
Extraordinary items(d).................. (38,373) 407 -- -- (249,698) --
Cumulative effect of a change in
accounting principle(e)............... -- 690 -- -- -- --
Net income (loss)....................... $ (77,421) $ 7,497 $ 10,949 $ 2,176 $ 152,651 $ (194,821)
Earnings per share of Common Stock(f):
Primary
Income (loss) before extraordinary
items and cumulative effect of a
change in accounting
principle....................... $ (7.58) $ 0.65 $ 1.10 $ 0.22 N/A N/A
Extraordinary items............. 2.51 (0.03) -- -- N/A N/A
Cumulative effect of a change in
accounting principle............ -- (0.05) -- -- N/A N/A
----------- ----------- ---------- ------------
Net income (loss)................. $ (5.07) $ 0.57 $ 1.10 $ 0.22 N/A N/A
========== ========== ========= ============
Fully diluted
Income (loss) before extraordinary
items and cumulative effect of a
change in accounting
principle....................... $ (7.58) $ 0.65 $ 0.96 $ 0.22 N/A N/A
Extraordinary items..................... 2.51 (0.03) -- -- N/A N/A
Cumulative effect of a change in
accounting principle............ -- (0.05) -- -- N/A N/A
----------- ----------- ---------- ------------
Net income (loss)................. $ (5.07) $ 0.57 $ 0.96 $ 0.22 N/A N/A
========== ========== ========= ============
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS TEN MONTHS YEAR
DECEMBER 31, ENDED ENDED ENDED
-------------------------------------- DECEMBER 31, OCTOBER 31, DECEMBER 31,
1994 1993 1992 1991 1991 1990
----------- ----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL POSITION DATA:
Total assets............................ $ 511,449 $ 541,812 $ 485,936 $ 480,667 $ 503,462 $ 488,784
Prepetition liabilities................. -- -- -- -- -- 510,115
Long-term debt(g)....................... 197,125 260,412 290,712 269,010 290,873 16,636
Stockholders' equity (deficit).......... 153,196 152,166 52,262 41,813 39,637 (165,226)
OTHER DATA:
Outstanding shares of Common Stock(f)... 37,458,552 14,651,154 9,911,029 9,911,026 N/A N/A
Number of common stockholders(f)........ 14,692 14,611 15,890 15,800 N/A N/A
Dividends declared per common
share(f).............................. -- -- -- -- N/A N/A
OPERATING DATA:
Regular service miles operated
(millions)............................ 236 235 242 41 209 243
Passenger miles (millions).............. 5,392 5,926 5,967 989 5,394 5,972
Load factor (% of available seats
filled)............................... 49.9 56.0 54.8 53.9 57.5 54.6
Yield per passenger mile (cents)........ 9.61 9.45 9.73 10.26 9.39 9.31
Yield per bus mile (dollars)............ 2.20 2.38 2.40 2.49 2.42 2.29
</TABLE>
---------------
NOTES:
(a) These reorganization costs are incremental revenues and expenses related to
the Company's Chapter 11 reorganization combined with the impact of the
application of fresh start reporting to record the fair value of assets and
assumed liabilities of the reorganized Company.
(b) The 1994 loss reflected $61.9 million in certain operating charges,
including increases in insurance and legal reserves to recognize the
pre-bankruptcy claims previously barred by the courts, adverse claims
development in 1994, and certain litigation exposure; write-downs of real
estate and other assets; costs associated with an operational
restructuring; and a $17.0 million increase in the income tax provision due
to the reversal of deferred taxes.
(c) Reflects the Company's loss from operations and on disposal of the bus
manufacturing and service parts sales division during the year ended
December 31,1990.
(d) For the year ended December 31, 1994, the Company recorded an extraordinary
loss of $3.6 million, of which $3.2 million related to the write-off of
debt issuance costs and $400,000 related to professional fees in
conjunction with the replacement of the Company's existing credit agreement
with a new credit agreement. The Company also recorded an extraordinary
gain of $41.9 million for the year ended December 31, 1994, related to the
conversion of $89.0 million of Convertible Debentures into Common Stock
(see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS"). The Company recorded an extraordinary loss of
$407,000 for the year ended December 31, 1993, on the write-off of debt
issuance costs related to the replacement of the Company's then existing
credit agreement with a new credit agreement (see Note 9 to the December
31, 1994, Consolidated Financial Statements). The Company recorded an
extraordinary gain on extinguishment of debt of $249.7 million for the ten
months ended October 31, 1991, related to its emergence from bankruptcy.
(e) The net impact from adoption of SFAS No. 109 (defined herein, see Note 13 to
the December 31, 1994, Consolidated Financial Statements) was $690,000 and
is reported as a charge to earnings as the cumulative effect of a change in
accounting principle for the year ended December 31, 1993.
(f) The completion of the tender offer portion of the Company's Financial
Restructuring resulted in the issuance of approximately 22.8 million shares
of Common Stock in December 1994 upon the conversion of approximately $89.0
million of Convertible Debentures into Common Stock. In January 1995, the
Company issued an additional 16.3 million shares of Common Stock in
connection with the consummation of the Rights Offering. The Company was a
privately held corporation prior to emergence from bankruptcy on October
31, 1991.
(g) The Company's long-term debt was reduced by $89.0 million related to the
conversion of the Convertible Debentures into Common Stock (see "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS").
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS STRATEGY
The Company has experienced continuing declines in demand for its services,
primarily as a result of poor operations beginning in the latter half of 1993,
which included limited telephone answering capacity and ineffective pricing
strategies as well as the increasing availability and reliability of automobile
travel and, in certain markets, significant competition from regional bus
companies and discount airlines. In response, in mid-1994 the Company initiated
a review of all facets of its business, including its route structure,
schedules, city-pair offerings, marketing and pricing strategies, systems,
properties and personnel requirements. New management continued and refocused
this review. As a result, the Company is increasing its focus on the basic
operations of its business, including increasing telephone answering capacity,
improving on-time performance, restaffing the pricing function to actively
manage pricing in individual markets, reducing the use of deeply discounted
advance purchase tickets and introducing every day low pricing. Such a "back to
basics" strategy will seek to maximize the unique value of the national bus
network and will focus on serving both the long and short-haul markets while
connecting rural and urban America. The Company's new strategy will be supported
by a marketing campaign that integrates advertising, public relations, sales
promotion, and pricing.
The Company also plans to continue to de-emphasize the reservation portion
of its TRIPS system in order to simplify the ticketing process, reduce ticketing
time, provide for more responsive telephone service and expand TRIPS to serve
more selling locations. Plans to improve service also include opening an
additional telephone center, thus providing more telephone answering capacity
during peak times. Additionally, the Company is attempting to reestablish
relations with the regional bus carriers in order to enhance interline service
and possibly increase the use of shared terminals. The Company plans to increase
its position in the charter business in the twelve to fifteen locations where
the Company has sufficient maintenance capabilities and transportation
management, and the Company will attempt to improve its position in its package
express delivery service through localized marketing strategies and price and
schedule improvements. Management is currently developing charter and package
express programs to determine their revenue potential and cost effectiveness.
During the implementation of these and other revenue and cost initiatives,
the full impact of expected cost savings and revenue increases may not be
achieved until the strategic and operational reorganization is substantially
complete. The Company believes that substantial progress will be made during
1995. However, full implementation of these revenue and cost initiatives will be
achieved over the next twelve to eighteen months.
CAPITAL RESOURCES AND LIQUIDITY
Capital Structure and Leverage. The Company is highly leveraged and
requires significant cash flows to meet its debt and other continuing
obligations. The Company had $197.1 million in long-term debt outstanding
(excluding $17.1 million of issued and undrawn standby letters of credit) at
December 31, 1994, consisting primarily of the Company's 10% Senior Notes due
2001 (the "Senior Notes"). The Company has semiannual interest payments (each
January 31 and July 31) of $8.25 million due on the Senior Notes. The Company
will also require $34.5 million in the aggregate for other debt service and
$45.8 million for operating lease obligations during 1995. Additionally, the
Company will have annual sinking fund payments on the Senior Notes, initially in
the amount of $8.0 million and increasing annually thereafter, beginning July
31, 1996. Moreover, in connection with the Financial Restructuring
(see -- "Financial Restructuring"), the Company committed (as an inducement to
an affiliate of the Company's principal bus supplier to serve as a "standby
purchaser" in the Rights Offering), to prepay a portion of the approximately
$20.6 million owed to Motor Coach Industries Acceptance Corporation ("MCIAC") at
December 31, 1995, and to use its best efforts to refinance, on commercially
reasonable terms, remaining amounts owed in respect of conditional sales
financing for new bus purchases made during 1994. During February 1995, the
Company pre-paid $12.9 million, in addition to paying scheduled debt service
amounts, to MCIAC and as of March 1, 1995, aggregate
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<PAGE> 19
amounts outstanding were $7.4 million. The pre-payment resulted in the release
of liens on 64 buses, which collateral is available for refinancing.
In order to deleverage the balance sheet and provide the Company with
additional capital, the Company completed the Financial Restructuring in
December 1994 (see -- "Financial Restructuring").
Capital Expenditures. The Company's network of 562 properties and
operating fleet of approximately 1,900 buses require significant annual capital
and maintenance expenditures. In addition, the Company makes annual expenditures
related to environmental compliance and remediation and the development of
operating systems software. For the year ended December 31, 1994, the Company's
capital expenditures (including new bus purchases of $69.5 million) totalled
$81.6 million. Due to the Company's limited borrowing capacity and restrictions
in its New Credit Facility (defined herein), the Company will limit its capital
expenditures for the foreseeable future to items that management considers to be
essential. The level of capital spending in 1993 and 1994 substantially reduced
the age of the bus fleet. Such levels are not necessary in the future because at
this time, the Company's fleet is at an acceptable age, which contributes to the
dependability of service and acceptable levels of maintenance and operating
costs. However, over a number of years, deferral of nonessential (non-bus)
capital expenditures, the deferral of necessary capital expenditures on the
Company's bus fleet or the inability to obtain new buses through lease financing
would result in increased costs and a less dependable fleet, which may make the
Company less competitive with other transportation companies in selected
regional markets. Accordingly, elimination of the Company's capital expenditures
over an extended period of time could have a material adverse effect on its
results of operations if lease alternatives were not available. However, at this
time the Company anticipates sufficient liquidity and financing sources to
provide for an acceptable level of capital expenditures.
During March 1994, the Company ordered 151 new buses from Motor Coach
Industries International, Inc. ("MCII") for approximately $35 million. The
Company had taken delivery of all of the new buses as of September 30, 1994. As
delivery was taken, the new buses were 90 percent financed through a ten-year
installment note, which is secured by the purchased buses and which bears
interest at a rate of prime plus 1.5 percent. MCI subsequently transferred the
financing for 50 of the buses to another lender and assigned the financing on
the remaining 101 buses to MCI Acceptance Corp. ("MCIAC"), a wholly owned
subsidiary of MCII. In connection with the Rights Offering the Company made a
prepayment on the amount owed to MCIAC of $12.9 million during February 1995
(see Note 18 in the December 31, 1994 Consolidated Financial Statements).
Liquidity. Operating cash flows, together with cash from financing
activities, seasonal revolving credit borrowings and sales of assets,
historically have been sufficient to fund the Company's investing activities,
consisting primarily of capital expenditures for new bus acquisitions, systems
development costs and, to a lesser extent, facilities upgrades. For the year
ended December 31, 1994, however, operating activities required net cash of
$13.2 million after giving effect to the return of $14.0 million in cash
collateral held by the Company's primary insurance carrier, and the collection
of a $4.7 million receivable resulting from the sale of the New York garage. The
net cash required by operating activities, as well as cash required for
investing activities consisting of capital expenditures of $81.6 million, was
funded by cash on hand, proceeds from long-term borrowings or financings,
additional sales of assets and proceeds received from the Rights Offerings
(see -- "Financial Restructuring"). After the uses of cash, the Company had cash
and cash equivalents of $9.5 million at December 31, 1994, and no outstanding
borrowing on its revolving line of credit.
During January 1994, the Company terminated a $75.0 million interest rate
swap agreement, which was one of three interest rate swap agreements entered
into during July 1993, covering $150.0 million in long-term debt. The gain
resulting from the termination was $1.6 million and will be recognized evenly
over the remaining term of the five-year agreement. The Company amended the
remaining two interest rate swap agreements on October 6, 1994, to lock in the
future payments under the agreements until maturity in July 1998. The net result
of the amendments is that these swaps will not be subject to interest rate risk.
Consequently, should interest rates increase, the Company's payments under the
agreements will not be adversely affected. Conversely, should interest rates
decline, the Company would not receive any benefit. Under the amendments, the
Company will be required to pay and recognize the incremental interest expense
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<PAGE> 20
of $6.2 million over the remaining term of the five-year agreements. The Company
has collateralized its payment obligations under the amended agreements with a
$1.1 million letter of credit and liens on six pieces of real property.
In addition, in March 1994, the Company completed the fourth and fifth
tranches of a large sale/leaseback transaction, begun in December 1993, by
entering into two additional lease agreements in a $28.0 million sale/leaseback
of 125 buses. An $8.1 million increase to the pledged assets was required as a
collateral deposit on these additional lease agreements.
During October 1994, the Company entered into a new revolving credit
facility (the "New Credit Facility") with Foothill Capital Corporation
("Foothill"), which replaced the Company's prior bank facility. The New Credit
Facility provides for revolving loans and letters of credit and/or letter of
credit guarantees of up to $35.0 million. A portion of availability under the
New Credit Facility is limited by a formula derived from accounts receivable.
The New Credit Facility matures on January 1, 1996, although the Company, at its
sole option, may extend the term of the New Credit Facility to January 1, 1998.
As of December 31, 1994, there were approximately $17.1 million in letters of
credit outstanding under the New Credit Facility, with an additional $16.4
million in available borrowing capacity thereunder.
On February 17, 1995, the Company completed negotiations and received a
signed commitment term sheet, subject to documentation, regarding revised terms
for the New Credit Facility, (the "New Credit Facility, as revised") for which
Foothill will continue to be the lead agent. The new terms provide for revolving
loans and letter of credit and/or letter of credit guarantees up to a maximum
commitment of $73.5 million, subject to syndication. Foothill's commitment
remains at $25.0 million. Availability under the New Credit Facility, as
revised, would be limited to the aggregate of the following: (1) revolving
advances of up to $3.5 million based on a formula of eligible accounts
receivable, (2) revolving advances of $35.0 million based on the value of
certain fixed asset collateral pledged to Foothill, which amount may be
increased to $45.0 million by the pledge of additional collateral acceptable to
Foothill ("Fixed Asset Advances"); availability under Fixed Asset Advances will
be subject to quarterly reductions in availability beginning in April 1996 and,
(3) a Bus Purchase Facility of up to $25.0 million, activated solely through the
pledging of new bus collateral. The New Credit Facility, as revised, would
mature on March 31, 1998 and would be secured by liens on substantially all the
assets of the Company, excluding new equipment purchases, unless specifically
pledged to support borrowings under the Bus Purchase Facility. The New Credit
Facility, as revised, would allow the Company to dispose of certain non-core
real estate properties. The New Credit Facility, as revised, would provide for
an adjustable interest margin over prime borrowing rate, tied to the Company's
financial performance and achievement of its financial plan. The borrowing
margin would be adjusted quarterly beginning with the four quarters ending
December 31, 1995. The New Credit Facility, as revised, would also be subject to
financial covenants, including maintenance of a certain net worth and operating
ratio. As of March 31, 1995, syndication commitments under the New Credit
Facility, as revised, totaled $10.0 million with total availability of $35.0
million.
The Company believes that the Financial Restructuring (see "Financial
Restructuring") and the New Credit Facility provide sufficient liquidity to meet
the Company's obligations during 1995. Should the past revenue trends continue
and ridership decline substantially, even though recent ridership trends have
been positive, and should the New Credit Facility be insufficient to meet the
Company's liquidity and operating cash flow needs, the Company may elect to
postpone or reduce its capital spending program and reduce the level of
operations to continue to meet its financial obligations.
FINANCIAL RESTRUCTURING
The Company's loss in the first half of 1994 substantially diminished its
cash resources and resulted in defaults under the prior credit agreement entered
into in December 1993. Although the Company obtained waivers of those defaults
and commenced negotiations with its senior lender regarding appropriate
amendments to the prior credit agreement, as a condition to the bank waiver, the
revolving loan commitment under the prior credit agreement was reduced from
$60.0 million to $25.8 million, leaving the Company with $10.0 million in
available borrowing capacity as of June 30, 1994, after considering outstanding
letters of credit
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<PAGE> 21
of $15.8 million. As a result of the reduction in available borrowing capacity
under the prior credit agreement, the continuing decline in demand for the
Company's services and the costs anticipated for its strategic and operational
reorganization, management and the Board of Directors concluded that a
comprehensive change to the Company's capital structure was necessary. That
decision led to the formulation of a financial restructuring plan (the
"Financial Restructuring") consisting of (i) the execution of the New Credit
Facility; (ii) an offer (the "Tender Offer") to convert the entire $98.9 million
in aggregate principal amount of the Company's Convertible Debentures into
shares of Common Stock at a conversion rate of approximately 256 shares of
Common Stock for each $1,000 principal amount of bond and (iii) a pro rata
offering (the "Rights Offering") to the Company's stockholders of the
opportunity to subscribe for and purchase, for $35.0 million cash, 16.3 million
new shares of Common Stock.
On December 22, 1994, the Company announced the successful completion of
the Tender Offer for its Convertible Debentures with $89.0 million, or 90.011%,
of the outstanding Convertible Debentures being tendered. The Company also
announced that its $35.0 million Rights Offering for approximately 16.3 million
shares of Common Stock had been fully committed. As of December 31, 1994, $19.9
million of the proceeds from the Rights Offering had been received. The Company
received the balance of the proceeds of the Rights Offering in January 1995.
Additionally, as part of the Financial Restructuring, the Company agreed to
refinance approximately $20.6 million of bus financing provided by MCIAC and
prepaid MCIAC $12.9 million on the outstanding financing in February 1995
(see -- "Capital Resources and Liquidity"). The Financial Restructuring reduced
the Company's annual interest burden by $7.6 million, and reduced the Company's
debt-to-equity ratio to 1.3:1 at December 31, 1994 from 8.0:1 had the Financial
Restructuring not been completed.
Certain Contingencies. The Company is subject to various contingencies
that could affect its liquidity position in the future. See "ITEM 3. LEGAL
PROCEEDINGS."
1994 AND 1993 RESULTS OF OPERATIONS
The Company's business is seasonal in nature and generally follows the
pattern of the travel business as a whole, with peaks during the summer months
and the Thanksgiving and Christmas holiday periods. Historically, the Company
has experienced substantial seasonal variances in its results of operations with
the third quarter, which includes the summer peak travel season, providing the
largest contribution to the Company's annual operating income. The second
quarter generally reflects minimal net income and the first quarter is typically
a loss period. However, due to weak demand for the Company's passenger service
throughout 1994, the Company experienced a significant loss for the year. For
1994, the Company had an operating loss of $65.5 million, which included $61.9
million in certain operating charges, compared to $39.8 million in operating
income for 1993. Those charges related to the write-down to the expected market
value of certain real estate assets currently or expected to be classified as
surplus, charges to reflect the payment of pre-1991 claims that the Bankruptcy
Court allowed notwithstanding that those claims previously had been barred by
the court, adverse claims development in 1994, certain litigation exposure and
costs related to the Company's strategic and operational reorganization. In
addition, in the third quarter of 1994, the Company recorded a noncash,
non-operating charge when it fully reserved its $17.0 million deferred tax
asset. The Company also incurred a $3.6 million extraordinary loss for the
write-off of deferred financing charges related to the prior credit agreement,
which the Company refinanced in October 1994. That extraordinary loss was offset
by a $41.9 million extraordinary gain resulting from the conversion of $89.0
million of Convertible Debentures in the Financial Restructuring.
Operating Revenues. Regular route revenues declined $41.5 million (or
7.4%) in 1994 compared to 1993. Overall demand for the Company's passenger
service declined, as reflected in a decrease in passengers carried of 462,000
(or 3.0%) in 1994 compared to 1993. In an effort to increase ridership, under
previous management, an aggressive advertising campaign offering discounted
fares was initiated early in 1994 and was continued through the third quarter.
Although ridership began to increase, the lower fares resulted in lower yields
(revenue per passenger mile) and did not produce revenue equal to the prior
year. By contrast, in an effort to increase regular route revenue, the Company's
new management (see "ITEM 10. DIRECTORS AND
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<PAGE> 22
EXECUTIVE OFFICERS OF THE REGISTRANT") is focusing on a "back to basics"
strategy (see "ITEM 1. BUSINESS STRATEGY").
Package express delivery service revenues declined $7.7 million (or 16.0%)
in 1994 compared to 1993. Package express revenues continued to decline from
prior years due to intense competition in the package express delivery service
business from overnight carriers and the de-emphasis by the Company of this
service.
Food services revenues increased $380,000 (or 1.9%) in 1994 compared to
1993. However, cost of goods sold for food services also increased $848,000 (or
6.7%) in 1994 compared to 1993. The Company is in the process of opening new
locations and closing non-profitable locations. Additionally, in an effort to
gain control over the quality of service provided in the terminals, the Company
has converted 34 locations over the past three years from agent-operated to
Company-operated locations.
Operating Expenses. Total operating expenses increased by $55.2 million
(or 8.8%) in 1994 compared to 1993.
Despite a slight increase in regular service miles operated for the year,
maintenance costs continue to decline from 1993 as a result of a reduction of
fleet age, successful efforts to reduce overhead including downsizing certain
garage locations to service islands, and increased training and more efficient
use of maintenance personnel. The decrease in maintenance expenses was partially
offset by $3.8 million in certain operating charges.
Transportation costs showed only a slight increase of $482,000 in 1994
compared to 1993 due primarily to an increase in drivers' wages. Drivers' wages
and training will continue to increase as plans are made to hire more drivers to
fill existing needs and to accommodate the additional routes to be scheduled in
the peak summer season. Also, the Company's new management believes several of
the field management positions which were eliminated were key positions
necessary to the transportation operations and this reduction in the workforce
had a negative effect on operations. Therefore, efforts are being made to
restaff certain field management positions.
Agents' commissions and station costs decreased $2.8 million primarily due
to decreased ticket commissions and salaries. Ticket commissions decreased
primarily due to a decrease in ticket sales and the conversion of certain
terminals operated by independent contractors to Company-operated terminals
during 1993. During 1993, 107 terminals were converted. During 1994, the Company
returned 22 of the smaller locations to agent-operated terminals when it was
determined that the conversion process was no longer profitable at the smaller
locations. Though there were fewer converted locations at the end of 1994 than
1993, a savings still resulted from the 85 remaining conversions which were in
place all year in 1994 and only a partial year in 1993. Also, salaries decreased
as a result of the Company's elimination of certain field management positions
in a continuing effort to reduce overhead. These decreases in costs were
partially offset by $1.3 million in certain charges primarily due to the
write-off of certain receivables.
Marketing expenses increased $8.0 million in 1994 compared to 1993.
Advertising expense for the year ended December 31, 1994, was $24.4 million,
which was a $5.5 million increase compared to 1993. An aggressive advertising
campaign was initiated in the first quarter of 1994 in an effort to improve
traffic following the California earthquake and severe winter weather in the
Northeast and in response to the generally weak demand for the Company's
passenger services. This advertising campaign continued into the third quarter.
Advertising costs will be greatly reduced in 1995 from 1994, as the Company
adopts different and more effective approaches to reaching its customers. Also,
communication costs related to TRIPS increased $1.9 million because TRIPS was
operational for a full year in 1994 and only on a limited basis in 1993. In
addition, several manual field locations were converted to TRIPS sites.
Insurance and safety costs increased $31.6 million in 1994 compared to
1993. This increase was primarily due to certain charges of $30.7 million which
adjusted insurance reserves to recognize the pre-bankruptcy claims previously
barred by the courts and adverse claims development in 1994. Charges were also
included to reflect other potential legal exposures. The Company's management
believes it has adequate reserve levels to cover its potential claims liability.
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General and administrative expenses increased $3.2 million in 1994 compared
to 1993, which is due to an increase in salaries as a result of severance
packages and overall wage increases resulting from moving the Company's
accounting center from West Des Moines to Dallas. Additionally, information
systems costs have increased as TRIPS was functional for a full year in 1994 and
only a partial year in 1993 which increased equipment lease costs and usage
fees. Offsetting these increased expenses is a net $3.6 million increase in
pension income as compared to 1993.
Depreciation and amortization costs increased $2.9 million in 1994 compared
to 1993. Excluding charges of $7.0 million, depreciation expense decreased $4.1
million resulting from fewer buses owned than in the prior year due to
sale/leaseback transactions. The $7.0 million was recorded to recognize
impairment of certain properties which are less than fully utilized.
Operating rents increased $3.0 million in 1994 compared to 1993, caused
primarily by the increase in leased bus rental expense relating to the
sale/leaseback of 319 buses in December 1993 and 125 buses in March 1994.
Operating rental expense for leased buses for the years ended December 31, 1994
and 1993 was $22.7 million and $20.0 million, respectively, excluding daily
rents and other short term leases during peak periods.
Other operating expenses increased $9.4 million in 1994 compared to 1993
primarily due to certain charges. These charges included $4.5 million in
write-downs taken to reflect the expected market value of real estate properties
which are no longer being utilized by the Company and which are expected to be
sold. Additionally, the Company reevaluated all software and systems on its
books. This reevaluation resulted in $2.9 million in charges to write-off
certain systems which, due to current year operational changes, have limited or
no functionality. In late 1994, the Company discontinued use of the VORAD radar
detection system because an extensive investment would be required to upgrade
and maintain its effectiveness.
Expenses of $2.5 million were recorded during 1994 related to the Company's
strategic and operational reorganization. This amount consists primarily of
severance costs related to management overhead reductions.
Interest Expense. For the year ended December 31, 1994, interest expense
was $33.5 million compared to $30.8 million in 1993. Interest expense included
net savings of $713,000 in 1994 and $1.4 million in 1993 resulting from the
interest rate swap agreements entered into during 1993. The Company amended its
two remaining interest rate swap agreements on October 6, 1994, to lock in the
future payments under the agreements until maturity in July 1998. The net result
of the amendments is to ensure that these swaps will not be subject to interest
rate risk. Consequently, should interest rates increase, the Company's payments
under the agreements will not be adversely affected. Conversely, should interest
rates decline, the Company would not receive any benefit. Under the amendments,
the Company will be required to pay and recognize the related interest expense
of $6.2 million over the remaining term of the five-year agreements. The Company
has collateralized its payment obligations under the terminated agreements with
a $1.1 million letter of credit and liens on six pieces of real property.
Income Taxes. For the quarter ended March 31, 1994, the Company recorded
an income tax benefit of $10.6 million as a result of its pre-tax loss and
increased its deferred tax asset. At that time, projections indicated that it
was "more likely than not" that the income tax benefit would be utilized to
offset future period income tax expense. At June 30, 1994, projections were
revised, and the Company expected to have a net loss for the year, due, in part,
to its strategic and operational reorganization. As a result, there was less of
a likelihood that the Company would utilize the income tax benefit, recognized
during the first quarter and therefore, the income tax benefit recorded for the
quarter ended March 31, 1994, was reversed during the second quarter. In
addition, as the projected losses continued to grow during the third quarter,
the Company concluded that the valuation allowance for the deferred tax asset
should be increased to reserve for the remaining $17.0 million asset. Due to the
uncertainty as a result of the Financial Restructuring and the ongoing strategic
and operational reorganization by the Company, the Company believed it no longer
met the "more likely than not" realization criteria of Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"). In addition, the Company did not
provide an income tax benefit on the loss for the year ended December 31, 1994.
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At December 31, 1994, the Company's net deferred tax assets total $24.9
million, less a valuation allowance of the same amount. Future use of the
deferred tax asset would normally be offset by an equal reduction in the
valuation allowance; however, due to fresh start reporting, approximately $4.9
million of the valuation allowance will be used to reduce intangible assets that
existed as of the fresh start reporting date or will result in increases to
capital in excess of par value.
The Financial Restructuring generated significant amounts of income from
discharge of indebtedness ("DOD Income") for income tax purposes. The DOD Income
was offset by current year losses, thus eliminating the tax exposure created by
the Financial Restructuring. The Financial Restructuring also resulted in an
ownership change, as defined under section 382 of the Internal Revenue Code (the
"Code"). The provisions of the Code, as they apply to the Company, require that
an annual limitation be placed on the amount of net operating loss ("NOL") which
may be utilized. Consequently, the Company's NOL carryforwards are now subject
to an annual limitation of $2.1 million. Any unused portion of the current
annual limitation may be carried forward to the following year. As a result, the
Company will carryforward available NOL's of $31.5 million.
Extraordinary Items. The Company recorded an extraordinary loss of $3.2
million during the third quarter of 1994 for the write-off of debt issue costs
related to the prior credit facility and an additional $417,000 of extraordinary
loss for professional fees related to the Financial Restructuring. The
extraordinary loss was offset by a $41.9 million extraordinary gain recorded in
the fourth quarter related to the conversion of the Convertible Debentures to
Common Stock.
1993 AND 1992 RESULTS OF OPERATIONS
Operating Income. Operating income for 1993 was $39.8 million representing
a decline of $15.5 million (or 28.1%) compared to 1992. Operating revenues
declined $26.5 million (or 3.8%), and operating expenses declined $10.9 million
(or 1.7%) for 1993 compared to 1992.
Operating Revenues. Passenger service revenues declined $20.7 million (or
3.6%) for 1993 compared to 1992. Passenger miles decreased by 41.0 million miles
(or 0.7%). The primary reasons for the decline in passenger miles were the
continuing sluggishness in the economy and the problems experienced in the third
quarter of 1993 with the introduction of the reservation system and the 1-800
telephone service. These problems have since been corrected. During the fourth
quarter of 1993, the Company was able to halt the decline in passenger traffic
by offering price discounts. Although the discounting and promotional programs
were successful in improving traffic, revenues remained below 1992 levels due to
overall lower prices. Other marketing initiatives in 1993 included the
initiation, in nine test cities, of the "Easy Rider" program, the Company's
preferred customer program designed to encourage repeat ridership through
discount fares and other perquisites.
Package express delivery service revenues declined $6.5 million (or 11.9%)
in 1993 compared to 1992. Package express revenues continued to decline from
prior years due to a reduction in service offered combined with intense
competition in the package express delivery service business from overnight
carriers.
Charter revenues declined $1.8 million (or 29.2%) for 1993 compared to
1992. This decrease was due primarily to the reduction in the size of the fleet
and, therefore, the portion of the fleet allocated to this service. Because
charter operations are not the Company's most productive use of resources, only
buses not utilized in regular operations are allocated to charter service.
Food services revenues increased $8.0 million (or 65.6%) for 1993 compared
to 1992. This increase was due to the conversion of certain restaurants formerly
operated by independent contractors to Company-operated restaurants during 1992
and 1993. Each conversion resulted in gross revenue and expense being reported
in lieu of net commission revenue from third-party agent locations. As of
December 31, 1993, 33 locations had been converted to Company-operated
restaurants, compared to 20 locations at December 31, 1992.
Other operating revenues declined $5.4 million (or 13.8%) for 1993 compared
to 1992. The decrease was due, in part, to a gain of $2.3 million on the sale of
inventory which was recognized during the fourth quarter of
22
<PAGE> 25
1992. In addition, a gain of $0.9 million on the sale of a fuel hedging
agreement was recognized during 1992. Contributing $2.4 million to the decline
in other revenues was a reduction in sublease revenues received in 1993 compared
to 1992. During 1992 and through April 1993, the Company subleased 99 buses that
were not being utilized by the Company. In May 1993, the Company began utilizing
these buses.
Operating Expenses. Total operating expenses declined by $10.9 million (or
1.7%) from 1992 levels. This was in part due to a reduction in bus miles
operated of 6.9 million miles (or 2.8%) and an increase in the Company's load
factor (percentage of available seats filled) from 54.8% in 1992 to 56.0% in
1993. The Company operated a newer, more reliable fleet in 1993, achieving
125,000 miles operated per bus compared to 108,000 miles in 1992. The Company
incurred higher costs in the areas of training and communication due to the
introduction of its passenger reservation system and 1-800 telephone service.
Maintenance expenses were $77.9 million for 1993. This reflected an
improvement of $19.4 million (or 20.0%) for 1993 compared to 1992. The reduction
in expenses was due, in part, to an $8.9 million decrease in materials expense,
which was the result of the implementation during the fourth quarter of 1992 of
a "Continuous Quality Maintenance" program to better control repair costs and
improve the reliability of the fleet. The Company also standardized the number
of makes and models of buses and types of engines used in its fleet, thereby
further reducing maintenance costs. The Company reduced the number of garages
that performed full-service repairs with a resulting reduction in overhead
costs. At December 31, 1993, the Company operated 17 full-service garages at key
network flow points compared to 36 full-service garages at December 31, 1992. In
addition to full-service garages, at December 31, 1993, the Company operated 31
service islands that performed routine maintenance as well as fueling. Also
contributing to the maintenance expense reduction was a decrease in building
repairs expense of $3.1 million which was due to an increase in capital
expenditures for extensive garage refurbishments thus reducing ongoing repair
costs.
Transportation expenses declined $5.2 million (or 3.7%) for 1993 compared
to 1992. This decline was primarily attributable to a reduction in the Company's
fuel costs of $2.8 million, of which $1.0 million was due to the decrease in bus
miles operated, $1.1 million was due to the reduction in fuel prices and the
remainder was due to fuel efficiency improvements associated with the
acquisition of new buses. At December 31, 1993, fuel costs constituted
approximately 4% of the Company's total operating expenses. Also contributing to
the decline in transportation costs is the reduction in supervisor's salaries of
$1.3 million in 1993 resulting from the reorganization and consolidation of
driver and customer service supervisors.
Agents' commissions and station costs increased $4.5 million (or 3.8%) for
1993 compared to 1992, primarily due to a $3.0 million increase in communication
costs related to the telephone information center and training related to the
reservation system. This increase was partially offset by cost savings related
to the conversion of certain terminals operated by independent contractors to
Company-operated terminals during 1992 and 1993. As of December 31, 1993, 226
major terminals had been converted to Company-operated terminals, representing
72.5% of the Company's total ticket sales for the year ended December 31, 1993.
This is in comparison to 119 Company-operated terminals at December 31, 1992,
representing 58.9% of total ticket sales for 1992. The reduction in agents'
commissions and station costs resulting from the terminal conversions was
partially offset by increased salaries paid to supervisory personnel in the
converted terminals. Also offsetting the increase in agents' commissions and
station costs was a reduction in ticket and package express commissions paid to
independent contractors resulting from the decrease in passenger service and
package express revenues.
Marketing, advertising and traffic expenses increased $4.0 million (or
16.3%) for 1993 compared to 1992. This increase was primarily due to an increase
in communication costs related to the reservation system. This increase was also
attributable to a $1.4 million increase in advertising expense, due to an
aggressive advertising campaign in early 1993 designed to stimulate passenger
traffic for the summer months and promote awareness of lower fares.
Insurance and safety expenses increased $3.3 million (or 6.9%) for 1993
compared to 1992. During 1992, insurance and safety expenses included a one-time
reduction of $6.9 million relating to pre-bankruptcy claims.
23
<PAGE> 26
General and administrative costs increased $2.2 million (or 3.3%) for 1993
compared to 1992. This is primarily due to a $1.6 million increase in
information systems costs due to an increase in equipment lease costs and usage
fees relating to the passenger reservation system. During 1993, $1.1 million in
net periodic pension income was recognized. To reflect prevailing market
conditions, the Company lowered the discount rate used to value its pension
liability at December 31, 1993. Since the majority of participants in the
Company's pension plan are retired, the lower discount rate has caused a
reduction in future interest cost on the projected benefit obligation in excess
of the offsetting increase in 1994 service cost.
Operating taxes and licenses increased $1.3 million (or 2.8%) for 1993
compared to 1992. This was due, in part, to a 4.3 cents per gallon increase in
fuel taxes that took effect October 1, 1993.
Operating rents declined $9.0 million (or 16.6%) for 1993 compared to 1992
due to the expiration of various bus lease agreements during 1993 and late 1992.
These lease agreements were not renewed because the Company purchased new buses
during 1992 and 1993 as part of its fleet modernization strategy. New bus lease
agreements were entered into during December 1993 for 319 buses. Operating
rental expense for leased buses for the years ended December 31, 1993 and 1992
was $20.0 million and $27.8 million, respectively, excluding daily rents and
short term leases for peak periods.
Cost of goods sold -- food services increased $4.9 million (or 62.5%) for
1993 compared to 1992. This increase was due to additional costs related to the
restaurants that were converted from concessionaire-operated locations to
Company-operated restaurants in 1993 and late 1992.
Other operating expenses increased $2.9 million for 1993 compared to 1992.
During December 1993, the Company recognized a $2.0 million restructuring charge
to reflect severance and other related costs associated with a structural
downsizing that took place in January 1994.
Gain on Sale of Assets. During June 1993, a gain of $5.8 million ($3.5
million, net of tax) was recorded on the sale of the New York City maintenance
facility leasehold interest.
Interest Expense. Interest expense decreased $4.5 million (or 12.7%) for
1993 compared to 1992. In May 1993, the Company paid off its revolving loan with
the proceeds of the Common Stock offering, pending the usage of those proceeds
for new bus purchases which contributed $1.2 million to the interest expense
savings. Also contributing approximately $1.4 million were the savings resulting
from the interest rate swap agreements entered into during 1993. The remainder
of the reduction in interest expense is due primarily to a $1.1 million
reduction in interest expense on capital leases as a result of the expiration of
capital leases for buses during 1993 and late 1992.
Income Tax Provision. The provision for income taxes declined $2.9 million
(or 31.6%) for 1993 compared to 1992. The effective tax rate for the year ended
December 31, 1993 was 42.1%, compared to 45.5% for 1992.
Extraordinary Item. In December 1993, the Company recorded an
extraordinary loss of $665,000 ($407,000, net of tax benefit) in connection with
the write-off of debt issuance costs related to the replacement of the Company's
existing credit agreement with the new Credit Agreement.
Cumulative Effect of a Change in Accounting Principle. The Financial
Accounting Standards Board has issued Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which
requires, among other things, an asset and liability approach for financial
accounting and reporting for income taxes. The Company adopted SFAS No. 109 on
January 1, 1993. The adoption of SFAS No. 109 resulted in a deferred tax asset
of $41.6 million, less a valuation allowance of the same amount. At December 31,
1993, the Company recorded a deferred tax asset of $51.5 million, less a
valuation allowance of $34.5 million.
Future benefits to be recognized from utilization of the deferred tax asset
will come primarily from net operating loss carryforwards ("NOL's") and certain
other tax deductions such as depreciation and reserve expenses. In 1993, the
Company believed that it was more likely than not that the potential realization
of NOL's and other tax deductions was sufficient to establish a net deferred tax
asset of $17.0 million. The realization of deferred tax assets for the years
ended December 31, 1993 and 1992 amounted to $6.2 million
24
<PAGE> 27
and $8.7 million, respectively. The minimum amount of book income before income
taxes required to realize this deferred tax asset would be approximately $43.6
million. Book income before income taxes, extraordinary item and cumulative
effect of a change in accounting principle for the years ended December 31, 1993
and 1992 was $14.8 and $20.1 million, respectively (see "1994 and 1993 Results
of Operations -- Income Taxes").
The net impact from adoption of SFAS No. 109 was $690,000 and is reported
as a charge to 1993 earnings as the cumulative effect of a change in an
accounting principle in the Consolidated Statement of Operations.
25
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Management Report on Responsibility for Financial Reporting........................ 27
Report of Independent Public Accountants........................................... 28
Consolidated Statements of Financial Position at December 31, 1994 and 1993........ 29
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1993 and 1992................................................. 30
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992................................................. 31
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992................................................. 32
Notes to Consolidated Financial Statements......................................... 33
Report of Independent Public Accountants........................................... 60
Schedule II -- Valuation and Qualifying Accounts -- For the Years Ended
December 31, 1994, 1993 and 1992................................................. 61
</TABLE>
26
<PAGE> 29
MANAGEMENT REPORT ON RESPONSIBILITY
FOR FINANCIAL REPORTING
The management of Greyhound Lines, Inc. and its subsidiaries (the
"Company") has the responsibility for preparing the accompanying consolidated
financial statements and for their integrity and objectivity. The statements
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis (other than accounting for income taxes, see Note
13) and are not misstated due to fraud or material error. The financial
statements include amounts that are based on management's best estimates and
judgments. Management also prepared the other information in the annual report
on Form 10-K and is responsible for its accuracy and consistency with the
financial statements.
The Company's consolidated financial statements have been audited by Arthur
Andersen LLP, independent public accountants approved by the Board of Directors.
Management has made available to Arthur Andersen LLP all the Company's financial
records and related data, as well as the minutes of the stockholders' and
directors' meetings. Furthermore, management believes that all representations
made to Arthur Andersen LLP during its audits were valid and appropriate.
Management of the Company has established and maintains a system of
internal control that provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition and the prevention and detection of fraudulent
financial reporting. The system of internal control provides for appropriate
division of responsibility and is documented by written policies and procedures
that are communicated to employees with significant roles in the financial
reporting process and updated as necessary. Management continually monitors the
internal control system for compliance. The Company maintains an internal
auditing program that independently assesses the effectiveness of the internal
controls and recommends possible improvements thereto. In addition, as part of
its audits of the Company's consolidated financial statements, Arthur Andersen
LLP considered the Company's system of internal control to the extent they
deemed necessary to determine the nature, timing and extent of audit tests to be
applied. Management has considered the internal auditors' and Arthur Andersen
LLP's recommendations concerning the Company's system of internal control and
has taken actions that the Company believes respond appropriately to these
recommendations. Management believes that the Company's system of internal
control is adequate to accomplish the objectives discussed herein.
Management also recognizes its responsibility for fostering a strong
ethical climate so that the Company's affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's code of corporate conduct, which is
publicized throughout the Company. The code of conduct addresses, among other
things, the necessity of ensuring open communication within the Company;
potential conflicts of interests; compliance with all domestic and foreign laws,
including those relating to financial disclosure; and the confidentiality of
proprietary information. The Company maintains a systematic program to assess
compliance with these policies.
Craig R. Lentzsch
President/Chief Executive Officer
and Chief Financial Officer
Martha Smither
Principal Accounting Officer
Dallas, Texas
March 30, 1995
27
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Greyhound Lines, Inc.:
We have audited the accompanying consolidated statements of financial
position of Greyhound Lines, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Greyhound Lines, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Note 13 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 14, 1995
(except with respect to
the matters discussed in
Note 20, as to which date
is March 30, 1995)
28
<PAGE> 31
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Current Assets
Cash and cash equivalents.................................................................. $ 9,454 $ 39,643
Accounts receivable, less allowance for doubtful accounts of $840 and $707................. 33,584 36,751
Stock subscription receivable.............................................................. 15,150 --
Inventories................................................................................ 3,779 7,184
Deferred income taxes, net of valuation allowance of $14,028 and $12,381................... -- 6,098
Prepaid expenses........................................................................... 10,248 9,117
Assets held for sale....................................................................... 9,526 1,654
Other current assets....................................................................... 12,859 10,939
-------- --------
Total current assets..................................................................... 94,600 111,386
Prepaid Pension Plans........................................................................ 22,250 16,538
Property, Plant and Equipment, net of accumulated depreciation of $68,388 and $50,466........ 287,875 283,102
Investments in Unconsolidated Affiliates..................................................... 1,312 1,210
Deferred Income Taxes, net of valuation allowance of $10,951 and $22,134..................... -- 10,902
Deferred Costs and Other Assets, net of accumulated amortization of $352 and $342............ 86,858 97,689
Intangible Assets, net of accumulated amortization of $9,292 and $5,191...................... 18,554 20,466
-------- --------
Total assets............................................................................. $511,449 $541,293
======== ========
Current Liabilities
Accounts payable........................................................................... $ 14,916 $ 17,974
Accrued liabilities........................................................................ 53,106 49,830
Unredeemed tickets......................................................................... 10,259 10,361
Current portion of reserve for injuries and damages........................................ 26,455 17,533
Current maturities of long-term debt....................................................... 7,022 6,104
-------- --------
Total current liabilities................................................................ 111,758 101,802
Reserve for Injuries and Damages............................................................. 45,888 24,237
Long-Term Debt............................................................................... 197,125 260,412
Deferred Gains............................................................................... 1,277 --
Other Liabilities............................................................................ 2,205 2,676
-------- --------
Total liabilities........................................................................ 358,253 389,127
-------- --------
Commitments and Contingencies (Note 17)
Stockholders' Equity
Preferred stock (10,000,000 shares authorized; par value $.01; none issued)
Series A junior preferred stock (500,000 shares authorized as of December 31, 1994; none
authorized as of December 31, 1993; par value $.01; none issued)........................ -- --
Common stock (100,000,000 and 50,000,000 shares authorized as of December 31, 1994 and
1993, respectively; 37,567,744 and 14,776,066 shares issued as of December 31, 1994 and
1993, respectively; par value $.01)...................................................... 375 148
Common stock subscribed (16,279,070 shares as of December 31, 1994)........................ 163 --
Capital in excess of par value............................................................. 182,826 134,013
Capital in excess of par value, subscribed................................................. 29,184 --
Retained earnings (deficit)................................................................ (56,815) 20,606
Less: Unfunded accumulated pension obligation.............................................. (1,499) (1,499)
Less: Treasury stock, at cost (109,192 and 124,912 shares as of December 31, 1994 and 1993,
respectively)............................................................................ (1,038) (1,102)
-------- --------
Total stockholders' equity............................................................... 153,196 152,166
-------- --------
Total liabilities and stockholders' equity............................................. $511,449 $541,293
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE> 32
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Operating Revenues
Transportation services
Regular route....................................................... $ 518,431 $559,883 $580,557
Package express..................................................... 40,232 47,905 54,402
Food services......................................................... 20,510 20,130 12,159
Other operating revenues.............................................. 37,158 38,578 45,863
--------- -------- --------
Total operating revenues....................................... 616,331 666,496 692,981
--------- -------- --------
Operating Expenses
Maintenance........................................................... 73,469 77,893 97,323
Transportation........................................................ 133,766 133,284 138,443
Agents' commissions and station costs................................. 119,438 122,209 117,732
Marketing, advertising and traffic.................................... 36,445 28,431 24,452
Insurance and safety.................................................. 82,786 51,143 47,838
General and administrative............................................ 71,603 68,378 66,208
Depreciation and amortization......................................... 36,046 33,154 33,499
Operating taxes and licenses.......................................... 47,478 47,114 45,816
Operating rents....................................................... 48,286 45,313 54,330
Cost of goods sold - food services.................................... 13,465 12,617 7,766
Other operating expenses.............................................. 16,502 7,119 4,186
Restructuring expenses................................................ 2,523 -- --
--------- -------- --------
Total operating expenses....................................... 681,807 626,655 637,593
--------- -------- --------
Operating Income (Loss)................................................. (65,476) 39,841 55,388
Gain on Sale of Assets.................................................. -- (5,838) --
Interest Expense........................................................ 33,456 30,832 35,297
--------- -------- --------
Income (Loss) Before Income Taxes, Extraordinary Items and Cumulative
Effect of a Change in Accounting Principle............................ (98,932) 14,847 20,091
Income Tax Provision.................................................... 16,862 6,253 9,142
--------- -------- --------
Income (Loss) Before Extraordinary Items and Cumulative Effect of a
Change in Accounting Principle........................................ (115,794) 8,594 10,949
Extraordinary Items, net of income tax benefit of $0 and $258........... (38,373) 407 --
Cumulative Effect of a Change in Accounting Principle................... -- 690 --
--------- -------- --------
Net Income (Loss)..................................................... $ (77,421) $ 7,497 $ 10,949
========== ========= =========
Earnings (Loss) Per Share of Common Stock:
Primary
Income (loss) before extraordinary items and cumulative effect of a
change in accounting principle.................................... $ (7.58) $ 0.65 $ 1.10
Extraordinary items................................................. 2.51 (0.03) --
Cumulative effect of a change in accounting principle............... -- (0.05) --
--------- -------- --------
Net income (loss)..................................................... $ (5.07) $ 0.57 $ 1.10
========== ========= =========
Fully diluted
Income (loss) before extraordinary items and cumulative effect of a
change in accounting principle.................................... $ (7.58) $ 0.65 $ 0.96
Extraordinary items................................................. 2.51 (0.03) --
Cumulative effect of a change in accounting principle............... -- (0.05) --
--------- -------- --------
Net income (loss)................................................... $ (5.07) $ 0.57 $ 0.96
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 33
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL CAPITAL IN
COMMON STOCK SUBSCRIBED TREASURY STOCK IN EXCESS OF
------------------- ------------------ ---------------- EXCESS OF PAR VALUE
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAR VALUE SUBSCRIBED
------------ ------ ---------- ------ ------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991....................... 10,001,650 $100 -- $ -- 90,624 $ (363) $ 39,900 $ --
Adjustment to issuance of new equity interests in
connection with emergence from bankruptcy....... 3 -- -- -- -- -- -- --
Adjustment for unfunded accumulated pension
obligation...................................... -- -- -- -- -- -- -- --
Net income....................................... -- -- -- -- -- -- -- --
---------- ---- ---------- ------ ------- ------ -------- -------
BALANCE, DECEMBER 31, 1992....................... 10,001,653 100 -- -- 90,624 (363) 39,900 --
Issuance of new equity interests................. 4,662,158 47 -- -- -- -- 92,936 --
Exercise of stock options........................ 112,255 1 -- -- -- -- 1,177 --
Purchase of treasury stock....................... -- -- -- -- 36,242 (778) -- --
Issuance of treasury stock....................... -- -- -- -- (1,954) 39 -- --
Adjustment for unfunded accumulated pension
obligation...................................... -- -- -- -- -- -- -- --
Net income....................................... -- -- -- -- -- -- -- --
---------- ---- ---------- ------ ------- ------ -------- -------
BALANCE, DECEMBER 31, 1993....................... 14,776,066 148 -- -- 124,912 (1,102) 134,013 --
Exercise of stock options........................ 1,370 -- -- -- -- -- 13 --
Issuance of treasury stock....................... -- -- -- -- (15,720) 64 28 --
Tender Offer (see Note 16)....................... 22,790,308 227 -- -- -- -- 48,772 --
Rights Offering (see Note 16).................... -- -- 16,279,070 163 -- -- -- 29,184
Net loss......................................... -- -- -- -- -- -- -- --
---------- ---- ---------- ------ ------- ------- -------- -------
BALANCE, DECEMBER 31, 1994....................... 37,567,744 $375 16,279,070 $163 109,192 $(1,038) $182,826 $29,184
========== ==== ========== ==== ======= ======= ======== =======
<CAPTION>
UNFUNDED
ACCUMULATED RETAINED
PENSION EARNINGS
OBLIGATION (DEFICIT) TOTAL
----------- --------- --------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1991....................... $ -- $ 2,176 $ 41,813
Adjustment to issuance of new equity interests in
connection with emergence from bankruptcy....... -- -- --
Adjustment for unfunded accumulated pension
obligation...................................... (500) -- (500)
Net income....................................... -- 10,949 10,949
------- -------- -------
BALANCE, DECEMBER 31, 1992....................... (500) 13,125 52,262
Issuance of new equity interests................. -- -- 92,983
Exercise of stock options........................ -- -- 1,178
Purchase of treasury stock....................... -- -- (778)
Issuance of treasury stock....................... -- (16) 23
Adjustment for unfunded accumulated pension
obligation...................................... (999) -- (999)
Net income....................................... -- 7,497 7,497
------- ------- --------
BALANCE, DECEMBER 31, 1993....................... (1,499) 20,606 152,166
Exercise of stock options........................ -- -- 13
Issuance of treasury stock....................... -- -- 92
Tender Offer (see Note 16)....................... -- -- 48,999
Rights Offering (see Note 16).................... -- -- 29,347
Net loss......................................... -- (77,421) (77,421)
------- -------- --------
BALANCE, DECEMBER 31, 1994....................... $(1,499) $(56,815) $153,196
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE> 34
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
-------- --------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss).................................................................. $(77,421) $ 7,497 $ 10,949
Noncash expenses and gains included in net income
Depreciation and amortization.................................................... 36,046 33,154 33,499
Amortization of deferred gain.................................................... (332) -- --
Amortization of discount on Senior Notes......................................... 2,659 2,334 2,053
Amortization of debt issuance costs.............................................. 1,586 440 385
Net (gain) loss on assets sold................................................... 3,663 (5,065) (157)
Unfunded net pension gain........................................................ (6,179) (1,248) (1,101)
Benefits realized from deferred tax assets....................................... -- 6,189 8,674
Deferred tax provision........................................................... 17,000 -- --
Cumulative effect of a change in accounting principle............................ -- 690 --
Write-down of surplus property................................................... 4,513 -- --
Write-off intangible assets...................................................... 806 -- --
Write-off debt issuance costs -- prior credit facility........................... 3,158 -- --
Extraordinary gain on debt conversion............................................ (41,948) -- --
Net change in certain operating assets and liabilities
Accounts receivable.............................................................. 3,777 (6,154) 6,353
Inventories...................................................................... 3,405 (2,075) (449)
Prepaid expenses................................................................. (1,131) 4,947 852
Other current assets............................................................. (1,401) 1,523 (1,576)
Deferred costs and other assets.................................................. 9,465 (1,334) (34,902)
Intangible assets................................................................ (3,152) (5,025) (3,930)
Accounts payable................................................................. (3,162) (3,886) 2,803
Accrued liabilities.............................................................. 6,135 (2,053) (2,295)
Reserve for injuries and damages................................................. 29,444 (2,460) (8,155)
Unredeemed tickets............................................................... (102) (730) (2,157)
-------- --------- --------
Net cash provided by (used for) operating activities......................... (13,171) 26,744 10,846
-------- --------- --------
Cash Flows From Investing Activities
Capital expenditures............................................................... (81,565) (104,998) (27,288)
Proceeds from assets sold.......................................................... 28,646 57,538 6,999
Proceeds from termination of interest rate swap.................................... 1,609 -- --
Net change in ICC trust fund....................................................... -- 1,500 (6,000)
Deposit to collateralize operating leases.......................................... (7,127) (23,283) --
Other investing activities......................................................... 208 (25) (55)
-------- --------- --------
Net cash used for investing activities....................................... (58,229) (69,268) (26,344)
-------- --------- --------
Cash Flows From Financing Activities
Payments on debt and capital lease obligations..................................... (7,548) (15,391) (97,951)
Proceeds from long-term borrowings................................................. 31,541 2,309 100,315
Net proceeds from Rights Offering.................................................. 17,205 -- --
Proceeds from issuance of Common Stock............................................. 13 94,184 --
Purchase of treasury stock......................................................... -- (778) --
Net change in revolving credit facility............................................ -- (218) 1,565
-------- --------- --------
Net cash provided by financing activities.................................... 41,211 80,106 3,929
-------- --------- --------
Net Increase (Decrease) in Cash and Cash Equivalents................................. (30,189) 37,582 (11,569)
Cash and Cash Equivalents, Beginning of Period....................................... 39,643 2,061 13,630
-------- --------- --------
Cash and Cash Equivalents, End of Period............................................. $ 9,454 $ 39,643 $ 2,061
======== ========= ========
Supplemental Schedule of Noncash Investing and Financing Activities:
Cash capital expenditures.......................................................... $(81,565) $(104,998) $(27,288)
Noncash acquisitions (Note 3)...................................................... -- (9,043) (11,500)
-------- --------- --------
Total capital expenditures......................................................... $(81,565) $(114,041) $(38,788)
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE> 35
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. BACKGROUND AND OPERATING ENVIRONMENT
Greyhound Lines, Inc. and subsidiaries (the "Company") is the largest
intercity bus carrier in the United States, and its primary businesses consist
of scheduled passenger service, package express delivery service and food
services at certain terminals. The Company's operations include a nationwide
network of terminal and maintenance facilities, a fleet of approximately 1,900
buses and approximately 1,700 sales outlets. The Company's operating
subsidiaries include Texas, New Mexico & Oklahoma Coaches, Inc. ("TNM&O") and
Vermont Transit, Co., Inc. ("VTC"). The Company is subject to regulation by the
Interstate Commerce Commission, the Department of Transportation and certain
states.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. Investments in companies that are 25% to 50%
owned ("affiliates") are accounted for using the equity method. All significant
intercompany transactions and balances have been eliminated.
Certain Reclassifications
Certain reclassifications have been made to the prior period statements to
conform them to the December 31, 1994, classifications.
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, and cost is
determined using the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment, including capitalized leases, are recorded
at cost, including interest during construction, if any. Depreciation is
provided over their estimated useful lives or lease terms, ranging from 3 to 20
years for structures and improvements, 4 to 12 years for revenue equipment and 5
to 10 years for all other items, using principally 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.
Debt Issuance Costs and Discounts
Costs incurred related to the issuance of debt are deferred, and such costs
and any related discounts are amortized to interest expense using the
straight-line method over the life of the related debt.
Software Development Costs
The direct costs of internally developed software are capitalized when
technological feasibility has been established, and amortization of the software
begins when the software is ready for use. The cost of the capitalized software
is amortized over a period of five years.
33
<PAGE> 36
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reserve for Injuries and Damages
The Company maintains comprehensive automobile liability, general
liability, workers' compensation and property insurance to insure its assets and
operations. Automobile and general liability coverages are subject to a $1.5
million per occurrence deductible or self-insured retention. Workers'
compensation is subject to a $1.0 million per occurrence deductible or
self-insured retention.
Successful claims against the Company, which do not exceed the deductible
or self-insured retention, are paid out of operating cash flows. A reserve for
injuries and damages has been established for these claims payments. This
reserve, which also includes an estimate of environmental liabilities, is
provided from an assessment of actual claims and claims incurred but not
reported ("IBNR") based upon historical experience.
Revenue Recognition
Transportation revenue is recognized when the service is provided. A
liability for tickets sold but not used is recorded.
Earnings Per Share
Primary earnings per common share is calculated by dividing net income by
the weighted average shares of common stock of the Company ("Common Stock") and
Common Stock equivalents outstanding during the period. Common Stock equivalents
represent the dilutive effect of the assumed exercise of certain outstanding
stock options. The calculation of fully diluted earnings per share of Common
Stock assumes the dilutive effect of the Company's 8.5% Convertible Subordinated
Debentures due 2007 (the "Convertible Debentures") converted into Common Stock
at the later of the beginning of the year or issue date. For the years ended
December 31, 1994 and 1993, the assumed exercise of outstanding in-the-money
stock options and conversion of Convertible Debentures have an antidilutive
effect. As a result, these shares are not included in the weighted average
shares outstanding at December 31, 1994 and 1993. The weighted average shares
outstanding used in the calculation of earnings per share of Common Stock for
the years ended December 31, 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Primary........................................ 15,284,050 13,209,869 9,911,063
Fully diluted.................................. 15,284,050 13,209,869 15,666,343
</TABLE>
3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES
Cash paid for interest was $25.1 million, $29.3 million and $26.6 million
for the years ended December 31, 1994, 1993 and 1992, respectively. There were
no cash payments for federal income taxes for the years ended December 31, 1994,
1993 and 1992. However, federal tax refunds due the Company were offset by
$202,000 for taxes owed in partial settlement of prior years tax audits (see
Note 17).
Significant noncash investing and financing activities during the fourth
quarter of 1994 included the conversion of $89.0 million of Convertible
Debentures into equity resulting in the issuance of approximately 22.8 million
shares of Common Stock. Significant noncash financing and investing activities
during the year ended December 31, 1993, included the acquisition of 35 buses
with $7.6 million in proceeds remaining from the 1992 sale of inventory to
Universal Coach Parts, Inc. ("UCP"), an affiliate of The Dial Corp ("Dial") at
that time. Additionally, the Company received a bargain rent leasehold interest
in the New York City driver dormitory valued at $1.3 million. Also included in
noncash financing and investing activities during the year ended December 31,
1993, was the paydown of the revolving bank loans of $26.3 million with the
proceeds of the sale/leaseback of 319 buses. Significant noncash financing and
investing activities during the year ended
34
<PAGE> 37
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1992, included the exchange of 636 older buses for new buses and
the sale of inventory to UCP to purchase new buses.
4. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1993
------ ------
<S> <C> <C>
Service parts...................................................... $2,178 $5,156
Fuel............................................................... 491 974
Food service operations............................................ 1,110 1,054
------ ------
Inventories................................................... $3,779 $7,184
====== ======
</TABLE>
Service parts inventory decreased $3.0 million primarily due to additional
sales of core inventory to UCP (see Note 18).
5. PREPAID EXPENSES
Prepaid expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- ------
<S> <C> <C>
Insurance......................................................... $ 4,916 $4,376
Taxes and licenses................................................ 2,993 2,896
Rents............................................................. 932 559
Advertising....................................................... 23 338
Other............................................................. 1,384 948
------- ------
Prepaid expenses............................................. $10,248 $9,117
======= ======
</TABLE>
6. OTHER CURRENT ASSETS
Other current assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
Deposits......................................................... $11,713 $ 8,580
Other............................................................ 1,146 2,359
------- -------
Other current assets........................................ $12,859 $10,939
======= =======
</TABLE>
The deposits held as of December 31, 1994 and 1993, are the current portion
of insurance deposits that include self-insurance deposits required by the
Interstate Commerce Commission ("ICC") and the Company's primary insurance
carrier to cover interstate and certain intrastate claims for bodily injury and
property damage liability.
As of December 31, 1994, the current portion of the deposit with the
Company's primary insurance carrier has been increased by $7.0 million as a
result of a reevaluation of the timing of payments of workers' compensation
claims (see Note 9). This was partially offset by the return of a $1.9 million
deposit with Hausman Bus Sales, Inc., a return of a $1.0 million deposit in
escrow for facilities upgrades for the New York garage which was sold, and a
charge of $1.5 million against deposits with UCP to reserve for possible buyback
of obsolete inventory sold by the Company to UCP (see Note 4).
35
<PAGE> 38
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. BENEFIT PLANS
Pension Plans
The Company has six defined benefit pension plans. The first plan covers
substantially all of the Company's ongoing hourly employees hired before
November 1, 1983. The Company's hourly plan provides normal retirement benefits
to the Company's union employees based upon a percentage of average final
earnings, reduced pro rata for service of less than 15 years. Participants of
this plan will continue to accrue benefits as long as no contributions are due
from the Company. In the event a contribution is required, the plan assets will
be frozen until such time as the assets of the plan exceed 115% of the plan
liabilities. The second plan covered salaried employees through May 7, 1990,
when the plan was curtailed. The third plan is a Supplemental Executive
Retirement Plan (the "SERP") which became effective January 1, 1993, and covers
only key executive officers of the Company. The SERP, when originally
implemented, provided benefits which were generally based on years of service,
age at retirement, and the executive's highest three years of earnings, as
averaged. However, the Company is in the process of converting the SERP to a
defined contribution plan, and as a result, future costs will not be included in
net periodic pension cost. The fourth plan is a multi-employer pension plan,
instituted in 1992, to cover certain union mechanics. The remaining two plans
are held by TNM&O and VTC and cover substantially all of their salaried and
hourly personnel. The Company's policy is to fund the minimum required
contribution under existing tax laws.
The Company's net periodic pension cost (income) included the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the
period........................................... $ 6,362 $ 7,260 $ 7,147
Interest cost on projected benefit obligations..... 61,261 64,760 64,223
Actual return on plan assets....................... 23,474 (99,764) (63,584)
Net amortization and deferral...................... (95,805) 26,640 (9,264)
Recognition of the tax effect of the difference in
book and tax bases............................... -- -- 423
-------- -------- --------
Net periodic pension cost (income)............ $ (4,708) $ (1,104) $ (1,055)
======== ======== ========
</TABLE>
36
<PAGE> 39
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status and amounts recognized in
the consolidated statements of financial position for the pension plans (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------- -------------------------------
ACCRUED PENSION ACCRUED PENSION
PREPAID PLAN PREPAID PLAN
PENSION PLANS LIABILITIES PENSION PLANS LIABILITIES
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations
Vested benefit obligations..... $ 656,303 $32,207 $ 808,231 $35,430
========= ======= ========= =======
Accumulated benefit
obligations................. $ 685,139 $32,789 $ 809,508 $36,863
========= ======= ========= =======
Projected benefit obligations.... $ 693,552 $33,553 $ 825,506 $39,501
Plan assets at fair value........ 691,764 31,606 859,032 35,344
--------- ------- --------- -------
Plan assets greater than (less
than) projected benefit
obligations.................... (1,788) (1,947) 33,526 (4,157)
Unrecognized net (gain) loss..... 24,038 51 (16,988) 1,535
Unrecognized prior service
cost........................... -- -- -- 1,566
Adjustment required to recognize
minimum liability.............. -- -- -- (1,307)
--------- ------- --------- -------
Prepaid (accrued) pension
costs..................... $ 22,250 $(1,896) $ 16,538 $(2,363)
========= ======== ========= =======
</TABLE>
As of January 1, 1993, the basis of prepaid pension costs increased by $5.1
million as a result of the adoption of SFAS No. 109 (defined herein, see Note
13).
Statement of Financial Accounting Standards No. 87, "Employers Accounting
for Pensions," required the Company to establish additional minimum liabilities
as of December 31, 1993 and 1992. As a result, the Company recorded an increase
to the recorded additional minimum liability of $1.3 million for the year ended
December 31, 1993. Of the total increase, $999,000 was reflected as a reduction
of stockholders' equity, and $308,000 was reflected as an increase to intangible
assets. The $308,000 minimum liability was reversed in 1994 as a result of a
change in the minimum liability required. The Company recorded an additional
minimum liability of $500,000 for the year ended December 31, 1992, and
reflected the provision as a reduction of stockholders' equity.
In determining the benefit obligations and service costs for the Company's
defined benefit pension plans, the following assumptions were used:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
Weighted average discount rate............................. 8.75% 7.50%
Expected long-term rate of return on plan assets........... 9.00% 9.00%
Rate of salary progression................................. 0.00-5.00% 0.00-5.00%
</TABLE>
Plan assets consist primarily of government-backed securities, corporate
equity securities, guaranteed insurance contracts, annuities and corporate debt
obligations.
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 $1.2 million, $987,000, and
$717,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
37
<PAGE> 40
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Stock Ownership Plan
On October 31, 1991, the Company contributed 500,000 shares of its Common
Stock to an employee stock ownership plan ("ESOP") for its employees. Effective
December 31, 1994, this plan was amended to merge it into the Company's 401(k)
profit sharing plan. As a result, all participant's account balances are
considered fully vested. The Company is currently awaiting approval from the
Internal Revenue Service of an amendment to the 401(k) plan permitting this plan
merger. The Company has made no contributions to the ESOP since the initial
contribution.
Other Plans
A contributory trusteed health and welfare plan has been established for
all active hourly employees and a contributory health and welfare plan has been
established for salaried employees. For the years ended December 31, 1994, 1993
and 1992, the Company incurred costs of $16.4 million, $15.2 million, and $15.8
million, respectively, related to these plans. No post-retirement health and
welfare plans exist.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Land and improvements............................................ $ 73,171 $ 82,996
Structures and improvements
Owned.......................................................... 80,093 83,934
Capitalized leased assets...................................... 650 650
Lease interests................................................ 4,376 4,376
Leasehold improvements......................................... 19,918 17,339
Revenue equipment
Owned.......................................................... 118,836 80,107
Capitalized leased assets...................................... 22,118 24,953
Leasehold improvements......................................... 7,100 11,437
Furniture and fixtures........................................... 20,959 19,420
Vehicles, machinery and equipment................................ 9,042 8,356
-------- --------
Property, plant and equipment.................................. 356,263 333,568
Accumulated depreciation.................................... (68,388) (50,466)
-------- --------
Property, plant and equipment, net..................... $287,875 $283,102
======== ========
</TABLE>
During March 1994, the Company ordered 151 new buses from Motor Coach
Industries International, Inc. ("MCII") for an aggregate cost of $34.8 million.
The Company had taken delivery of all of the new buses as of September 30, 1994
(see Note 12).
Accumulated depreciation of capitalized leased assets amounted to $8.3
million and $8.5 million at December 31, 1994 and 1993, respectively. As of
January 1, 1993, the basis of net property, plant and equipment increased by
$7.8 million as a result of the adoption of SFAS No. 109 (defined herein, see
Note 13).
38
<PAGE> 41
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. DEFERRED COSTS AND OTHER ASSETS
Deferred costs and other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1993
------- -------
<S> <C> <C>
Debt issuance costs................................................ $ 2,287 $ 9,476
Other deferred costs............................................... -- 518
------- -------
Deferred costs..................................................... 2,287 9,994
Accumulated amortization......................................... (352) (342)
------- -------
Deferred costs, net...................................... 1,935 9,652
------- -------
Insurance deposits................................................. 51,411 63,883
Security deposits.................................................. 32,894 23,570
Antique buses...................................................... 375 375
Note receivable.................................................... 243 209
------- -------
Other assets..................................................... 84,923 88,037
------- -------
Deferred costs and other assets, net..................... $86,858 $97,689
======= =======
</TABLE>
The Company incurred $1.1 million in debt issuance costs related to the New
Credit Facility (defined herein, see Note 12) during the last quarter of 1994.
Such costs were capitalized and are being amortized over the life of the new
agreement. The Company incurred $4.2 million in debt issuance costs related to
the previous bank credit facility in December 1993. The net book value of these
costs, $3.2 million, was expensed as an extraordinary item when the facility was
terminated. At December 31, 1993, debt issuance costs of $665,000 ($407,000, net
of income taxes) relating to the bank credit facility which the Company had
during 1993 were expensed as an extraordinary item when the facility was
terminated.
Insurance deposits are required by the ICC and the Company's primary
insurance carrier to cover self-insured interstate and certain intrastate auto
liability as well as workers' compensation coverage in certain states. Prior to
September 1993, the Company was required by the ICC to fund $1.5 million per
calendar quarter into the ICC trust fund. During 1993, the ICC, at the Company's
request, modified several conditions relating to its authority to self-insure
its bodily injury and property damage exposure and was authorized to cease
making additional quarterly deposits (see Note 17).
During 1994, $7.0 million was transferred to increase the current portion
of insurance deposits as a result of a reevaluation of the timing of payments of
workers' compensation claims (see Note 6).
Security deposits at December 31, 1993 and 1994, include a $20.3 million
pledge of assets required as a collateral deposit for a $70.1 million
sale/leaseback of 319 buses. Also included in security deposits at December 31,
1993 and 1994, was a $3.0 million deposit required by the lessor in conjunction
with a separate sale/leaseback of 46 buses. Finally, included in security
deposits at December 31, 1994 is an $8.1 million deposit required by the lessor
in conjunction with another separate sale/leaseback of 125 buses.
39
<PAGE> 42
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1993
------- -------
<S> <C> <C>
Trademark.......................................................... 10,198 10,198
Software........................................................... 17,086 14,588
Covenants not to compete........................................... 533 533
Other.............................................................. 29 338
------- -------
Intangible assets.................................................. 27,846 25,657
Accumulated amortization......................................... (9,292) (5,191)
------- -------
Intangible assets, net................................... $18,554 $20,466
======= =======
</TABLE>
The Company emerged from Chapter 11 of the United States Bankruptcy Code
("Chapter 11") proceedings on October 31, 1991, and adopted fresh start
reporting as of that date. Pursuant to the guidance provided by Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("SOP 90-7"), the Company is required to record the utilization
of benefits realized from pre-reorganization net operating loss ("NOL")
carryforwards and deferred tax assets as a reduction of intangibles that existed
as of the fresh start reporting date. As of January 1, 1993, the basis of net
reorganization value in excess of amounts allocable to identifiable assets
decreased $16.7 million while the basis of net trademark and software increased
by $2.2 million and $1.3 million, respectively, as a result of the adoption of
SFAS No. 109 (defined herein, see Note 13). For the years ended December 31,
1993 and 1992, the Company reduced reorganization value in excess of amounts
allocable to identifiable assets by $6.2 million and $8.7 million, respectively,
representing realization of pre-reorganization deferred tax assets. On October
1, 1993, the Company reduced to zero the remaining balance of reorganization
value in excess of amounts allocable to identifiable assets. This reduction, in
the amount of $17.0 million, resulted from the change in the estimate of the
future realization of deferred tax assets (see Note 13 for the discussion of
deferred tax assets and the resultant impact upon intangible assets).
Trademarks are amortized using the straight-line method over 15 years.
Capitalized software costs are being amortized using the straight-line method
over the shorter of their useful lives or five years. Covenants not to compete
are amortized using the straight-line method over the life of the related
agreement.
11. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
Compensation, benefits and payroll related taxes................. $16,037 $15,613
Bus operating leases and rentals................................. 1,258 2,991
Interest......................................................... 8,697 9,054
Operating, property and income taxes............................. 4,452 5,420
Other expenses................................................... 22,662 16,752
------- -------
Accrued liabilities......................................... $53,106 $49,830
======= =======
</TABLE>
Other expenses have increased due to accruals for costs to be incurred
related to the Company's strategic and operational reorganization, the Financial
Restructuring and for litigation exposure (see Note 17).
40
<PAGE> 43
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. LONG-TERM DEBT AND INTEREST EXPENSE
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Secured Indebtedness
Revolving bank loans, prime plus 2.0% (weighted average 10.5%
and 7.38% at December 31, 1994 and 1993, respectively) due
1996...................................................... $ -- $ --
Other secured indebtedness, 10.75%, due 1995................. 805 2,962
Capital lease obligations (weighted average 10.75% at
December 31, 1994 and 1993) due through 2001.............. 16,884 19,796
Real estate mortgages (ranging from 9.4% to 11.0%) due
through 2006.............................................. 2,437 2,800
Note Payable, prime plus 1.5%, due 2004...................... 30,481 --
Unsecured Indebtedness
Senior Notes, 10% stated rate (13.5% imputed rate), due 2001,
net of unamortized discount of $20,397 and $23,056 at
December 31, 1994 and 1993, respectively.................. 142,932 140,273
Convertible Debentures, 8.5%, due 2007....................... 9,879 98,900
Other long-term debt (weighted average 10.0% at December 31,
1994 and 1993) due through 1996........................... 729 1,785
-------- --------
Long-term debt................................................. 204,147 266,516
Less current maturities...................................... (7,022) (6,104)
-------- --------
Long-term debt, net....................................... $197,125 $260,412
======== ========
</TABLE>
Revolving bank loans
During October 1994, the Company entered into a new revolving credit
facility (the "New Credit Facility") with Foothill Capital Corporation
("Foothill"), which replaced the Company's prior bank facility. The New Credit
Facility provides for revolving loans and letters of credit and/or letter of
credit guarantees of up to $35 million. Availability under the New Credit
Facility is limited by a formula derived from accounts receivable. The New
Credit Facility matures on January 1, 1996, although the Company, at its sole
option, may extend the term of the New Credit Facility to January 1, 1998. As of
December 31, 1994, there were approximately $17.1 million in letters of credit
outstanding under the New Credit Facility, with an additional $16.4 million in
available borrowing capacity thereunder. The maximum committed amount under the
New Credit Facility may be increased through syndication to other lenders to $40
million. The obligations under the New Credit Facility are secured by liens on
substantially all the assets of the Company (see note 20).
Senior Notes
The Company's 10% Senior Notes due 2001 (the "Senior Notes") bear interest
at the rate of 10% per annum, payable each January 31 and July 31. The Senior
Notes have a stated principal amount of $165.0 million, of which $1.7 million
are held by the Company. The Senior Notes are reflected net of unamortized
discount in the Consolidated Statements of Financial Position to reflect an
imputed interest rate of 13.5%, and also net of any Senior Notes held by
consolidated subsidiaries. At the Company's option, the Senior Notes may be
redeemed at any time as a whole, or from time to time in part, initially at a
redemption price equal to 110% of the principal amount thereof, declining
ratably on each July 31, commencing July 31, 1992, to 101% of the principal
amount thereof on July 31, 2000, in each case together with accrued and unpaid
interest to the redemption date. The Senior Notes are subject to mandatory
redemption pursuant to a sinking
41
<PAGE> 44
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fund commencing July 31, 1996, and on each July 31 thereafter through July 31,
2000, calculated to retire approximately 65% of the original principal amount of
the Senior Notes prior to maturity. In addition, the Senior Notes are subject to
mandatory redemption from the proceeds of certain sales of assets not used for
capital expenditures or to reduce the obligations under the revolving bank
loans. Any Senior Notes not theretofore redeemed mature July 31, 2001.
Convertible Debentures
During 1992, the Company issued $98.9 million of Convertible Debentures.
Interest on the Convertible Debentures is payable semiannually (each March 31
and September 30). The Convertible Debentures are convertible at the option of
the holder at any time prior to maturity, unless previously redeemed, into
Common Stock at the conversion price of $12.375 per share (equivalent to a
conversion rate of approximately 80.81 shares per $1,000 principal amount of
Convertible Debentures), subject to adjustment in certain events. During the
fourth quarter, the Company made an offer (the "Tender Offer") to convert the
entire $98.9 million in aggregate principal amount of the Company's Convertible
Debentures into shares of Common Stock at a conversion rate of 256 shares of
Common Stock for each $1000 bond. On December 22, 1994, the Company announced
the completion of the Tender Offer with approximately $89.0 million, or 90.011%,
of the $98.9 million issue being tendered and converted into 22.8 million
shares, resulting in a $41.9 million extraordinary gain in the accompanying
Statement of Operations for the year ended December 31, 1994.
Other
Under the most restrictive provisions of all its debt agreements, the
Company may not incur additional indebtedness, is limited on the payment of
dividends on its Common Stock and may not enter into certain mergers or acquire
or dispose of any assets (except in the ordinary course of business). Covenants
under the New Credit Facility provide that the Company may not prepay the
Convertible Debentures. The New Credit Facility provides that the Company must
meet a covenant related to the Company's tangible net worth. The New Credit
Facility also limits the Company's capital expenditures. At December 31, 1994,
the Company was in compliance with all covenants.
During March 1994, the Company ordered 151 new buses from Motor Coach
Industries International, Inc. ("MCII") for approximately $35 million. The
Company had taken delivery of all of the new buses as of September 30, 1994. As
delivery was taken, the new buses were 90 percent financed through a ten-year
installment note with MCI, which is secured by the purchased buses and which
bears interest at a rate of prime plus 1.5 percent. MCI subsequently transferred
the financing for 50 of the buses to another lender and assigned the financing
on the remaining 101 buses to MCI Acceptance Corp. ("MCIAC"), a wholly owned
subsidiary of MCII. In connection with the Rights Offering the Company made a
prepayment on the amount owed to MCIAC of $12.9 million during February 1995
(see Note 18).
During 1993, the Company executed three interest rate swap agreements
whereby fixed interest rates were swapped for variable interest rates. The
purpose of these agreements was to hedge the interest rates related to the
Company's 10% Senior Notes and the 8.5% Convertible Debentures. The five-year
swap transactions totalled $150.0 million and collateral of $10.0 million was
provided to secure the transaction. When the Company entered into its previous
bank credit facility in December 1993, the deposit was returned to the Company.
The interest expense savings during 1994 and 1993 resulting from the interest
rate swap agreements was $713,000 and $1.4 million, respectively. During January
1994, the Company terminated a $75.0 million interest rate swap agreement. The
gain resulting from the termination was $1.6 million and will be recognized
evenly over the remaining terms of the five-year agreements.
The Company amended its two remaining interest rate swap agreements during
October 1994, to lock in the future payments under the agreements until maturity
in July 1998. The net result of the amendments is to ensure that these swaps
will not be subject to interest rate risk. Consequently, should interest rates
increase,
42
<PAGE> 45
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's payments under the agreements will not be adversely affected.
Conversely, should interest rates decline, the Company would not receive any
benefit. Under the amendments, the Company will be required to pay and recognize
the related interest expense of $6.2 million over the remaining term of the
five-year agreements. The Company has collateralized its payment obligations
under the terminated agreements with a $1.1 million letter of credit and liens
on six pieces of real property.
At December 31, 1994, maturities of long-term debt for the next five fiscal
years ending December 31 and all years thereafter, are as follows (in
thousands):
<TABLE>
<S> <C>
1995.............................................................. $ 7,022
1996.............................................................. 14,612
1997.............................................................. 16,191
1998.............................................................. 21,509
1999.............................................................. 30,759
2000 and thereafter............................................... 114,054
--------
$204,147
========
</TABLE>
13. INCOME TAXES
Income Tax Provision
The income tax provision consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Current
Federal............................................... $ -- $ -- $ --
State.............................................. (138) 75 283
------- ------ ------
Total current...................................... (138) 75 283
------- ------ ------
Deferred
Federal............................................... 17,000 5,482 8,859
State................................................. -- 696 --
------- ------ ------
Total deferred..................................... 17,000 6,178 8,859
------- ------ ------
Income tax provision.......................... $16,862 $6,253 $9,142
======= ====== ======
</TABLE>
43
<PAGE> 46
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective Tax Rate
The differences, expressed as a percentage of income before taxes,
extraordinary items and cumulative effect of a change in accounting principle,
between the statutory and effective federal income tax rates are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Statutory tax rate..................................... (34.0)% 34.0 % 34.0 %
Amortization of reorganization value in excess of
amounts allocable to identifiable assets............. -- 3.0 6.0
Dividends received deduction........................... -- (0.3) (0.1)
Non-compliance fees.................................... 0.1 0.3 0.1
Excess of book basis in assets over tax basis.......... -- -- 3.0
State income taxes..................................... (0.1) 5.0 0.9
Unrecognized current year benefit...................... 33.8 -- --
Reversal of recognition of deferred tax assets......... 17.2 -- --
Other.................................................. -- 0.1 1.6
------- ------ ------
Effective tax rate................................ 17.0 % 42.1 % 45.5 %
======= ====== ======
</TABLE>
Deferred Tax Assets
Significant components of deferred income taxes at December 31, 1994 and 1993,
were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Deferred Tax Assets
Federal and state NOL carryforwards...................... $ 13,239 $ 42,894
Reserve for injuries and damages......................... 21,333 13,450
Contested claims pool payments........................... -- 11,970
Book over tax depreciation and amortization.............. 1,262 1,853
Other accrued expenses and reserves...................... 7,318 3,339
Other deferred tax assets................................ 853 1,585
------------ ------------
Total deferred tax assets............................. 44,005 75,091
------------ ------------
Deferred Tax Liabilities
Tax over book depreciation and amortization.............. 12,641 19,457
Pension cost for tax purposes in excess of books......... 6,176 3,670
Other deferred tax liabilities........................... 209 449
------------ ------------
Total deferred tax liabilities........................ 19,026 23,576
------------ ------------
Deferred tax assets........................................ 24,979 51,515
Valuation allowance........................................ (24,979) (34,515)
------------ ------------
Deferred tax assets, net................................... -- 17,000
Less current portion....................................... -- (6,098)
------------ ------------
Long-term deferred tax assets, net.................... $ -- $ 10,902
============ ============
</TABLE>
44
<PAGE> 47
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the requirements of SFAS No. 109, a valuation allowance must be
provided when it is more likely than not that the deferred income tax asset will
not be recognized. As of December 31, 1993, the Company believed that a
sufficient history of earnings had been established to make realization of a
$17.0 million deferred income tax asset more likely than not. In the third
quarter of 1994, due to the uncertainty created by the Financial Restructuring
and the ongoing strategic and operational reorganization, the Company increased
the valuation allowance to reserve for the $17.0 million deferred income tax
asset as the Company believed it no longer met the "more likely than not"
realization criteria. These changes in the valuation allowance are as follows
(in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Increase in deferred income tax asset resulting from
identification of additional temporary differences......... $ -- $ 16,006
Change in estimate of realization of deferred income tax
asset...................................................... -- (17,000)
Increase in deferred income tax asset resulting from normal
changes in temporary differences........................... 15,089 --
Decrease in deferred income tax asset due to a change in
assumption of deductibility................................ (11,970) --
Loss of federal and state NOL's due to financial
restructuring.............................................. (29,655) --
Deferred tax expense recognized due to a change in estimate
of realization of deferred income tax asset................ 17,000 --
Deferred tax expense recognized.............................. -- (6,178)
Other........................................................ -- 55
--------- ---------
Net change in valuation allowance....................... $ (9,536) $ (7,117)
========= =========
</TABLE>
Future use of the deferred tax asset would normally be offset by an equal
reduction in the valuation allowance, however, due to fresh start reporting,
approximately $4.9 million of the valuation allowance will be used to reduce
intangible assets that existed as of the fresh start reporting date or will
result in increases to capital in excess of par value.
Change in Accounting Principle -- Accounting for Income Taxes
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), which requires, among other
things, an asset and liability approach for financial accounting and reporting
for income taxes. The Company adopted SFAS No. 109 on January 1, 1993.
Pursuant to SFAS No. 109, the Company was required to apply purchase method
accounting in a different manner than that reflected in the Company's
Consolidated Statements of Financial Position prior to January 1, 1993. That
application resulted in changes to the bases of certain assets in the
accompanying 1993 financial statements. The bases of net property, plant and
equipment, prepaid pension and net other intangible assets increased by $7.8
million, $5.1 million and $3.4 million, respectively. The bases of net
reorganization value in excess of amounts allocable to identifiable assets and
assets held for sale declined by $16.7 million and $300,000, respectively. The
net impact from adoption of SFAS No. 109 was $690,000 and is reported as
cumulative effect of a change in an accounting principle in the accompanying
Consolidated Statement of Operations for the year ended December 31, 1993.
Availability and Amount of NOL's
The 1994 financial restructuring resulted in an ownership change, as
defined under section 382 of the Internal Revenue Code (the "Code"). The
provisions of the Code, as they apply to the Company, require that an annual
limitation be placed on the amount of NOL's which may be utilized. Consequently,
the Company's NOL carryforwards are now subject to an annual limitation of $2.1
million. Any unused portion of the current
45
<PAGE> 48
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
annual limitation may be carried forward to the following year. As a result, the
Company will carryforward available NOL's of $31.5 million. The NOL
carryforwards expire as follows:
<TABLE>
<S> <C>
2006....................................................... $ 3,000
2007....................................................... 2,900
2008....................................................... 9,700
2009....................................................... 15,900
-------
$31,500
=======
</TABLE>
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of
the fair value 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 and the revolving bank loans, the carrying
amounts reported in the Consolidated Statements of Financial Position
approximate fair value. The fair values of the interest rate swaps, short-term
deposits and long-term insurance deposits are based upon quoted market prices at
December 31, 1994 and 1993, where available. For the portion of short-term
deposits and long-term insurance and security deposits where no quoted market
price is available, the carrying amounts are believed to approximate fair value.
For the other secured indebtedness, real estate mortgages, note payable 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, 1994
and 1993.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1994 and 1993, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Accounts receivable
Interest rate swaps....................... -- -- 1,417 3,183
Other current assets
Deposits.................................. 11,713 11,713 8,580 8,581
Deferred costs and other assets
Insurance deposits........................ 51,411 51,411 63,883 63,886
Security deposits......................... 32,894 32,894 23,570 23,570
Long-term debt
Interest rate swaps....................... (34) (5,200) -- --
Other secured indebtedness................ (805) (805) (2,962) (2,792)
Real estate mortgages..................... (2,437) (1,578) (2,800) (1,855)
Note payable.............................. (30,481) (20,536) -- --
Senior Notes.............................. (142,932) (124,163) (140,273) (171,291)
Convertible Debentures.................... (9,879) (5,730) (98,900) (116,949)
Other long-term debt...................... (729) (688) (1,785) (1,549)
</TABLE>
46
<PAGE> 49
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. LEASE COMMITMENTS
The Company leases buses and terminals from various parties pursuant to
capital and operating leases expiring at various dates through 2033. In December
1993, the Company entered into three leases as part of a $70.1 million
sale/leaseback transaction of 319 buses. In March 1994, the Company entered into
two additional lease agreements in a $28.0 million sale/leaseback of 125 buses.
At December 31, 1994, scheduled future minimum payments for the next five
fiscal years ending December 31, under the capital leases and noncancelable
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1995............................................................ $ 4,098 $ 44,348
1996............................................................ 4,098 36,136
1997............................................................ 4,085 31,063
1998............................................................ 4,074 28,949
1999............................................................ 2,994 26,819
Thereafter...................................................... 3,449 128,077
------- ---------
Total minimum lease payments.................................. $22,798 $ 295,392
======= ========
Amounts representing interest.............................. 5,914
-------
Present value of minimum lease payments.................. $16,884
=======
</TABLE>
For the years ended December 31, 1994, 1993 and 1992, rental expenses for
operating leases (net of sublease rental income of approximately $1.7 million,
$2.6 million and $3.4 million, respectively) amounted to $48.0 million, $46.0
million, and $54.3 million, respectively. Rental expenses for bus operating
leases, excluding daily rents and other short term leases during peak periods,
amounted to $22.7 million in 1994.
16. STOCKHOLDERS' EQUITY
On May 11, 1993, the Company completed a public offering of 4,662,158
shares of Common Stock. Net proceeds of the offering, after deducting all
associated costs, were $93.0 million, and the majority was used to purchase new
buses during 1993 and early 1994. The remaining proceeds of the offering were
used for general corporate purposes.
During 1993, shares of Common Stock were tendered to the Company in
connection with the exercise of stock options under the Greyhound Lines, Inc.
1991 Management Stock Option Plan, thereby increasing treasury stock by 36,242
shares. Additionally, 1,954 shares of treasury stock were issued to employees of
the Company in recognition of their performance. The net change in treasury
stock resulting from these transactions was an increase of 34,288 shares or
$739,000. Retained earnings decreased by $16,000 as a result of the issuance of
treasury stock to employees. As of December 31, 1993, the issuance of additional
shares of Common Stock in connection with the Common Stock offering and the
exercise of stock options increased the par value of Common Stock and capital in
excess of par value by $48,000 and $94.1 million, respectively.
The authorized number of shares of Common Stock was increased from
25,000,000 to 50,000,000 by an amendment to the Company's certificate of
incorporation which was approved at the annual stockholders' meeting on May 11,
1993. The authorized number of shares was increased to provide the Company with
the flexibility to issue shares of Common Stock in connection with the Common
Stock offering and to take advantage of business or financial opportunities in
the future.
The Company is also authorized to issue 10,000,000 shares of $.01 par value
preferred stock. The Board of Directors may designate and issue one or more
series of preferred stock from the authorized and unissued
47
<PAGE> 50
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares of preferred stock. During 1994, the Company designated 500,000 shares of
preferred stock as "Series A" junior preferred stock in connection with the
stockholders rights plan discussed below. No preferred stock had been issued as
of December 31, 1994.
On March 22, 1994, the Company's Board of Directors adopted a stockholder
rights plan (the "Rights Plan"). The Rights Plan provides for a dividend
distribution of a Preferred Stock Purchase Right (the "Right") for each share of
Common Stock held by stockholders of record at the close of business on April 4,
1994. The Rights will become exercisable only in the event that, with certain
exceptions, an acquiring party accumulates 15% or more of the Company's voting
stock. The Rights have no voting rights and are not entitled to receive
dividends. The Rights will expire on March 22, 2004. Each Right will entitle the
holder to buy 1/100th of a share of Series A preferred stock at a price of $35.
The Series A preferred stock would also have one vote, voting together with the
Common Stock upon issuance. In addition, upon the occurrence of certain events,
holders of the Rights will be entitled to purchase either Common Stock or shares
in an acquiring entity at 50% of the market value. The Company will be entitled
to redeem the Rights at $.01 per Right at any time through the tenth day
following the acquisition of a 15% position in its voting stock.
An amendment to the Company's Certificate of Incorporation was approved at
a special meeting of stockholders on December 21, 1994. The amendment increases
the number of shares of Common Stock of the Company authorized for issuance from
50,000,000 shares to 100,000,000 shares. The amendment was sought principally to
permit the consummation of a financial restructuring of the Company involving an
offer (the "Tender Offer") to convert the Company's 8.5% Convertible
Subordinated Debentures due March 31, 2007 into Common Stock of the Company at
an increased conversion rate and the offer (the "Rights Offering") pursuant to
which the existing holders of Common Stock had the right to subscribe for and
purchase, in the aggregate, $35.0 million of Common Stock, as well as to provide
for future flexibility to take advantage of business or financial opportunities.
On December 22, 1994, the Company announced the successful completion of
the Tender Offer for its Convertible Debentures with $89.0 million, or 90.011%,
of the outstanding Convertible Debentures being tendered and converted into
approximately 22.8 million shares of the Company's Common Stock. The Company
also announced that its $35.0 million Rights Offering for approximately 16.3
million shares of Common Stock had been fully committed. As of December 31,
1994, $19.9 million of the proceeds from the Rights Offering had been received.
The Company received the balance of the proceeds of the Rights Offering in
January 1995. In connection with the Financial Restructuring, the Company
incurred approximately $6.8 million in professional fees and pre-paid $12.9
million in debt owed to MCIAC (see Note 18).
48
<PAGE> 51
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has adopted three stock option plans under which options to
purchase up to a total of 3,563,636 shares of Common Stock under the three plans
may be granted to officers, key employees and directors of the Company and its
subsidiaries. The following table sets forth option activity for the years ended
December 31, 1993 and 1992, and the two months ended December 31, 1991:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES -------------------------------
AVAILABLE EXERCISE
FOR GRANT SHARES PRICE PER SHARE
---------- ---------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1991.................. 1,072,924 290,712 $11.20
Granted May 20, 1992...................... (454,288) 454,288 $9.81
Granted November 24, 1992................. (55,000) 55,000 $11.25
Terminated or cancelled................... 102,000 (102,000) $9.81-$11.20
---------- ----------
Balance, December 31, 1992.................. 665,636 698,000 $9.81-$11.25
Granted February 8, 1993.................. (174,500) 174,500 $14.44
Granted April 19, 1993.................... (140,000) 140,000 $18.13
New shares authorized May 11, 1993........ 2,000,000 -- --
Granted August 13, 1993................... (1,097,000) 1,097,000 $20.63
New shares authorized September 28,
1993................................... 200,000 -- --
Granted September 28, 1993................ (75,000) 75,000 $20.63
Options exercised......................... -- (112,255) $9.81-$14.44
Terminated or cancelled................... 2,000 (2,000) $14.44
---------- ----------
Balance, December 31, 1993.................. 1,381,136 2,070,245 $9.81-$20.63
New shares authorized..................... 20,000 -- --
Granted January 5, 1994................... (10,000) 10,000 $10.38
Granted March 2, 1994..................... (60,000) 60,000 $10.25
Granted May 10, 1994...................... (10,000) 10,000 $10.50
Granted May 10, 1994...................... (40,000) 40,000 $10.50
Granted August 29, 1994................... (50,000) 50,000 $5.44
Granted September 27, 1994................ (753,500) 753,500 $2.84
Granted September 28, 1994................ (32,200) 32,200 $2.16
Granted November 15, 1994................. (25,000) 25,000 $2.13
Granted November 22, 1994................. (400,000) 400,000 $2.06
Options exercised......................... -- (1,370) $9.81
Terminated or cancelled................... 1,537,324 (1,537,324) $2.84-$20.63
---------- ----------
Balance, December 31, 1994.................. 1,557,760 1,912,251 $2.06-$20.63
========= =========
</TABLE>
Of the 1,912,251 options outstanding at December 31, 1994, 73,315 have an
exercise price of $9.81, 92,486 have an exercise price of $11.20, 17,000 have an
exercise price of $11.25, 53,500 have an exercise price of $14.44, 334,500 have
an exercise price of $20.63, 60,000 have an exercise price of $10.25, 10,000
have an exercise price of $10.38, 40,000 have an exercise price of $10.50,
50,000 have an exercise price of $5.44, 25,000 have an exercise price of $2.13,
724,250 have an exercise price of $2.84, 32,200 have an exercise price of $2.16,
and 400,000 have an exercise price of $2.06. Of the 1,912,251 options
outstanding at December 31, 1994, 306,301 options were exercisable at December
31, 1994.
49
<PAGE> 52
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. COMMITMENTS AND CONTINGENCIES
LABOR LITIGATION
The Amalgamated Transit Union (the "ATU") strike in March 1990 resulted in
two related proceedings, one before the National Labor Relations Board ("NLRB")
and the other related to the Company's Chapter 11 reorganization. In April 1993,
the Company, the ATU and the General Counsel of the NLRB jointly announced a
proposed settlement of the strike and certain related litigation. The proposed
settlement was approved by an Administrative Law Judge of the NLRB in September
1994, the full NLRB in February 1995 and by the United States Bankruptcy Court
for the Southern District of Texas, Brownsville Division (the "Bankruptcy
Court") in March 1995.
The settlement resulted in the dismissal of all litigation between the ATU,
NLRB and the Company, with the exception of one issue related to the Company's
1990 granting of seniority to drivers hired with previous commercial driving
experience, which issue will be resolved in litigation before the NLRB and
appeals, if any. In September 1994, an Administrative Law Judge of the NLRB
issued a ruling finding that the granting of seniority to drivers with previous
commercial driving experience constituted an unfair labor practice by the
Company. The Company has appealed this ruling.
If the Company were to ultimately lose this litigation, after all appeals,
it may be exposed to liability to drivers hired after March 1990 that would lose
their experience-based seniority credit. Liability to drivers hired before March
1990 who might lose their experience-based seniority was resolved in the
aforementioned settlement. Based on the assessment of the liability expense it
could face in settling these claims, the Company does not believe that this
liability would have a material adverse effect on its business, results of
operations or financial condition.
DEPARTMENT OF JUSTICE INVESTIGATION
In March 1994, the Antitrust Division of the U.S. Department of Justice
(the "DOJ") initiated an antitrust investigation to determine whether there is,
has been, or may be a violation by the Company of Sections 1 and 2 of the
Sherman Act by conduct or activities constituting a restraint of trade,
monopolization or an attempt to monopolize. This investigation principally
involves the competitive impact of (i) the Company's computerized reservation
system, including the provision of fare and scheduling information via
telephone, (ii) the Company's decision to discontinue publishing its bus
schedules in an industry publication and (iii) various provisions contained in
agreements with bus carriers using the Company's terminals. Under DOJ
procedures, this investigation is preliminary in nature and seeks to determine
whether the DOJ should file a complaint against the Company.
Pursuant to this investigation, the DOJ served a civil investigative demand
("CID") on the Company in March 1994. The CID required the Company to answer
various interrogatories and to produce certain documents. In July 1994, the
Company completed the production of documents and answered the interrogatories
required by the CID. In November 1994, the DOJ's staff contacted counsel for the
Company and indicated that they believed that one of the several business
practices investigated, a provision contained in agreements with bus carriers
using the Company's terminals, violated Section 1 of the Sherman Act. The
Company believes that the subject provision does not violate that antitrust law.
The DOJ has requested that the Company enter into a consent decree enjoining the
Company from enforcing the subject provision in its terminal license agreements.
In 1993, the ICC's Office of Economics conducted an assessment of
essentially the same issues involved in the DOJ investigation. In July 1993, the
ICC issued a report concluding that, although the Company has initiated many
business and technological practices that affect the bus industry, the Company
has not intentionally mistreated other carriers or engaged in any
anti-competitive practices. In September 1994, the ICC voted to discontinue any
further potential rulemaking action with respect to the issues it investigated
in 1993.
50
<PAGE> 53
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Given the preliminary nature of the DOJ investigation, the Company cannot
assess the impact, if any, on its business or financial condition or results of
operations. If the DOJ's investigation is in fact limited to the single
provision in the terminal license agreements, the Company believes that the
investigation will not have a material impact on the Company's business,
financial condition or results of operations.
OKLAHOMA SALES TAX CLAIM
In January 1991, the Oklahoma Tax Commission ("OTC") filed a proof of claim
with the Bankruptcy Court in connection with the Company's Chapter 11 bankruptcy
case. That claim related to sales taxes which the OTC alleged were due and owing
by the Company on interstate bus tickets sold in Oklahoma. The OTC claim
involved a proposed tax assessment of approximately $908,000. The Company
objected to the claim on the basis that the tax the OTC proposed to assess was
an improper burden on interstate commerce in violation of the Commerce Clause of
the United States Constitution. In February 1993, the Bankruptcy Court denied
the OTC's claim in its entirety, finding that the Oklahoma sales tax on
interstate travel was unconstitutional. The OTC subsequently appealed the
Bankruptcy Court's decision to the U.S. District Court for the Southern District
of Texas, Brownsville Division (the "District Court"), which affirmed the
Bankruptcy Court's ruling in October 1993. In November 1993, the OTC appealed
the case to the United States Circuit Court of Appeals for the Fifth Circuit
(the "Fifth Circuit"). The decision of the Fifth Circuit is being held in
abeyance pending the United States Supreme Court's decision in another case
brought by the OTC against another bus carrier involving the same issues. In
November 1994, oral argument was held before the United States Supreme Court
involving the OTC's claim against the other bus carrier. If the OTC were to
ultimately prevail in the litigation, the Company would be obligated to pay the
tax assessment. Additionally, the OTC would likely file another tax assessment
covering the tax due for the period subsequent to the original claim filed with
the Bankruptcy Court.
SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION
On August 23, 1994, a purported class action lawsuit was filed by Joseph
Sonnenberg, a purported owner of the Company's Common Stock, against the Company
and certain of its former officers and directors. The suit seeks unspecified
damages for securities law violations as a result of statements made in public
reports and press releases and to securities analysts during 1993 and 1994 that
are alleged to have been false and misleading. The suit, filed in the United
States District Court for the Northern District of Texas, is styled Sonnenberg
v. Greyhound Bus Lines, Inc., Frank J. Schmieder and Michael Doyle, Civil Action
No. 3-94CV-1793G.
On October 5, 1994, a purported class action lawsuit was filed by Bruce
Doniger, a purported owner of the Company's Convertible Debentures, against the
Company and certain of its former officers and directors. The suit seeks
unspecified damages for securities law violations as a result of statements made
in public reports and press releases and to securities analysts in 1993 and 1994
that are alleged to have been false and misleading. The suit, filed in the
United States District Court for the Northern District of Texas, is styled Bruce
Doniger v. Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle,
Civil Action No. 3-94CV-2135X.
On October 20, 1994, a purported class action lawsuit was filed by M.
Murray Van De Velde, a purported owner of the Company's Convertible Debentures,
against the Company and certain of its former officers and directors. The suit
seeks unspecified damages for securities law violations as a result of
statements made in public reports and press releases and to securities analysts
during 1993 and 1994 that are alleged to have been false and misleading. The
suit, filed in the United States District Court for the Northern District of
Texas, is styled M. Murray Van De Velde v. Greyhound Bus Lines, Inc., Frank J.
Schmieder and J. Michael Doyle, Civil Action No. 3-94CV-2240R.
On October 21, 1994, a purported class action lawsuit was filed by Emile
Gladstone, a purported owner of the Company's Senior Notes, against the Company,
certain of its former officers and directors and Smith
51
<PAGE> 54
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Barney Inc. The suit seeks unspecified damages for securities law violations as
a result of statements made in public reports and press releases and to
securities analysts during 1993 and 1994 that are alleged to have been false and
misleading. The suit, filed in the United States District Court for the Northern
District of Texas, is styled Emile Gladstone v. Greyhound Lines, Inc., Smith
Barney Inc., Charles J. Lee, Charles A. Lynch, Frank J. Schmieder and J. Michael
Doyle, Civil Action No. 3-94CV-2258J.
On October 25, 1994, a purported class action lawsuit was filed by Lawrence
Robbins, a purported owner of the Company's Common Stock, against the Company, a
present officer, certain former officers and directors, and Smith Barney
Shearson. The suit seeks unspecified damages for securities law violations as a
result of statements made in public reports and press releases and to securities
analysts during 1993 and 1994 that are alleged to have been false and
misleading. The suit, filed in the United States District Court for the Northern
District of Texas, is styled Lawrence Robbins v. Greyhound Bus Lines, Inc.,
Frank J. Schmieder, J. Michael Doyle, Charles Lynch, Phillip W. Taff, Robert R.
Duty, Ralph Borland, Don T. Seaquist, Charles Lee and Smith Barney Shearson,
Civil Action No. 3-94CV-2270H.
On November 2, 1994, a purported class action lawsuit was filed by The
Witness Organization Pension Plan & Trust Dated 5-30-86, Philip H. deRoulet,
Trustee, a purported owner of the Company's Convertible Debentures, against the
Company and certain of its former officers and directors. The suit seeks
unspecified damages for securities law violations as a result of statements made
in public reports and press releases and to securities analysts during 1993 and
1994 that are alleged to have been misleading. The suit, filed in the United
States District Court for the Northern District of Texas, is styled The Witness
Organization Pension Plan & Trust Dated 5-30-86, Philip H. deRoulet, Trustee v.
Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action
No. 3-94CV-2332G.
On December 12, 1994, a purported class action lawsuit was filed by the
State Board of Administration of Florida and Louisiana State Employees
Retirement System, purported owners of the Company's Common Stock, against the
Company and certain of its present and former officers and directors. The suit
seeks unspecified damages for securities law violations and common law fraud and
deceit as a result of statements made in public reports and press releases and
to securities analysts during 1993 and 1994 that are alleged to have been
misleading. The suit, filed in the United States District Court for the Northern
District of Texas, is styled State Board of Administration of Florida and
Louisiana State Employees Retirement System v. Greyhound Lines, Inc., J. Michael
Doyle, Charles A. Lynch, Frank J. Schmieder, and "John Doe" and "Richard Roe,"
Civil Action No. 3-94-CV-2694-R. Although this case has been filed, it has not
yet been served on any defendants.
All the purported class action cases above (with the exception of State
Board of Administration of Florida and Louisiana State Employees Retirement
System v. Greyhound Lines, Inc., J. Michael Doyle, Charles A. Lynch, Frank J.
Schmieder, and "John Doe" and "Richard Roe," Civil Action No. 3-94-CV-2694-R,
which has not yet been served on any defendants) have been transferred to the
Court in which the first purported class action suit is pending. A joint
pretrial order has been entered in the class action litigation which
consolidates for pretrial and discovery purposes all of the stockholders actions
and, separately, all of the debtholders actions. The joint pretrial order
requires plaintiffs to file consolidated amended complaints and excuses answers
to the original complaints. Plaintiffs' complaints are not yet due. When filed,
the Company will have forty-five days to answer or otherwise respond, unless the
time is extended.
With respect to State Board of Administration of Florida and Louisiana
State Employees Retirement System v. Greyhound Lines, Inc., J. Michael Doyle,
Charles A. Lynch, Frank J. Schmieder, and "John Doe" and "Richard Roe," Civil
Action No. 3-94-CV-2694-R, this suit has not yet been served on any defendants,
and thus no answer or other response by the defendants is required. It is
expected that, if served, one of the parties will seek to transfer this case to
the Court where the other purported class actions are pending for consolidation
under the joint pretrial order.
52
<PAGE> 55
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 2, 1994, a shareholder derivative lawsuit was filed by Harvey
R. Rice, a purported owner of the Company's Common Stock, against present
directors and former officers and directors of the Company and the Company as a
nominal defendant. The suit seeks to recover monies obtained by certain
defendants by allegedly trading in the Company's securities on the basis of
nonpublic information and to recover monies for certain defendants' alleged
fraudulent dissemination of false and misleading information concerning the
Company's financial condition and future business prospects. The suit, filed in
the Delaware Court of Chancery, New Castle County, is styled Harvey R. Rice v.
Frank J. Schmieder, J. Michael Doyle, Charles A. Lynch, Richard J. Caley, Thomas
F. Meagher, Thomas G. Plaskett, Kenneth R. Norton, Robert B. Gill, Alfred E.
Osborne, Jr., J. Patrick Foley, Charles J. Lee and Greyhound Lines, Inc., Civil
Action No. 13854.
Pursuant to a stipulation, the current deadline for all defendants to
answer, move or otherwise plead with respect to the derivative complaint is not
yet due.
The above cases have been on file for only a short period of time, and no
discovery has been conducted with respect to the claims. Based on a review of
the litigation, a limited investigation of the underlying facts and discussions
with legal and outside counsel, the Company does not believe that the outcome of
this litigation would have a material adverse effect on its business and
financial condition. The Company intends to defend against the actions
vigorously. To the extent permitted by Delaware law, the Company is obligated to
indemnify and bear the cost of defense with respect to lawsuits brought against
its officers and directors. The Company maintains directors' and officers'
liability insurance that provides certain coverage for itself and its officers
and directors against claims of the type asserted in the subject litigation. The
Company has notified its insurance carriers of the asserted claims.
On January 23, 1995, the Company received notice that the Securities and
Exchange Commission is conducting a formal, non-public investigation into
possible securities laws violations allegedly involving the Company and certain
of its present and former officers, directors and employees and other persons.
The order of investigation states that the SEC is exploring possible insider
trading activities, as well as possible violations of the federal securities
laws relating to the adequacy of the Company's public disclosures with respect
to problems with its passenger reservation system implemented in 1993 and
lower-than-expected earnings for 1993. In addition, the SEC investigation will
examine the adequacy of the Company's record keeping with respect to the
passenger reservation system and its internal auditing controls. Although the
SEC has not announced the targets of the investigation, it does not appear from
the order that the Company is a target of the insider trading portion of the
investigation. The Company is fully cooperating with the SEC. The probable
outcome of this investigation cannot be predicted at this early stage in the
proceeding.
INTERNAL REVENUE SERVICE EXAMINATION
The Internal Revenue Service (the "IRS") has conducted an examination of
the Company's consolidated federal tax returns for the years 1987, 1988 and
1989. The IRS and the Company entered into Closing Agreements As To The
Determination Of Specific Matters, dated February 13, 1992, and October 7, 1992,
wherein the Company agreed to certain income adjustments resulting in additional
tax assessments of approximately $1 million in the aggregate for the years
examined. Remaining issues resulting in potential income tax expense and
interest of $1.8 million are being contested and are scheduled to be litigated.
If resolved against the Company, management does not believe that such adverse
outcome would have a material adverse effect on its business, financial
condition or results of operations.
INVOLUNTARY CHAPTER 11 FILING
On November 2, 1994, the Company received from certain persons claiming to
own in excess of 25% of the aggregate principal amount of the outstanding
Convertible Debentures a purported notice of acceleration of the entire
principal amount of the Convertible Debentures. Concurrently, a subset of those
persons filed an involuntary petition under Chapter 11 of the Bankruptcy Code
against the Company in the United States
53
<PAGE> 56
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Bankruptcy Court for the Northern District of Texas, Dallas Division. The case
was styled In re Greyhound, Case No. 394-36594-RCM-11. On December 19, 1994, in
anticipation of the completion of the Company's Financial Restructuring, the
involuntary bankruptcy petition was dismissed upon joint motion of the Company
and the petitioning creditors. The Financial Restructuring was successfully
completed in December 1994, and approximately 90% of the aggregate principal
amount of the outstanding Convertible Debentures was tendered to the Company in
return for Common Stock. In January 1995, the Company made the interest payment
on the Convertible Debentures that remained outstanding, thus curing existing
defaults thereunder.
INSURANCE COVERAGE
The ICC has 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. To maintain self-insurance authority, the ICC
requires the Company to maintain a tangible net worth of $10.0 million and to
maintain a $15.0 million trust fund (currently fully funded) to provide security
for payment of claims. At December 31, 1994, the Company's tangible net worth
was $134.6 million. Subsequent to the ICC grant, thirty-eight states and the
District of Columbia also granted the Company the right to self-insure its
intrastate automobile liability exposure.
In November 1994, United Bus Owners of America filed a petition with the
ICC requesting that the ICC review the Company's self-insurance authority. The
Company filed a response to the petition, which remains pending. A decision by
the ICC to revoke that authority would have a material adverse effect on the
future liquidity and operations of the Company. A decision by the ICC to require
additional contributions to the trust fund could have such an effect, depending
on the amount of additional funds required to be deposited.
As part of its operational restructuring, the Company is increasing its
insurance staff, adding loss prevention programs and re-engineering claims
management. As with the ICC self-insurance programs described above, 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 future liquidity and operations of the
Company (see Note 21).
ENVIRONMENTAL MATTERS
The Company may be liable for certain environmental liabilities and
clean-up costs relating to underground fuel storage tanks and systems in the
various facilities presently or formerly owned or leased by the Company. Based
upon surveys conducted by Company personnel, 75 locations have been identified
as sites requiring potential clean-up and/or remediation as of December 31,
1994. Of this number, eight locations are surplus properties currently held for
sale. The Company has estimated the cost of the clean-up of these eight sites to
be $1.8 million of which $400,000 is indemnifiable by Dial pursuant to indemnity
obligations arising out of the 1987 acquisitions of the domestic bus operations
of Dial. The Company has estimated the clean-up and/or remediation costs for the
remaining sites to be $4.5 million, of which $500,000 is indemnifiable by Dial.
The Company has recorded a $900,000 receivable from Dial for the indemnification
at December 31, 1994. The Company has no reason to believe that Dial will not
fulfill its indemnification obligations to the Company. However, if Dial does
not fulfill such obligations, the Company could have liability with respect to
those matters. The indemnification obligations of Dial were the subject of the
Claims Treatment Agreement (see -- "Trademarks"). Additionally, the Company has
been designated as a potentially responsible party by the EPA at four Superfund
sites where the Company and other parties face exposure for costs related to the
clean-up of those sites. The Company believes its liability at these sites will
be settled for an immaterial amount because its involvement at the sites was as
a de minimis generator of wastes disposed of at the sites. In light of the
minimal involvement, the Company has been negotiating to be released from
liability in return for the payment of immaterial settlement amounts. The
Company has recorded a total environmental reserve of $6.0 million, including
the $1.8 million for the surplus properties, at December 31, 1994, for
noncapitalizable
54
<PAGE> 57
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expenses related to the sites identified for potential clean-up and/or
remediation. The reserve amount for the remaining sites is based on discounted
cash flows at a discount rate of 8%. Management believes that adequate accruals
have been made related to all known environmental matters.
At December 31, 1994, clean-up and/or remediation costs under the plan are
as follows (in thousands):
<TABLE>
<S> <C>
1995................................................................ $3,714
1996................................................................ 1,257
1997................................................................ 688
1998................................................................ 469
Thereafter.......................................................... 216
------
Total environmental expenditures.................................... $6,344
======
Amounts representing interest....................................... 391
------
Reserve for environmental expenditures.............................. $5,953
======
</TABLE>
OTHER LEGAL PROCEEDINGS
In addition to the litigation 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. 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
self-retention or deductible portion of the policies. Therefore, based on the
Company's assessment of known claims and its historical claims payout pattern
and discussion with legal and outside counsel and risk management personnel,
management believes that there is no proceeding either threatened or pending
against the Company or its subsidiaries relating to such personal injury and/or
property damage claims arising out of the ordinary course of business that, if
resolved against the Company, would be likely to have a material adverse effect
on its business, financial condition or results of operations.
18. RELATED PARTY TRANSACTIONS
Motor Coach Industries International, Inc.
Transportation Manufacturing Operations, Inc. ("TMO"), a wholly owned
subsidiary of Motor Coach Industries International, Inc. ("MCII"), agreed to act
as a standby purchaser in the Rights Offering. Motor Coach Industries, Inc.
("MCI"), a subsidiary of TMO, is the Company's principal supplier of new motor
coaches. TMO assigned its standby purchase obligations to Motor Coach Industries
Limited, which purchased 6,004,144 shares in the Rights Offering.
As an inducement to serve as a standby purchaser, the Company paid TMO a
commitment fee of approximately $137,000 (representing 1% of TMO's total standby
purchase commitment), and a takedown fee of approximately $387,000 (representing
3% of the price paid for the shares actually purchased by TMO pursuant to the
standby commitment). In addition, the Company extended the term of the Bus
Purchase Requirements Agreement dated March 18, 1987, among the Company, MCI and
Transit Bus International, Inc., which also is a subsidiary of MCII, from March
18, 1997, to March 18, 1998. The Company must purchase at least 75% of its new
bus requirements, if any, pursuant to that agreement. The Company also has
agreed that it would prepay a portion of the "purchase price" to become due and
payable under a Conditional Sales Contract and Security Agreement entered into
in 1994 between the Company and MCI and assigned to MCI Acceptance Corp.
("MCIAC"), a wholly owned subsidiary of MCII. The Conditional Sales Contract to
be repaid arose out of the financing of 151 intercity coaches purchased by the
Company in 1994, and the obligations thereunder currently bear interest at the
prime rate plus 1.5% per annum and mature over ten years. This pre-payment, of
$12.9 million, was made in February 1995 and resulted in the release of liens on
64
55
<PAGE> 58
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
buses, which collateral is available for refinancing. In addition, the Company
has agreed that it will use its best efforts to refinance, on commercially
reasonable terms, all other amounts owed to MCIAC. At March 1, 1995, the
aggregate principal amount owed to MCIAC was approximately $7.4 million. As part
of the standby purchase agreement, the Company also has granted TMO two demand
registration rights with respect to the shares purchased by it, and will bear
all the expenses (other than discounts and commissions, fees and expenses of
TMO's counsel) of effecting the registration of those shares.
The Company's President, Chief Executive Officer and Chief Financial
Officer, Craig R. Lentzsch, previously served as Executive Vice President and
Chief Financial Officer of MCII where he had been employed from 1992 to November
1994.
Universal Coach Parts, Inc.
Universal Coach Parts, Inc. ("UCP"), a wholly owned subsidiary of MCII, is
a nationwide distributor of service parts and, since December 1992, provides
inventory and inventory management services for the Company. In February 1995,
the Company and UCP finalized a three year contract in which UCP would continue
to provide the Company with inventory and inventory management services. After
three years, the Company may terminate the contract upon 180 days written
notice.
Connor, Clark & Company, Ltd.
Connor, Clark & Company, Ltd. ("Connor Clark"), the Company's largest
shareholder, agreed to act as a standby purchaser with respect to up to 650,000
shares, all of which were purchased by it upon the conclusion of the Rights
Offering. As an inducement to serve as a Standby Purchaser, the Company paid
Connor Clark a commitment fee of approximately $14,000 (representing 1% of
Connor Clark's total standby purchase commitment) and a takedown fee of
approximately $70,000 (representing 5% of the Exercise Price) in respect of the
New Shares actually purchased by it pursuant to the standby purchase commitment.
Connor Clark and certain of its affiliates tendered an aggregate of
$1,338,000 principal amount of Convertible Debentures in the tender offer on the
same basis as the other holders of the Convertible Debentures.
Snyder Capital Management, Inc.
Snyder Capital Management, Inc. ("SCM"), on behalf of 49 accounts managed
by it (the "SCM Accounts"), committed to oversubscribe for up to an aggregate of
2,181,977 shares. Because the SCM Accounts exercised their oversubscription
privileges, and because there were sufficient unsubscribed shares available, the
SCM Accounts received all the shares for which they had oversubscribed before
any shares were taken by the standby purchasers.
In consideration for the committed oversubscription, the Company paid each
SCM Account a commitment fee equal to 1% of the aggregate Exercise Price for
each account's pro rata portion of the committed oversubscription (or
approximately $47,000 in the aggregate to the SCM Accounts taken as a whole). In
addition, each SCM Account received a fee equal to 5% of the exercise price
actually paid for any shares acquired pursuant to the committed oversubscription
(or approximately $235,000 in the aggregate to the SCM Accounts taken as a
whole).
56
<PAGE> 59
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the years ended December
31, 1994, 1993 and 1992, are as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1994 QUARTER QUARTER QUARTER QUARTER
---------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues...................... $133,852 $151,073 $185,736 $145,670
Operating expenses...................... 152,598 178,145 167,074 183,990(a)
-------- -------- -------- --------
Operating income (loss)................. (18,746) (27,072) 18,662 (38,320)
Interest expense........................ 7,904 7,657 9,033 8,862
Income tax provision (benefit).......... (10,639) 10,656 17,039 (194)
-------- -------- -------- --------
Loss before extraordinary items......... (16,011) (45,385) (7,410) (46,988)(b)
Extraordinary items..................... -- -- (3,158) 41,531
-------- -------- -------- --------
Net loss................................ $(16,011) $(45,385) $(10,568) $ (5,457)
======== ======== ======== ========
Loss per share of Common Stock:
Primary
Loss before extraordinary items.... $ (1.09) $ (3.10) $ (.51) $ (2.74)
Extraordinary items................ -- -- (.21) 2.42
-------- -------- -------- --------
Net loss........................... $ (1.09) $ (3.10) $ (.72) $ (0.32)
======== ======== ======== ========
Fully diluted
Loss before extraordinary items.... $ (1.09) $ (3.10) $ (.51) $ (2.74)
Extraordinary items................ -- -- (.21) 2.42
-------- -------- -------- --------
Net loss........................... $ (1.09) $ (3.10) $ (.72) $ (0.32)
======== ======== ======== ========
</TABLE>
---------------
(a) The Company recorded $37.8 million in certain operating charges in the
fourth quarter of 1994. Those charges related to the write-down to the
expected market value of certain real estate assets currently or expected
to be classified as surplus, adverse claims development in 1994, certain
litigation exposure and costs related to the Company's strategic and
operational reorganization.
(b) Amount primarily represents a $41.9 million extraordinary gain related to
the conversion of the Convertible Debentures to Common Stock.
57
<PAGE> 60
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1993 QUARTER QUARTER QUARTER QUARTER
---------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues...................... $149,587 $167,209 $194,621 $155,079
Operating expenses...................... 148,529 155,270 165,317 157,539
-------- -------- -------- --------
Operating income (loss)................. 1,058 11,939 29,304 (2,460)
Gain on sale of assets.................. -- (5,838) -- --
Interest expense........................ 8,516 8,319 7,231 6,766
Income tax provision (benefit).......... (3,028) 3,839 8,650 (3,208)
-------- -------- -------- --------
Income (loss) before extraordinary items
and cumulative effect of a change in
accounting principle.................. (4,430) 5,619 13,423 (6,018)
Extraordinary items..................... -- -- -- 407
Cumulative effect of a change in
accounting principle.................. 690 -- -- --
-------- -------- -------- --------
Net income (loss)....................... $ (5,120) $ 5,619 $ 13,423 $ (6,425)
======== ======== ======== ========
Earnings (loss) per share of Common
Stock:
Primary
Income (loss) before extraordinary
items and cumulative effect of a
change in accounting principle... $ (0.45) $ 0.43 $ 0.90 $ (0.41)
Extraordinary items................ -- -- -- (0.03)
Cumulative effect of a change in
accounting principle............. (0.07) -- -- --
-------- -------- -------- --------
Net income (loss).................. $ (0.52) $ 0.43 $ 0.90 $ (0.44)
======== ======== ======== ========
Fully diluted
Income (loss) before extraordinary
items and cumulative effect of a
change in accounting principle... $ (0.45) $ 0.33 $ 0.65 $ (0.41)
Extraordinary items................ -- -- -- (0.03)
Cumulative effect of a change in
accounting principle............. (0.07) -- -- --
-------- -------- -------- --------
Net income (loss).................. $ (0.52) $ 0.33 $ 0.65 $ (0.44)
======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1992
Operating revenues...................... $155,314 $168,919 $201,074 $167,674
Operating expenses...................... 155,929 159,243 172,752 149,669
-------- -------- -------- --------
Operating income (loss)................. (615) 9,676 28,322 18,005
Interest expense........................ 8,526 9,350 8,863 8,558
Income tax provision.................... 485 71 4,439 4,147
-------- -------- -------- --------
Net income (loss)....................... $ (9,626) $ 255 $ 15,020 $ 5,300
======== ======== ======== ========
Earnings (loss) per share of Common
Stock:
Primary............................... $ (0.98) $ 0.03 $ 1.52 $ 0.53
Fully diluted......................... $ (0.98) $ 0.03 $ 0.92 $ 0.37
</TABLE>
Certain reclassifications have been made to the quarterly financial data to
conform to the December 31, 1994, classifications.
58
<PAGE> 61
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. SUBSEQUENT EVENTS
On February 17, 1995, the Company completed negotiations and received a
signed commitment term sheet, subject to documentation, regarding revised terms
for the New Credit Facility, (the "New Credit Facility, as revised") for which
Foothill will continue to be the lead agent. The new terms provide for revolving
loans and letter of credit and/or letter of credit guarantees up to a maximum
commitment of $73.5 million, subject to syndication. Foothill's commitment
remains at $25.0 million. Availability under the New Credit Facility, as
revised, would be limited to the aggregate of the following: (1) revolving
advances of up to $3.5 million based on a formula of eligible accounts
receivable, (2) revolving advances of $35.0 million based on the value of
certain fixed asset collateral pledged to Foothill, which amount may be
increased to $45.0 million by the pledge of additional collateral acceptable to
Foothill ("Fixed Asset Advances"); availability under Fixed Asset Advances will
be subject to quarterly reductions in availability beginning in April 1996 and
(3) a Bus Purchase Facility of up to $25.0 million, activated solely through the
pledging of new bus collateral. The New Credit Facility, as revised, would
mature on March 31, 1998 and would be secured by liens on substantially all the
assets of the Company, excluding new equipment purchases, unless specifically
pledged to support borrowings under the Bus Purchase Facility. The New Credit
Facility, as revised, would allow the Company to dispose of certain non-core
real estate properties. The New Credit Facility, as revised, would provide for
an adjustable interest margin over prime borrowing rate, tied to the Company's
financial performance and achievement of its financial plan. The borrowing
margin would be adjusted quarterly beginning with the four quarters ending
December 31, 1995. The New Credit Facility, as revised, would also be subject to
financial covenants, including maintenance of a certain net worth and operating
ratio. As of March 31, 1995, syndication commitments under the New Credit
Facility, as revised, totaled $10.0 million with total availability of $35.0
million.
21. LIQUIDITY
The Company believes that the successful completion of the Tender Offer and
Rights Offering and the New Credit Facility provide sufficient liquidity to meet
the Company's obligations during 1995. Should the past revenue trends continue
and ridership decline substantially, even though recent ridership trends have
been positive, and should the New Credit Facility be insufficient to meet the
Company's liquidity and operating cash flow needs, the Company may elect to
postpone or reduce its capital spending program and reduce the level of
operations to continue to meet its financial obligations.
59
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Greyhound Lines, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Greyhound Lines, Inc. and subsidiaries
included in this Form 10-K and have issued our report thereon dated February 14,
1995 (except with respect to the matters discussed in Note 20 to the December
31, 1994 Consolidated Financial Statements, as to which the date is March 30,
1995). Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
8 (Schedule II) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 14, 1995
60
<PAGE> 63
SCHEDULE II
GREYHOUND LINES, INC. AND SUBSIDIARIES (A)
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------------------------------------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1994:
Allowance for Doubtful Accounts.......... $ 707 $ 926 $ -- $ (793)(b)(c) $ 840
Inventory Reserves....................... -- 61 -- -- 61
Accumulated Amortization of Intangible
Assets................................. 5,191 4,257 -- (156)(i) 9,292
Accumulated Amortization of Other Assets
and Deferred Costs..................... 342 1,586 -- (1,576)(f) 352
Reserves for Injuries and Damages........ 41,770 68,504 -- (37,931)(g) 72,343
-------- -------- ------- -------- -------
Total Reserves and Allowances.......... $ 48,010 $ 75,334 $ -- $(40,456) $82,888
======== ======== ======= ======== =======
December 31, 1993:
Allowance for Doubtful Accounts.......... $ 1,039 $ 298 $ -- $ (630)(b)(c) $ 707
Inventory Reserves....................... 100 -- (100)(d) --
Accumulated Amortization of Intangible
Assets................................. 6,212 3,766 -- (4,787)(e) 5,191
Accumulated Amortization of Other Assets
and Deferred Costs..................... 426 440 -- (524)(f) 342
Reserves for Injuries and Damages........ 44,230 36,738 -- (39,198)(g) 41,770
-------- -------- ------- -------- -------
Total Reserves and Allowances..... $ 52,007 $ 41,242 $ -- $(45,239) $48,010
======== ======== ======= ======== =======
December 31, 1992:
Allowance for Doubtful Accounts.......... $ 1,375 $ 86 $ -- $ (422)(c) $ 1,039
Inventory Reserves....................... 5,384 2,148 -- (7,432)(d)(h) 100
Accumulated Amortization of Intangible
Assets................................. 873 5,339 -- -- 6,212
Accumulated Amortization of Other Assets
and Deferred Costs..................... 41 385 -- -- 426
Reserves for Injuries and Damages........ 52,385 29,205 -- (37,360)(g) 44,230
-------- -------- ------- -------- -------
Total Reserves and Allowances..... $ 60,058 $ 37,163 $ -- $(45,214) $52,007
======== ======== ======= ======== =======
</TABLE>
---------------
(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.
(b) Recovery of bad debt write-off.
(c) Write-off of uncollectible receivables.
(d) Includes book-to-physical inventory adjustments.
(e) Write-off of goodwill (see Note 10).
(f) Write-off of other assets and deferred costs.
(g) Payments of settled claims.
(h) Reduction of inventory reserve in conjunction with sale of inventory.
(i) Write-off of software.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
During 1994, the Company experienced significant changes in its senior
executive management, in large part as a result of the Company's poor operating
performance. That performance led the Company's largest shareholder, Connor,
Clark & Company, Ltd., to seek the removal of the Company's former Chief
Executive Officer, who resigned in August 1994. On November 15, 1994, Craig R.
Lentzsch, a director of the Company, became its President and Chief Executive
Officer. The Board of Directors is currently engaged in a search for a Chief
Financial Officer and other senior operating and financial officers. Messrs,
Abramson, Lentzsch and Meagher (who subsequently resigned), were nominated as
directors of the Company by Connor, Clark & Company, Ltd., which sought board
representation after the Company announced its results of operations for the
first half of 1994.
The following table sets forth certain information regarding the directors
and executive officers of the Company as of March 29, 1995. All executive
officers hold office at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE OFFICE
------------------------------ --- ---------------------------------------------
<S> <C> <C>
Herbert Abramson.............. 54 Director (Class III)
Richard J. Caley.............. 68 Director (Class III)
Craig R. Lentzsch............. 46 Director (Class I); President, Chief
Executive Officer and Chief Financial Officer
Frank L. Nageotte............. 68 Director (Class I)
Alfred E. Osborne, Jr......... 50 Director (Class II)
Thomas G. Plaskett............ 51 Chairman of the Board; Director (Class I)
Ralph J. Borland.............. 47 Vice President - Customer Satisfaction
Bradley T. Harslem............ 42 Vice President - Information Services and
Chief Information Officer
J. Floyd Holland.............. 59 Senior Vice President - Operations
Stuart N. Robinson............ 46 Vice President - Marketing
Martha M. Smither............. 47 Vice President - Controller
Mark E. Southerst............. 37 Vice President and General Counsel and
Secretary
John E. Taylor................ 46 Vice President - Network Operations
Daniel R. Weston.............. 59 Vice President - Human Resources
George A. Wheat............... 51 Vice President - Insurance and Risk
Management
</TABLE>
DIRECTORS
Herbert Abramson was elected to the Board of Directors effective September
21, 1994. Since 1982, Mr. Abramson has served as a Director and Vice President
of Connor, Clark & Company, Ltd., a money management firm. Mr. Abramson
previously practiced corporate and securities law for twelve years with Goodman
and Carr, a Toronto law firm.
Richard J. Caley was appointed a Director of the Company on October 31,
1991. From 1978 to 1982, Mr. Caley served as President of Wilson Sporting Goods
Co., a division of PepsiCo Inc. and Chairman of the Board and Chief Executive
Officer of North American Van Lines. From 1971 to 1978, Mr. Caley served as
President of the PepsiCo Transportation Division. Mr. Caley retired in 1982,
although from May 15, 1989, to November 15, 1989, Mr. Caley served as President,
Chief Operating Officer and Director of HEM Pharmaceuticals.
Craig R. Lentzsch was elected to the Board of Directors on August 26, 1994.
Effective November 15, 1994, Mr. Lentzsch became President and Chief Executive
Officer for the Company and effective November 22, 1994, assumed the additional
position of Chief Financial Officer. Mr. Lentzsch previously served as Executive
Vice President and Chief Financial Officer of Motor Coach Industries
International, Inc. where he had been employed since 1992, as President and
Chief Executive Officer of Continental Asset Services, Inc.
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<PAGE> 66
from 1991 to 1992, as a private consultant to, and investor in, Storehouse, Inc.
and Communications Partners, Ltd. from 1989 to 1991, as Vice Chairman, Executive
Vice President and a director of the Company from March 1987 to December 1989,
and as Co-founder and President of BusLease, Inc. from 1980 to 1989. Mr.
Lentzsch also serves as a director of Hasting Books, Records and Tapes and
Enginetech, Inc.
Frank L. Nageotte was elected to the Board of Directors on February 27,
1995. Mr. Nageotte was a director of Motor Coach Industries International, Inc.
from 1993 to 1994 and Greyhound Lines, Inc. from 1987 to 1990. From 1982 to 1987
Mr. Nageotte served as President and Chief Operating Officer of The Greyhound
Corporation, where he was the Chief Executive Officer of the Company's
predecessor from 1978 to 1982. Mr. Nageotte worked for the Company's predecessor
for 40 years.
Alfred E. Osborne, Jr. was elected to the Board of Directors on May 10,
1994. Since 1987, Dr. Osborne has served as Director of the Entrepreneurial
Studies Center and Associate Professor of Business Economics of the John E.
Anderson Graduate School of Management at the University of California at Los
Angeles. Dr. Osborne formerly served as Director of the MBA Program, Assistant
Dean and Associate Dean at UCLA. Dr. Osborne is also an independent general
partner of Technology Funding Venture Partners V and a Director of First
Interstate Bank of California, Nordstrom, Inc., Readicare Inc., Seda Specialty
Packaging Corporation, The Times Mirror Company and United States Filter
Corporation.
Thomas G. Plaskett was elected to the Board of Directors on May 10, 1994.
From August 9, 1994, to November 14, 1994, Mr. Plaskett served as Interim
President and Chief Executive Officer of the Company, and from October 19, 1994
to November 22, 1994, served as Acting Chief Financial Officer of the Company.
On February 27, 1995, Mr. Plaskett was elected as the Company's Chairman of the
Board. Since 1991, Mr. Plaskett has served as managing director of Fox Run
Capital Associates, an investment concern. Previously, Mr. Plaskett served as
President and Chief Executive Officer of Pan Am Corporation from 1988 to 1991
and as President and Chief Executive Officer of Continental Airlines from 1986
to 1987. Mr. Plaskett also serves as a director of Tandy Corporation, Neostar
Retail Group and Smart and Final, Inc.
The Restated Certificate of Incorporation of the Company currently provides
that the Board of Directors shall consist of nine directors, divided into three
classes. The term of office of the Class I directors expires at the 1995 annual
meeting of stockholders, the terms of those in Class II expire at the 1996
annual meeting of stockholders and the terms of those in Class III expire at the
1997 annual meeting of stockholders. At each annual meeting of stockholders,
directors in the class to be elected at such meeting will be elected for three-
year terms to succeed those directors whose terms are expiring. There are
currently two vacant Class II directorships on the Board of Directors. One
vacancy was created by the resignation of Kenneth R. Norton as a director of the
Company on October 31, 1994. Mr. Norton informed the Board of Directors that he
was resigning to devote more time to the business of PST Vans, Inc., where he
serves as Chairman and Chief Executive Officer. The other Class II vacancy was
created by the resignation, effective March 20, 1995 of Charles A. Lynch, the
Company's former Chairman of the Board. Mr. Lynch resigned from the Board to
devote more time to his other businesses. As part of the agreement in principle
relating to the Financial Restructuring, the Company has agreed that a majority
of the tendering holders of Convertible Debentures willing to participate in the
selection will be entitled to nominate two qualified persons reasonably
acceptable to the Company to serve on the Board of Directors. Those nominees
will fill the current Class II vacancies. Additionally, there also exists a
vacant Class III directorship on the Board. On March 30, 1995, Thomas G. Meagher
resigned from the Company's Board of Directors in order to re-join the board of
directors of TransWorld Airlines, Inc.
The Board of Directors has established an Executive Committee consisting of
Messrs. Caley, Lentzsch and Plaskett, which committee possesses the powers and
discharges the duties of the Board of Directors during interim periods between
meetings of the full board. The Board of Directors also has established an Audit
Committee consisting of Messrs. Plaskett (Chairman) and Osborne, a Compensation
Committee consisting of Messrs. Caley (Chairman), Osborne and Abramson; a
Finance Committee consisting of Messrs. Abramson (Chairman), Osborne, Lentzsch
and Plaskett; a Nominating Committee consisting of Messrs. Caley and Abramson;
and a Strategic Planning Committee consisting of Messrs. Osborne (Chair-
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<PAGE> 67
man), Plaskett and Lentzsch. The Board's intent is to periodically modify
committee assignments and chairmanships.
EXECUTIVE OFFICERS
In addition to Craig R. Lentzsch, who became President and Chief Executive
Officer of the Company on November 15, 1994, and Chief Financial Officer of the
Company on November 22, 1994, the other executive officers of the Company are as
set forth below.
Ralph J. Borland has served as Vice President -- Customer Satisfaction
since April 1993 and is responsible for the customers' experience in Company
managed terminals as well as the agency network and the development and
operation of the package express and charter business. Previously, Mr. Borland
served as Vice President -- Marketing from March 1987 to April 1993. Mr. Borland
joined the Company in 1972.
Bradley T. Harslem joined the Company in December 1993 and serves as Vice
President -- Information Services and Chief Information Officer. He is
responsible for all of the corporation's computer systems and for the operation
of the telephone sales centers. Prior to joining the Company, Mr. Harslem worked
for American Airlines, Inc. for eighteen years in various engineering, finance,
planning, marketing and technology roles. He served as Vice President -- Sabre
Travel Information Network from 1991 to 1993, as Vice President -- Sabre
Computer Services from 1988 to 1991 and as Managing Director -- Marketing
Administration from 1987 to 1988.
J. Floyd Holland has served as Senior Vice President -- Operations since
September 1994 and is responsible for equipment maintenance, engineering, driver
and bus operations and capacity planning. From October 1992 to September 1994,
he served as Vice President -- Maintenance of the Company. From July 1987 to
September 1992, he was Vice President -- Fleet Operations and was responsible
for fleet allocations. From October 1979 to July 1987, Mr. Holland served as
Vice President of Operations and Transportation of Trailways. From April 1984 to
December 1991, Mr. Holland served as a director of Trailways Commuter Transit,
Inc., a former affiliate of the Company. Mr. Holland has been a member of the
Board of Directors and Executive Committee of the National Bus Traffic
Association since 1991.
Stuart N. Robinson joined the Company in November 1994 as Vice
President -- Marketing and is responsible for the Company's marketing,
advertising, market research, pricing, promotions and tariffs. From 1980 to
November 1994, Mr. Robinson operated Stuart N. Robinson and Associates, Inc.
(formerly known as Marketing Support Services, Inc.), a consulting firm
specializing in marketing research and strategic planning for travel,
transportation and tourism companies and from 1989 to 1991 served as Vice
President of Marketing for the Bowling Proprietors' Association of America. From
1977 to 1980, Mr. Robinson served as Director of Marketing for the Trailways
Passenger Bus Service Division of Holiday Inns, Inc.
Martha M. Smither has served as Vice President -- Controller since May 1994
and is responsible for the accumulation and reporting of financial data within
the Company. Prior to joining the Company, Ms. Smither was Group
Manager -- Accounting for Frito-Lay, Inc., a division of Pepsico, Inc., where
she was employed from 1976 to 1993.
Mark E. Southerst was elected as Vice President and General Counsel and
Secretary in January 1995. Mr. Southerst was previously employed by the Company
as Associate General Counsel, since July 1988. Prior to joining the Company, Mr.
Southerst served as in-house legal counsel for Burlington Northern Railroad
Company from 1983 to July 1988. Mr. Southerst also serves as a director of the
National Bus Traffic Association, since January 1995.
John E. Taylor joined the Company in December 1988 and since July 1994 has
served as Vice President -- Network Operations. Mr. Taylor is responsible for
driver manpower, planning and operations, fleet planning and control, central
drivers dispatch and safety. Prior to his current position, Mr. Taylor served in
various capacities with the Company in the driver operations, customer
operations and charter departments.
Daniel R. Weston joined the Company in February 1994 as Vice
President -- Human Resources. Mr. Weston is responsible for all
personnel-related activities, including defining the corporate personnel
65
<PAGE> 68
philosophy, administering personnel policies and procedures, managing the
benefits program and compliance with federal and state employment regulations.
From 1989 to February 1994, Mr. Weston served as the General Manager, Dallas
Region, of King Chapman Broussard & Gallagher, a national management consulting
firm with services in outplacement and organizational change consulting. From
1974 to 1989, Mr. Weston was the Associate Dean for External Affairs of the Cox
School of Business, Southern Methodist University. His primary role was to
develop general business support for SMU's school of business.
George A. Wheat joined the Company in March 1995 as Vice
President -- Insurance and Risk Management. Before joining the Company, Mr.
Wheat was employed by Motor Coach Industries International, Inc., since 1991.
From 1988 to 1991, Mr. Wheat was employed by The Dial Corp as Director of
Claims. From 1987 to 1988, Mr. Wheat served as Associate General Counsel for the
Company. Mr. Wheat served as senior litigation attorney for Dial's predecessor
(The Greyhound Corporation) from 1972 to 1987 where he managed claims for the
Company's predecessor.
There is no family relationship among any of the directors or nominees for
director and executive officers of the Company.
SECTION 16(A) DELINQUENT FILER DISCLOSURE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than 10% of the
Company's Common Stock to file with the Securities and Exchange Commission (the
"SEC") initial reports of beneficial ownership and reports of changes in
beneficial ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than 10% beneficial owners of the Company are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file. To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company and written representations
that no other reports were required, all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with for the year ended December 31, 1994, except that (a)
individuals and entities associated with the Connor/Clark Parties, none of which
individuals or entities own 10% or more of the Common Stock, filed thirty-two
late reports and (b) Martha M. Smither, Vice President -- Controller, filed a
late Form 3 after joining the Company in May 1994.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" in the definitive proxy statement is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
"Security Ownership of Certain Beneficial Owners and Management" in the
definitive proxy statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Motor Coach Industries International, Inc.
Transportation Manufacturing Operations, Inc. ("TMO"), a wholly owned
subsidiary of Motor Coach Industries International, Inc. ("MCII"), agreed to act
as a standby purchaser in the Rights Offering. Motor Coach Industries, Inc.
("MCI"), a subsidiary of TMO, is the Company's principal supplier of new motor
coaches. TMO assigned its standby purchase obligations to Motor Coach Industries
Limited, which purchased 6,004,144 shares in the Rights Offering.
As an inducement to serve as a standby purchaser, the Company paid TMO a
commitment fee of approximately $137,000 (representing 1% of TMO's total standby
purchase commitment), and a takedown fee of approximately $387,000 (representing
3% of the price paid for the shares actually purchased by TMO pursuant to the
standby commitment). In addition, the Company extended the term of the Bus
Purchase Requirements Agreement dated March 18, 1987 between the Company, MCI
and Transit Bus Interna-
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<PAGE> 69
tional, Inc., which also is a subsidiary of MCII, from March 18, 1997 to March
18, 1998. The Company must purchase at least 75% of its new bus requirements, if
any, pursuant to that agreement. The Company also has agreed that, it would
prepay a portion of the "purchase price" to become due and payable under a
Conditional Sales Contract and Security Agreement entered into in 1994 between
the Company and MCI and assigned to MCI Acceptance Corp. ("MCIAC"), a wholly
owned subsidiary of MCII. The Conditional Sales Contract to be repaid arose out
of the financing of 151 intercity coaches purchased by the Company in 1994, and
the obligations thereunder currently bear interest at the prime rate plus 1.5%
per annum and mature over ten years. This pre-payment in the amount of $12.9
million was made in February 1995 and resulted in the release of liens on 64
buses, which collateral is available for refinancing. In addition, the Company
has agreed that it will use its best efforts to refinance, on commercially
reasonable terms, all other amounts owed to MCIAC. At March 1, 1995, the
aggregate principal amount owed to MCIAC was approximately $7.4 million. As part
of the standby purchase agreement, the Company also has granted TMO two demand
registration rights with respect to the shares purchased by it, and will bear
all the expenses (other than discounts and commissions and fees and expenses of
TMO's counsel) of effecting the registration of those shares.
The Company's President, Chief Executive Officer and Chief Financial
Officer, Craig R. Lentzsch, previously served as Executive Vice President and
Chief Financial Officer of MCII where he had been employed from 1992 to November
1994.
Universal Coach Parts, Inc.
Universal Coach Parts, Inc. ("UCP"), a wholly owned subsidiary of MCII, is
a nationwide distributor of service parts and since December 1992 provides
inventory and inventory management services for the Company. In February 1995,
the Company and UCP finalized a three year contract in which UCP would continue
to provide the Company with inventory and inventory management services. After
three years the Company may terminate the contract upon 180 days written notice.
Connor, Clark & Company, Ltd.
Connor, Clark & Company, Ltd. ("Connor Clark"), the Company's largest
shareholder, agreed to act as a standby purchaser with respect to up to 650,000
shares, all of which were purchased by it upon the conclusion of the Rights
Offering. As an inducement to serve as a Standby Purchaser, the Company paid
Connor Clark a commitment fee of approximately $14,000 (representing 1% of
Connor Clark's total standby purchase commitment) and a takedown fee of
approximately $70,000 (representing 5% of the Exercise Price) in respect of the
New Shares actually purchased by it pursuant to the standby purchase commitment.
Connor Clark and certain of its affiliates tendered an aggregate of
$1,338,000 principal amount of Convertible Debentures in the tender offer on the
same basis as the other holders of the Convertible Debentures.
Snyder Capital Management, Inc.
Snyder Capital Management, Inc. ("SCM"), on behalf of 49 accounts managed
by it (the "SCM Accounts"), committed to oversubscribe for up to an aggregate of
2,181,977 shares. Because the SCM Accounts exercised their oversubscription
privileges, and because there were sufficient unsubscribed shares available, the
SCM Accounts received all the shares for which they had oversubscribed before
any shares were taken by the standby purchasers.
In consideration for the committed oversubscription, the Company paid each
SCM Account a commitment fee equal to 1% of the aggregate Exercise Price for
each account's pro rata portion of the committed oversubscription (or
approximately $47,000 in the aggregate to the SCM Accounts taken as a whole). In
addition, each SCM Account received a fee equal to 5% of the exercise price
actually paid for any shares acquired pursuant to the committed oversubscription
(or approximately $235,000 in the aggregate to the SCM Accounts taken as a
whole).
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PART IV
ITEM 14. 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 statements schedules are
set forth in Item 8 of the Form 10-K Annual Report. Financial Statement
Schedules not included in this Form 10-K Annual Report have been omitted because
they are not applicable or the required information is shown in the financial
statements or notes thereto. 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.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Management Report on Responsibility for Financial Reporting........................ 28
Report of Independent Public Accountants........................................... 29
Consolidated Statements of Financial Position at December 31, 1994 and 1993........ 30
Consolidated Statements of Operations for the Years Ended December 31, 1994,
1993 and 1992.................................................................... 31
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1994, 1993 and 1992.............................................................. 32
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
1993 and 1992.................................................................... 34
Notes to Consolidated Financial Statements......................................... 35
Report of Independent Public Accountants........................................... 62
Schedule II -- Valuation and Qualifying Accounts................................... 63
</TABLE>
3. EXHIBITS
<TABLE>
<S> <C> <C>
3.1 -- Restated Certificate of Incorporation of Greyhound Lines, Inc.(4)
3.2 -- Restated Bylaws of Greyhound Lines, Inc.(4)
3.3 -- Article Fourth of the Restated Certificate of Incorporation of the Registrant
relating to its capital stock.(7)
3.4 -- Certificate of Amendment in the Restated Certificate of Incorporation of the
Registrant amending Article Fourth thereof.(8)
3.5 -- Certificate of Amendment in the Restated Certificate of Incorporation of the
Registrant amending Article Eighth thereof.(13)
3.6 -- Certificate of Designations of Series A Junior Preferred Stock of the
Registrant.(13)
3.7 -- Form of Certificate of Amendment to Certificate of Incorporation.(15)
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.(5)
4.2 -- Indenture, dated October 31, 1991, between the Registrant and LaSalle National
Bank, as Trustee, with respect to $165,000,000 principal amount of 10% Senior Notes
due 2001, including form of 10% Senior Notes Due 2001.(2)
4.3 -- First Supplemental Indenture to the Indenture between the Registrant and LaSalle
National Bank, as Trustee.(5)
4.4 -- Form of First Supplemental Indenture to the Indenture between the Registrant and
Shawmut Bank Connecticut, N.A., as Trustee.(16)
4.5 -- Rights Agreement, dated as of March 22, 1994, between the Registrant and Mellon
Securities Trust Company, as Rights Agent.(11)
</TABLE>
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<TABLE>
<S> <C> <C>
4.6 -- Form of Promissory Note issued to holders of priority tax claims against the
Registrant, including a schedule of holders of such notes and principal amounts
thereof.(4)
4.7 -- Amended and Restated Loan and Security Agreement dated as of October 13, 1994 by
and between Greyhound Lines, Inc. and Foothill Capital Corporation.(15)
4.8 -- Amendment Number One to Amended and Restated Loan and Security Agreement dated
March 27, 1995 by and between Greyhound Lines, Inc. and Foothill Capital
Corporation.(17)
10.1 -- Acquisition Agreement dated December 22, 1986, among The Greyhound Corporation,
Greyhound Lines, Inc., the Registrant, GLI Holding Company, GLI Bus Operations
Holding Company and GLI Merger Company.(1)
10.2 -- First Amendment to Acquisition Agreement dated January 31, 1987.(1)
10.3 -- Second Amendment to Acquisition Agreement dated March 18, 1987.(1)
10.4 -- Third Amendment to Acquisition Agreement dated March 18, 1987.(1)
10.5 -- Fourth Amendment to Acquisition Agreement dated September 18, 1987.(1)
10.6 -- Trademark License Agreement dated March 18, 1987, between The Greyhound
Corporation, GLI Holding Company and the Registrant.(1)
10.7 -- Assignment of Exhibit B Trademarks dated March 18, 1987, executed by The Greyhound
Corporation.(1)
10.8 -- Bus Purchase Requirements Agreement dated March 18, 1987, among the Registrant,
Greyhound Lines, Inc., Transportation Manufacturing Corporation and Motor Coach
Industries, Inc.(1)
10.9 -- Equipment Sublease dated March 18, 1987, between Greyhound Lines, Inc. and the
Registrant.(1)
10.10 -- Master Lease dated March 18, 1987, between Greyhound Lines, Inc. and GLI Realty
Company.(1)
10.11 -- Employee Stock Ownership Plan of the Registrant, effective as of October 31,
1991.(4)
10.12 -- Trust Agreement dated as of October 31, 1991, between the Registrant and Bank One,
Texas, N.A., as trustee for Registrant's Employee Stock Ownership Plan.(4)
10.13 -- Contested Claim Pool Trust Agreement to be entered into as of October 31, 1991, by
and between the Registrant and Smith Barney Trust Company, as trustee.(4)
10.14 -- Claims Treatment Agreement dated August 23, 1991, by and among Eagle Bus
Manufacturing, Inc., the Registrant, Trailways Commuter Transit, Inc., GLI Bus
Operations Holding Company, GLI Food Services, Inc., Southern Greyhound Lines Co.,
GLI Holding Company, Central Greyhound Lines Co., Greyhound Travel Services, Inc.,
Eastern Greyhound Lines, Co., and Western Greyhound Lines Co., on the one hand, and
The Dial Corp, on the other.(4)
10.15 -- Coach Purchase Agreement, dated February 14, 1992, between the Registrant, Texas,
New Mexico & Oklahoma Coaches, Inc., Vermont Transit Co., Inc., Motor Coaches
Industries, Inc., Hausman Bus Sales, Inc. and MCI Acceptance Corp.(4)
10.16 -- Coach Purchase Agreement, dated December 23, 1992, between the Registrant and Motor
Coach Industries, Inc.(6)
10.17 -- Amendment No. 1 to the 1993 Coach Purchase Agreement, dated as of February 4, 1993,
by and among Greyhound Lines, Inc. and Motor Coach Industries, Inc.(9)
10.18 -- Amendment No. 2 to the 1993 Coach Purchase Agreement, dated as of June 25, 1993, by
and among Greyhound Lines, Inc. and Motor Coach Industries, Inc.(9)
10.19 -- Memorandum of Agreement, dated as of June 4, 1993, between Greyhound Lines, Inc.
and the International Association of Machinists and Aerospace Workers.(9)
10.20 -- Agreement dated as of June 30, 1993, between the Registrant and the New York City
Transit Authority.(9)
10.21 -- Interest Rate Swap Transaction Confirmations dated as of July 12, 1993, between the
Registrant and Bankers Trust Company.(9)
</TABLE>
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<TABLE>
<S> <C> <C>
10.22 -- Memorandum of Agreement, dated as of May 25, 1993, between the Registrant and the
Amalgamated Council of Greyhound Local Unions.(10)
10.23 -- Lease Agreement No. 1, dated as of December 29, 1993, between Wilmington Trust
Company and the Registrant.(10)
10.24 -- Lease Agreement No. 2, dated as of December 29, 1993, between Wilmington Trust
Company and the Registrant.(10)
10.25 -- Lease Agreement No. 3, dated as of December 29, 1993, between Wilmington Trust
Company and the Registrant.(10)
10.26 -- Lease Supplement No. 1-1, dated as of December 30, 1993, between Wilmington Trust
Company and the Registrant.(10)
10.27 -- Lease Supplement No. 2-1, dated as of December 30, 1993, between Wilmington Trust
Company and the Registrant.(10)
10.28 -- Lease Supplement No. 3-1, dated as of December 30, 1993, between Wilmington Trust
Company and the Registrant.(10)
10.29 -- Tax Indemnification Agreement, dated as of December 29, 1993, between Nationsbanc
Lease Investments, Inc. and the Registrant.(10)
10.30 -- Pledge Agreement, dated as of December 29, 1993, among the Registrant, Wilmington
Trust Company and Nationsbanc Lease Investments, Inc.(10)
10.31 -- Participation Agreement, dated as of December 29, 1993, between Nationsbanc Lease
Investments, Inc. and the Registrant.(10)
10.32 -- Greyhound Lines, Inc. 1991 Management Incentive Stock Option Plan.(4)
10.33 -- Greyhound Lines, Inc. 1993 Management Incentive Stock Option Plan.(8)
10.34 -- Greyhound Lines, Inc. 1993 Non-Employee Director Stock Option Plan.(10)
10.35 -- Greyhound Lines, Inc. Supplemental Executive Retirement Plan.(10)
10.36 -- Coach Purchase Agreement, dated as of December 31, 1993, between the Registrant and
Motor Coach Industries, Inc.(12)
10.37 -- Conditional Sale Contract and Security Agreement, dated as of May 10, 1994, between
the Registrant and Motor Coach Industries, Inc.(13)
10.38 -- Lease Agreement, dated as of March 28, 1994, between Wilmington Trust Company and
the Registrant.(12)
10.39 -- Lease Supplement No. 1, dated as of March 28, 1994, between Wilmington Trust
Company and the Registrant.(12)
10.40 -- Pledge Agreement, dated as of March 28, 1994, among the Registrant, Wilmington
Trust Company and Cargill Leasing Corporation.(12)
10.41 -- Participation Agreement, dated as of March 28, 1994, between Cargill Leasing
Corporation and the Registrant.(12)
10.42 -- Bill of Sale, dated as of March 28, 1994, between the Registrant and Wilmington
Trust Company.(12)
10.43 -- Tax Indemnification Agreement, dated as of March 28, 1994, between Cargill Leasing
Corporation and the Registrant.(12)
10.44 -- Lease Agreement, dated as of March 29, 1994, between Wilmington Trust Company and
the Registrant.(12)
10.45 -- Lease Supplement No. 1, dated as of March 29, 1994, between Wilmington Trust
Company and the Registrant.(12)
10.46 -- Pledge Agreement, dated as of March 29, 1994, among the Registrant, Wilmington
Trust Company and Cargill Leasing Corporation.(12)
10.47 -- Participation Agreement, dated as of March 29, 1994, between Cargill Leasing
Corporation and the Registrant.(12)
10.48 -- Bill of Sale, dated as of March 29, 1994, between the Registrant and Wilmington
Trust Company.(12)
</TABLE>
70
<PAGE> 73
<TABLE>
<S> <C> <C>
10.49 -- Tax Indemnification Agreement, dated as of March 29, 1994, between Cargill Leasing
Corporation and the Registrant.(12)
10.50 -- Conditional Sale Contract and Security Agreement, dated as of June 28, 1994,
between the Registrant and Motor Coach Industries, Inc.(14)
10.51 -- First Amendment to the Registrant 1993 Non-Employee Director Stock Option Plan.(14)
10.52 -- Amendments to Interest Rate Swap Agreement, dated as of October 6, 1994 between the
Registrant and Bankers Trust Company.(14)
10.53 -- Form of Letter Agreements with various holders of Convertible Debentures relating
to, among other things, the Conversion.(16)
10.54 -- Employment Agreement, dated November 15, 1994, between Registrant and Craig R.
Lentzsch.(17)
10.55 -- Amendment Number Two to Bus Purchase Requirements Agreement dated December 21, 1994
by and between Greyhound Lines, Inc. and Motor Coach Industries.(17)
11 -- Computation of Registrant's earnings per share for the two months ended December
31, 1991.(15)
11.1 -- Computation of Registrant's earnings per share for the year ended December 31,
1992.(15)
11.2 -- Computation of Registrant's earnings per share for the year ended December 31,
1993.(15)
11.3 -- Computation of Registrant's earnings per share for the year ended December 31,
1994.(17)
22 -- Subsidiaries of the Registrant.(17)
23.1 -- Consent of Arthur Andersen LLP.(17)
27 -- Financial Data Schedule as of and for the year ended December 31, 1994(17)
</TABLE>
---------------
(1) Incorporated by reference from the Registration Statement on Form S-1 (File
Nos. 33-13588-01, 33-13588-02, 33-13588-03 and 33-13588-04) regarding the
Registrant's Former 12 1/2% Senior Subordinated Notes Due 1997.
(2) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1991.
(3) Incorporated by reference to the Company's Registration Statement on Form
10 (File No. 1-10841) relating to the Common Stock and Senior Notes.
(4) Incorporated by reference from the Registration Statement on Form S-1 (File
Nos. 33-45060-01 and 33-45060-02) regarding the Registrant's 8 1/2%
Convertible Subordinated Debentures Due 2007.
(5) 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.
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992.
(7) Incorporated by reference from the Company's Registrant Statement on Form
S-3 (File No. 33-61044).
(8) Incorporated by reference from the Company's Registrant Statement on Form
S-8 (File No. 33-63506) regarding the Registrant's 1991 and 1993 Management
Stock Option Plans.
(9) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993.
(10) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.
(11) Incorporated by reference from the Registrant's Quarterly Report on Form
8-K regarding the Rights Agreement dated March 22, 1994.
(12) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994.
(13) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994.
71
<PAGE> 74
(14) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.
(15) Incorporated by reference from the Registration Statement on Form S-1 (File
No. 33-56131) regarding the Registrant's Common Stock.
(16) Incorporated herein by reference from the Registrant's Issuer Tender Offer
Statement on Schedule 13E-4 (File No. 5-41800).
(17) Filed herewith.
(B) REPORTS ON FORM 8-K
The Company filed no current reports on Form 8-K with the Securities and
Exchange Commission during the quarter ended December 31, 1994, nor was it
required to do so.
72
<PAGE> 75
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 31, 1995.
GREYHOUND LINES, INC.
By: /s/ CRAIG R. LENTZSCH
Craig R. Lentzsch
President/Chief Executive Officer
and Chief Financial 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------- ---------------------------- ---------------
<S> <C> <C>
/s/ THOMAS G. PLASKETT Chairman of the Board March 31, 1995
--------------------------------------------- of Directors
Thomas G. Plaskett
/s/ HERBERT ABRAMSON Director March 31, 1995
---------------------------------------------
Herbert Abramson
/s/ RICHARD J. CALEY Director March 31, 1995
---------------------------------------------
Richard J. Caley
/s/ CRAIG R. LENTZSCH Director March 31, 1995
---------------------------------------------
Craig R. Lentzsch
/s/ FRANK L. NAGEOTTE Director March 31, 1995
---------------------------------------------
Frank L. Nageotte
/s/ ALFRED E. OSBORNE, JR. Director March 31, 1995
---------------------------------------------
Alfred E. Osborne, Jr.
/s/ MARTHA M. SMITHER Principal Accounting Officer March 31, 1995
---------------------------------------------
Martha M. Smither
</TABLE>
73
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
4.8 Amendment Number One to Amended and Restated Loan and Security
Agreement dated as of March 27, 1995 by and between Greyhound
Lines, Inc. and Foothill Capital Corporation.
10.54 Employment Agreement, dated November 15, 1994, between the
Registrant and Craig R. Lentzsch.
10.55 Amendment Number Two to Bus Purchase Requirements Agreement dated
December 21, 1994 by and between Greyhound Lines, Inc. and Motor
Coach Industries, Inc.
11.3 Computation of Registrant's earnings per share for the year ended
December 31, 1994.
22 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule for the year ended December 31, 1994.
</TABLE>
<PAGE> 1
EXHIBIT 4.8
AMENDMENT NUMBER ONE TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Amendment Number One to Amended and Restated Loan and Security
Agreement ("Amendment") is entered into as of March 27, 1995, by and between
FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), and
GREYHOUND LINES, INC., a Delaware corporation ("Borrower"), in light of the
following:
FACT ONE: Borrower and Foothill have previously entered into that
certain Amended and Restated Loan and Security Agreement, dated as of October
13, 1994 (the "Agreement").
FACT TWO: Borrower and Foothill desire to amend the Agreement as
provided for and on the conditions herein.
NOW, THEREFORE, Borrower and Foothill hereby amend and supplement the
Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this
Amendment shall have the meanings given to them in the Agreement unless
specifically defined herein.
2. AMENDMENTS.
A. Section 1.1 of the Agreement is hereby amended by
deleting the first sentence in the definition of "Eligible Accounts" in its
entirety and replacing such language with the following:
"Eligible Accounts" means those Accounts created by Borrower in the
ordinary course of its scheduled or charter passenger bus
transportation business, or its "package express" business (i.e.
freight forwarding), that arise out of Borrower's rendition of
scheduled or charter passenger transportation services or of "package
express" services (net of any sales taxes comprising a part thereof),
that strictly comply with all of Borrower's representations and
warranties to Foothill, and that are and at all
1
<PAGE> 2
times shall continue to be acceptable to Foothill in all respects
based upon Foothill's reasonable credit judgment in accordance with
Foothill's customary business practices; provided, however, that
standards of eligibility may be fixed and revised from time to time by
Foothill based upon Foothill's reasonable judgment in accordance with
Foothill's customary business practices."
B. Section 2.1(a) of the Agreement is hereby amended by
deleting such Section in its entirety and replacing it with the following
language:
"(a) Subject to the terms and conditions of this Agreement, Foothill
agrees to make revolving advances to Borrower in an amount not to
exceed the sum of:
(i) the least of: (x) eighty-five percent (85%) of Borrower's
Eligible Accounts; (y) an amount equal to one-half of
Borrower's cash collections from all sources for the
immediately preceding thirty (30) calendar day period; and (z)
Three Million Dollars ($3,000,000) (the "Accounts Subline
Limit");
plus (ii) up to Thirty-Two Million Dollars ($32,000,000) (the
"Bus Subline Limit"); provided, however, that the Bus Subline
Limit shall automatically be reduced by Three Hundred Thousand
Dollars ($300,000) per month, on the first day of each month
commencing on July 1, 1995."
C. Section 12 of the Agreement is hereby amended by
deleting the address of the Borrower as set forth therein and replacing such
language with the following:
"GREYHOUND LINES, INC.
15110 North Dallas Parkway
Dallas, Texas 75248
Attn.: CFO
Telefacsimile No. (214) 387-1874
2
<PAGE> 3
with a copy to:
Contracts Administration
Telefacsimile No. (214) 777-6221"
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to
Foothill that all of Borrower's representations and warranties set forth in the
Agreement are true, complete and accurate in all respects as of the date
hereof.
4. NO DEFAULTS. Borrower hereby affirms to Foothill that no
Event of Default has occurred and is continuing as of the date hereof.
5. CONDITION PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon receipt by Foothill of an executed copy of this
Amendment.
6. COSTS AND EXPENSES. Borrower shall pay to Foothill all of
Foothill's out-of-pocket costs and expenses (including, without limitation, the
fees and expenses of its counsel, which counsel may include any local counsel
deemed necessary, search fees, filing and recording fees, documentation fees,
appraisal fees, travel expenses and other fees) arising in connection with the
preparation, execution and delivery of this Amendment and all related
documents.
7. LIMITED EFFECT. In the event of a conflict between the terms
and provisions of this Amendment and the terms and provisions of the
Agreements, the terms and provisions of this Amendment shall govern. In all
other respects, the Agreement, as amended and supplemented hereby, shall remain
in full force and effect.
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed
in any number of counterparts and by different parties on separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original. All such
3
<PAGE> 4
counterparts, taken together, shall constitute but one and the same Amendment.
This Amendment shall become effective upon the execution of a counterpart of
this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first set forth above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ THOMAS S. SIGURDSON
-------------------------------
Title: Assistant Vice President
----------------------------
GREYHOUND LINES, INC.,
a Delaware corporation
By: /s/ CRAIG R. LENTZSCH
-------------------------------
Title: President
----------------------------
4
<PAGE> 1
EXHIBIT 10.54
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the 19th day of October, 1994, to be effective November 15, 1994
(the "Effective Date"), by and between GREYHOUND LINES, INC. (together with its
successors, the "Company") and CRAIG R. LENTZSCH (the "Executive").
WHEREAS, the Executive has considerable experience, expertise and
training in management related to the types of services offered by the Company;
and
WHEREAS, the Company desires and intends to employ the Executive as
Chief Executive Officer of the Company pursuant to the terms and conditions set
forth in this Agreement; and
WHEREAS, both the Company and the Executive have read and understood
the terms and provisions set forth in this Agreement, and have been afforded a
reasonable opportunity to review this Agreement with their respective legal
counsel.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth in this Employment Agreement, the Executive and the Company agree as
follows:
1. COMPENSATION: During his employment pursuant to this Agreement, the
Company agrees to provide the Executive the following compensation:
a. BASE SALARY: From the Effective Date until changed as
provided in this section, the Company agrees to pay the Executive an annual
salary of $350,000 (the "Base Salary"), payable in at least equal monthly
installments in accordance with the Company's ordinary payroll policies and
procedures for executive compensation. The Company and the Executive
acknowledge that during the employment of the Executive pursuant to this
Agreement, the Executive's Base Salary will be subject to an annual review and
adjustment by the Board of Directors of the Company (the "Board of Directors")
but, in no event, will the Executive's annual Base Salary be less than the
amount set forth in this section.
b. BUSINESS EXPENSES: The Company agrees that the Executive
shall be entitled to reimbursement by the Company for all reasonable expenses
that the Executive may incur in the performance of his duties and obligations
under this Agreement, consistent with the Company's policies for documentation
and payment.
c. SIGN-UP BONUS: The Company agrees that, upon the date of
execution of this Agreement, the Executive shall be paid a lump sum bonus of
$350,000.00.
<PAGE> 2
d. ANNUAL BONUS: The Company agrees that the Executive shall be
entitled to additional bonus compensation as provided in this section.
(1) For the year ending December 31, 1995, the Executive
shall be entitled to a lump sum bonus equal to the sum of: (i) $175,000; and
(ii) an additional amount not to exceed $210,000.00 determined in accordance
with the Bonus Multiplier Formula; provided, however, that the Bonus Multiplier
Formula shall be applicable only if the actual EBITDA of the Company, as
defined herein, exceeds $44,000,000.00 in the 1995 bonus year and the Company's
total revenue for the 1995 bonus year exceeds $633,000,000.00. Such bonus
shall be payable at the same time and in the same manner as if the bonus were a
payment under the 1994 Management Incentive Plan.
(2) For purposes of this Agreement, the "Bonus Multiplier
Formula" shall be defined as the product of the Bonus Multiplier, as defined
herein, and $210,000.00 [Bonus Multiplier x $210,000.00].
(3) For purposes of this Agreement, the "Bonus Multiplier"
shall be determined by dividing the positive difference between the Company's
actual 1995 EBITDA and $44,000,000.00, by 8,800,000.00 [(1995 EBITDA -
$44,000,000.00) / 8,800,000.00 = Bonus Multiplier].
(4) For purposes of this Agreement, the term "EBITDA" shall
be defined, with respect to the 1995 bonus year, as the Company's net income in
calendar year 1995, without any reduction for interest expense, income taxes,
depreciation, amortization or any other non-cash expenses, all determined on a
consolidated basis in accordance with generally accepted accounting principles.
(5) For the year ending December 31, 1996 and subsequent
years, the Executive shall be eligible for annual incentive bonus consideration
based upon objective bonus criteria to be adopted and approved by the Board of
Directors after recommendation by the Executive in his capacity of Chief
Executive Officer of the Company, starting with the 1996 bonus year and
continuing thereafter for the duration of this Agreement.
e. EMPLOYEE BENEFITS: The parties acknowledge and agree that
certain employee benefits will be provided to the Executive incident to his
employment as Chief Executive Officer of the Company. Except as specifically
modified by this section, these employee benefits shall be governed by the
applicable documents. The Company agrees, however, that the following
provisions shall, to the extent not prohibited by law, apply to any employee
benefits provided by the Company:
(1) 401K PLAN: For purposes of the Greyhound Lines, Inc.
and Affiliated Companies Master Salaried Employees' Cash or Deferred Profit
Sharing Plan (the "401k Plan"), the Executive's prior service with Buslease,
Inc. and any predecessor of Greyhound Lines, Inc. shall be deemed to be service
with the Company for purposes of determining eligibility and vesting under the
401k Plan.
2
<PAGE> 3
(2) MEDICAL PLAN: For purposes of the Greyhound Lines,
Inc. Medical Plan (the "Medical Plan"), the following shall apply:
(a) The Executive and his dependents, as defined
in the Medical Plan ("Dependents"), shall immediately be provided coverage
under the Medical Plan under the option elected by the Executive.
(b) The Medical Plan's provisions limiting
coverage of pre-existing conditions shall not be applied to the Executive or
his Dependents.
(c) During the time period in which the Executive
and his dependents are entitled to participate in the Medical Plan, the Company
will reimburse the Executive for one hundred percent (100%) of all medical
expenses (both for the Executive and his dependents) that are not otherwise
reimbursable under the Medical Plan option selected by the Executive; provided,
however, that the total payments made by the Company to or on behalf of any
person under this Section 1(e)(2)(c) shall not exceed the highest "Lifetime
Maximum" benefit (per covered person) available under the Medical Plan on the
Effective Date of this Agreement.
(3) SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN: For purposes
of the Greyhound Lines, Inc. Supplemental Employee Retirement Plan (the
"SERP"), all of the Executive's service with Buslease, Inc. and any predecessor
of Greyhound Lines, Inc. shall be treated for all purposes under the SERP as
service with Greyhound Lines, Inc. (as defined in the SERP), and the Executive
shall be a designated person eligible for coverage and benefits under the SERP
as of the Effective Date.
(4) ESTATE, TAX AND FINANCIAL PLANNING: During the term
of his employment with the Company, the Executive shall be entitled to a
maximum of $15,000.00 per year for estate, tax and financial planning as of the
Effective Date of this Agreement. Such reimbursement payments shall be paid by
the Company within a reasonable time after such expenses are incurred by the
Executive.
(5) AUTOMOBILE ALLOWANCE: During the term of his
employment with the Company, the Executive shall be entitled to a $1,000.00 per
month automobile allowance, commencing on the Effective Date of this Agreement.
(6) OTHER BENEFITS: For purposes of any and all other
benefits provided by the Company to its Chief Executive Officer, the Executive
shall be eligible for such benefits immediately on the Effective Date.
Additionally, for purposes of determining eligibility, funding or vesting with
respect to any other benefits, the Executive's prior service with Buslease,
Inc. and any predecessor of Greyhound Lines, Inc. shall be deemed to be
service with the Company.
f. LEGAL FEES AND EXPENSES: The Company agrees that the
Executive shall be entitled to reimbursement by the Company for those
reasonable legal expenses incurred by the Executive in drafting and negotiating
this Agreement, not to exceed $15,000.00.
3
<PAGE> 4
2. DURATION: The duration of this Agreement shall be defined and
determined as follows:
a. INITIAL TERM: This Agreement shall continue in full force and
effect for one (1) year (the "Initial Term"), commencing on the Effective Date
and expiring on November 14, 1995 (the "Expiration Date"), unless terminated
prior to the Expiration Date in accordance with Section 2(c).
b. RENEWAL: Notwithstanding Section 2(a), this Agreement shall
automatically renew for two (2) years on the Expiration Date unless either
party gives effective written notice to the other party of the party's
intention not to renew this Agreement ("Notice of Non-Renewal"), at least
ninety (90) days prior to the Expiration Date. At the expiration of this two
(2) year renewal term, this Agreement shall automatically renew for annual one
(1) year terms on the anniversary of the Expiration Date, unless and until
either party terminates the Agreement in accordance with Section 2(c).
c. TERMINATION AND NON-RENEWAL: This Agreement may be terminated
as follows:
(1) DEATH: The Company shall be entitled to terminate
this Agreement in the event of the Executive's death, provided, however, that
the Executive's estate shall be paid the Base Salary that the Executive would
have earned for the then current calendar month and the Incentive Bonus that
the Executive would have earned for the remainder of the then current calendar
year, in the time and manner in which the Executive would have been paid such
compensation. In addition, the Executive's designated beneficiaries shall be
entitled to receive any life insurance benefits provided to the Executive in
accordance with the applicable plan documents and/or insurance policies
governing such benefits.
(2) DISABILITY: The Company shall be entitled to
terminate this Agreement in the event the Executive becomes "disabled," as that
term is defined in the Greyhound Lines, Inc. Employee Long Term Disability Plan
("the LTD Plan"), and is unable to perform the essential functions of his
position, with reasonable accommodation, for a period of one hundred eighty
(180) consecutive days.
(3) GOOD CAUSE:
(a) The Company shall be entitled to terminate
this Agreement by providing the Executive with written notice that the Company
is terminating the Agreement for Good Cause, as defined herein ("Notice of
Termination for Good Cause") at any time during his employment (including any
time within ninety (90) days prior to the Expiration Date or the expiration of
any renewal term).
(b) The Company shall be entitled to terminate
this Agreement by communicating Notice of Non-Renewal for Good Cause, as
defined herein, at least ninety (90) days prior to the Expiration Date, or at
least ninety (90) days prior to the expiration of any renewal term.
4
<PAGE> 5
(c) For purposes of this Agreement, "Good Cause"
shall be defined as follows:
i) Any act or omission constituting
fraud under the law of the State of Texas; or
ii) Conviction of, or a plea of nolo
contendere to, a felony; or
iii) Use of illegal drugs; or
iv) Embezzlement of Company property or
funds; or
v) The material breach of any provision
of this Agreement; or continued gross neglect
of his duties under this Agreement; or
unauthorized competition with the Company
during his employment pursuant to this
Agreement; or unauthorized use of
Confidential Information (as defined in
Section 9); which is materially detrimental
to the Company;
(d) In the event the Company believes "Good
Cause" exists for terminating this Agreement pursuant to this section, the
Company shall be required to give the Executive written Notice of the acts or
omissions constituting "Good Cause" ("Cause Notice"), and no Notice of
Termination or Notice of Non-Renewal for Good Cause shall be communicated by
the Company unless and until the Executive fails to cure such acts or omissions
within thirty (30) days after receipt of the Cause Notice.
(e) In the event the Company communicates Notice
of Termination For Good Cause or Notice of Non-Renewal for Good Cause pursuant
to this section, the Executive shall have the right to a hearing before the
Board of Directors, on a date determined by the Board of Directors not later
than thirty (30) days after the date such Notice is received, to contest the
alleged "Good Cause" for the Notice of Termination or Notice of Non-Renewal.
The Board shall provide the Executive with written notice of its decision
resolving any contest under this section, and no termination or non-renewal of
this Agreement shall be deemed to be effective until such written notice is
received by the Executive. In the event that the Board of Directors affirms
the "Good Cause" for termination or non-renewal, the Executive shall have the
right to give Arbitration Notice under Section 10(a) within fifteen (15) days
after such termination or non-renewal becomes effective.
5
<PAGE> 6
(4) WITHOUT GOOD CAUSE:
(a) The Company shall be entitled to terminate
this Agreement by providing ninety (90) days written notice (or ninety (90)
days pay at the Base Salary Rate then in effect in lieu of notice) to the
Executive that the Company is terminating the Agreement Without Good Cause, as
defined herein ("Notice of Termination Without Good Cause"), at any time during
his employment (including any time within ninety (90) days prior to the
Expiration Date or the expiration of any renewal term); provided, however, that
the Company shall be required to pay Severance Pay in accordance with the
SEVERANCE provisions in Section 5.
(b) The Company shall be entitled to terminate
this Agreement by providing a written Notice of Non-Renewal Without Good
Cause, as defined herein, at least ninety (90) days prior to the Expiration
Date or at least ninety (90) days prior to the expiration of any renewal term;
provided, however, that the Company shall be required to pay Severance Pay in
accordance with the SEVERANCE provisions in Section 5.
(c) Any termination or non-renewal of this
Agreement which is not for "Good Cause," as defined above in Section 2(c)(3),
or which does not result from the death of the Executive, or the disability of
the Executive, shall be deemed to be a termination or non-renewal "Without Good
Cause." Furthermore, in the event that the Company communicates a Notice of
Termination for Good Cause or a Notice of Non-Renewal for Good Cause, and
either the Board of Directors [under Section 2(c)(3)(e)] or the arbitrators
[under Section 10(c)] determine that no Good Cause exists or existed for the
Notice of Termination or Notice of Non-Renewal that was originally
communicated, then such Notice of Termination or Notice of Non-Renewal shall be
deemed to have been communication of a Notice of Termination Without Good Cause
or Notice of Non-Renewal Without Good Cause, as appropriate for all purposes
under this Agreement.
(5) RESIGNATION: The Executive shall be entitled to
terminate this Agreement by providing the Company with a written Notice of
Resignation at least ninety (90) days prior to his intended resignation date,
subject to the following provisions:
(a) RESIGNATION FOR GOOD REASON: The Executive
shall have the right to resign for any "Good Reason," as defined herein, and
such resignation shall be deemed to be a termination "Without Good Cause" as
defined in Section 2(c)(4) for all purposes under this Agreement, including the
"Change of Control" provisions set forth in Section 4 and the SEVERANCE
provisions set forth in Section 5. For purposes of this Section, the term
"Good Reason" shall be defined as:
i) The Company's failure to perform any
material provision of this Agreement; or
ii) Any material changes by the Board of
Directors in the duties and responsibilities
of the Executive under this Agreement,
6
<PAGE> 7
other than termination for Good Cause,
without the written consent of the Executive;
or
iii) The hiring or promotion by the Board
of Directors of another executive employee to
a position of equal or greater responsibility
for the management of the Company without the
written consent of the Executive;
iv) Any request by the Board of
Directors that the Executive perform, assist,
abet or approve any act which is or could be
construed to be illegal under any federal,
state or local law; or
v) Any requirement by the Board of
Directors that the Executive relocate from
Dallas County, Texas, without his consent.
vi) In the event the Company fails to
maintain adequate liability insurance
coverage or an acceptable letter of credit to
fund any self-insured liabilities, in
accordance with Section 8 of this Agreement,
without the written consent of the Executive.
(b) OPPORTUNITY TO CURE: In the event the
Executive believes "Good Reason" exists for his resignation, he shall be
required to give the Board of Directors written notice of the acts or omissions
constituting Good Reason, and no Notice of Resignation with Good Reason shall
be communicated to the Company unless and until the Company fails to cure such
acts or omissions within thirty (30) days after receipt of the notice described
in this sentence. Any Notice of Resignation with Good Reason shall be deemed
to be effective immediately, and no other notice or opportunity to cure shall
be required.
(c) RESIGNATION WITHOUT GOOD REASON: Any
resignation by the Executive for any reason other than "Good Reason," as
defined above, shall be deemed to be a resignation "Without Good Reason." In
the event of a Resignation Without Good Reason, the CHANGE OF CONTROL
provisions in Section 4 and the SEVERANCE provisions in Section 5 shall be
inapplicable.
3. RESPONSIBILITIES:
a. The Executive acknowledges and agrees that he shall be
employed as President and Chief Executive Officer of the Company. The
Executive covenants and agrees that he will faithfully devote his best efforts
and such portion of his time, attention and skill to the business of the
Company as is necessary to perform his obligations under this Agreement;
provided, however, that the Executive is permitted, consistent with the
preceding sentence, to remain on the boards of directors of Enginetech, Inc.
and Hastings Books, Records and Video, Inc. (and to receive compensation for
such services) during his employment pursuant to this Agreement.
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b. The Executive acknowledges and agrees that, as President and
Chief Executive Officer of the Company, he shall be responsible for actively
supervising the overall management of the Company and its subsidiaries, subject
to and in accordance with the authority and direction of the Board of Directors
of the Company.
c. The Executive further agrees that, not later than September 1,
1995, he will relocate his primary place of residence to the Dallas, Texas
metropolitan area, and shall maintain his office in the Company's executive
offices in Dallas, Texas. Prior to September 1, 1995, the Company agrees to
reimburse the Executive for any and all expenses incurred by the Executive in
travelling between Phoenix, Arizona and Dallas, Texas. The Company agrees to
compensate the Executive for his relocation expenses in accordance with the
Company's relocation policies applicable to its executive employees as of the
Effective Date of this Agreement.
4. CHANGE OF CONTROL: The parties acknowledge that the Executive has
agreed to assume the position of Chief Executive Officer and to enter into this
Agreement based upon his confidence in the current shareholders of the Company
and the support of the Board of Directors for the development of a new strategy
for the Company. Accordingly, if the Company should undergo a "Change of
Control," as defined in this section, the parties agree as follows:
a. VESTING OF STOCK OPTIONS: In the event of a Change of
Control, as defined in this section, all Stock Options provided in Section 6 of
this Agreement shall immediately become vested and exercisable, effective on
the date of the Change of Control.
b. COMPENSATION: In the event that this Agreement is terminated
at any time within twenty four (24) months after the date of a Change of
Control, as defined in this section, by: (i) the Company communicating a Notice
of Termination Without Good Cause; (ii) the Company communicating a Notice of
Non-Renewal Without Good Cause, or (iii) the Executive communicating a Notice
of Resignation for Good Reason, the Company agrees to pay to the Executive a
lump sum cash payment equal to two (2) times the sum of: (x) an amount equal to
the Executive's then current, annualized Base Salary, and (y) an amount equal
to the sum of all of the annual bonus payments received by the Executive in the
twelve (12) calendar month period preceding, and in the calendar month of the
date of the Change of Control, which payment shall be paid within thirty (30)
days after the effective date of termination, non-renewal or resignation. In
addition, the Company agrees to continue any and all employee benefits received
by the Executive during his employment with the Company, as modified pursuant
to the terms of Section 1(e), for twenty-four (24) months after the effective
date of termination, non-renewal or resignation.
c. DEFINITIONS: For purposes of this Agreement, a "Change of
Control" shall be deemed to exist in the event that any of the following
occurs:
(1) on or after February 1, 1995, a change in the
ownership of the capital stock of the Company where a
corporation, person or group acting in concert (a
"Person") as described in Section 14(d)(2) of the
Securities Exchange Act of 1934,
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as amended (the "Exchange Act"), holds or acquires,
directly or indirectly, beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the
Exchange Act) of a number of shares of capital stock
of the Company which constitutes 30% or more of the
combined voting power of the Company's then
outstanding capital stock then entitled to vote
generally in the election of directors;
(2) the persons who were members of the Board of
Directors immediately prior to a tender offer,
exchange offer, contested election or any combination
of the foregoing, cease, at any time within twelve
(12) months thereafter, to constitute a majority of
the Board of Directors; or
(3) a dissolution of the Company; or the adoption by the
Company of a plan of liquidation; or the adoption by
the Company of a merger, consolidation or
reorganization involving the Company in which the
Company is not the surviving entity; or, a sale of
all or substantially all of the assets of the Company
and either (x) the acquiring Person, and/or any
Person related to or affiliated with or acting in
concert with such Person, acquires an assignment from
the Company of this Agreement in connection with such
asset acquisition or acquisitions, or (y) such
Person, and/or any Person related to or affiliated
with or acting in concert with such Person, does not
acquire an assignment of this Agreement from the
Company, and the net worth of the Company following
such event or at any time during a period thereafter
equal to the remaining unexpired term of this
Agreement is less than $50,000,000.00; provided,
however, that none of the events specified in this
subsection (3) shall constitute a Change of Control
if immediately thereafter (i) the persons who were
members of the Board of Directors immediately prior
to such event constitute a majority of the members of
the board of directors of the surviving or successor
corporation, and (ii) each of the Persons who
beneficially owned 30% or more of the combined voting
power of the Company immediately prior to such event
constitute beneficial owners of 30% or more of the
combined voting power of the surviving or successor
corporation; or
(4) a change in control is reported by the Company in
response to either Item 6(e) of Schedule 14A of
Regulations 14A promulgated under the Exchange Act or
Item 1 of Form 8-
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K promulgated under the Exchange Act, which change in
control has not been approved by a majority of the
Board of Directors then in office who were directors
at the beginning of two-year period ending on the
date the reported change in control occurred.
A Change of Control shall include any other transactions or series of related
transactions occurring which have substantially the same effect as the
transactions specified in any of the preceding clauses of Section 4(c)(1)-(4).
Notwithstanding the foregoing, the holding or acquisition of 30% or
more of the combined voting power of the Company's capital stock by any Current
Stockholder (as hereinafter defined), voting along or in concert with any one
or more other acting Current Stockholders, shall not constitute a Change of
Control. The term "Current Stockholders" means Motor Coach International,
Inc., Connor Clark Co., Inc., Snyder Capital Management, Inc., Lindner Funds,
BEA Associates, and GEO Capital Corporation, and their affiliates (as that term
is defined under the rules and regulations of the Securities and Exchange
Commission).
For purposes of this Section 4(c), a sale of all or substantially all
of the assets of the Company shall be deemed to occur if any Person acquires
(or during the 12-month period ending on the date of the most recent
acquisition by such Person, has acquired) gross assets of the Company that have
an aggregate fair market value equal to 50% of the fair market value of all of
the gross assets of the Company immediately prior to such acquisition or
acquisitions.
d. TAX LIABILITY: In the event that any compensation payable
under this section (the "Payment") is determined to be an "excess parachute
payment" under section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor provision, subject to the excise tax imposed by
section 4999 of the Code or any successor provision (the "Excise Tax"), the
Company agrees to pay to the Executive an additional sum (the "Gross Up") in an
amount such that the net amount retained by the Executive, after receiving both
the Payment and the Gross Up and after paying: (i) any Excise Tax on the
Payment and the Gross Up, and (ii) any Federal, state and local income taxes on
the Gross Up, is equal to the amount of the Payment.
For purposes of determining the Gross Up, the Executive shall be
deemed to pay state and local income taxes at the highest marginal rate of
taxation in his filing status for the calendar year in which the Payment is to
be made based upon the Executive's domicile on the date of the Change of
Control. The determination of whether such Excise Tax is payable and the
amount of such Excise Tax shall be based upon the opinion of tax counsel
selected by the Company subject to the approval of the Executive. If such
opinion is not finally accepted by the Internal Revenue Service, then
appropriate adjustments shall be calculated (with Gross Up, if applicable) by
such tax counsel based upon the final amount of Excise Tax so determined. The
final amount shall be paid, if applicable, within thirty (30) days after such
calculations are completed.
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5. SEVERANCE: In the event that the Company communicates Notice of
Termination Without Good Cause or Notice of Non-Renewal Without Good Cause, or
the Executive communicates Notice of Resignation for Good Reason, the Company
agrees to pay the Executive the following severance compensation (the
"Severance Pay"):
a. TERMINATION DURING FIRST TWELVE MONTHS: If the Company
communicates Notice of Termination Without Good Cause, or Notice of Non-Renewal
Without Good Cause, or the Executive communicates Notice of Resignation for
Good Reason, on or before the ninetieth (90th) day prior to the Expiration
Date, the Company shall pay the Executive: (i) a lump sum payment equal to his
then current, annualized Base Salary; and (ii) the applicable Incentive Bonus
set forth in Section 1(d).
b. TERMINATION AFTER FIRST TWELVE MONTHS: If the Company
communicates Notice of Termination Without Good Cause or Notice of Non-Renewal
Without Good Cause, or the Executive communicates Notice of Resignation for
Good Reason, on or after the eighty-ninth (89th) day prior to the Expiration
Date, the Company shall pay the Executive a lump sum payment equal to two (2)
times the sum of: (i) an amount equal to his then current, annualized Base
Salary, and (ii) the greater of: (x) the applicable Incentive Bonus set forth
in Section 1(d), or (y) $100,000.00.
c. TERMS OF PAYMENT: Severance Pay required pursuant to this
section shall be payable in cash in full within thirty (30) days after the
termination date or the resignation date of the Executive's employment;
provided, however, that with respect to any severance payment under Section
5(b) which is required to be calculated based upon the amount of any Incentive
Bonus under Section 1(d), the Company agrees to pay to the Executive an initial
lump sum severance payment equal to two (2) times the sum of: (i) an amount
equal to his then current, annualized Base Salary, and (ii) $100,000.00, within
thirty (30) days of the termination date or the resignation date of the
Executive's employment; and an additional lump sum payment equal to two (2)
times the difference between (x) the applicable Incentive Bonus, and (y)
$100,000.00, payable within thirty (30) days after the applicable Incentive
Bonus is calculated.
d. EXCEPTIONS: Severance Pay shall not be payable under this
section in any of the following circumstances:
(1) In the event that this Agreement is terminated as a
result of the death or disability of the Executive, as provided in Sections
2(c)(1)-(2); or
(2) In the event that this Agreement is terminated
pursuant to a Notice of Termination For Good Cause or a Notice of Non-Renewal
for Good Cause communicated by the Company, as provided in Section 2(c)(3), and
such termination or non-renewal is affirmed by the arbitrators after an
arbitration proceeding under Section 10(c); or
(3) In the event the provisions of Section 4 are
applicable as a result of a "Change of Control" having occurred, and the
payments provided for in Section 4 are paid by the Company; or
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<PAGE> 12
(4) In the event that the Executive communicates Notice
of Resignation Without Good Reason as defined in Section 2(c)(5).
e. EXCLUSIVITY: The Company and the Executive acknowledge and
agree that the Severance Payments required under this section are intended to
be exclusive and to supersede any severance pay plans or policies adopted by
the Company and that the Executive shall not be entitled to any additional
severance compensation under any other severance plan or policy adopted by the
Company.
6. STOCK OPTIONS: In addition to the other compensation set forth in
this Agreement, the Company agrees to grant the Executive a non-qualified
option (as used in the Greyhound Lines, Inc. 1993 Management Stock Option Plan)
under the Greyhound Lines, Inc. 1993 Management Stock Option Plan, using the
form attached to this Agreement as Exhibit A, to purchase the Company's common
stock (the "Option") under the following terms:
a. GRANT OF OPTIONS: Subject to the terms and provisions of this
Agreement, the Company agrees to grant the Executive an Option to purchase from
the Company an aggregate of four hundred thousand (400,000) shares of the
Company's common stock (the "Option Stock") at a price per share equal to $2.06
1/4 (the "Option Price"). The Grant Date for purposes of this Option shall be
November 22, 1994. This Option shall be increased, adjusted or additional
options issued to the Executive, in the same manner as options held by other
employees of the Company, as the Board of Directors may in good faith
determine, to effect an appropriate equitable adjustment reflecting the
issuance on or about December 29, 1994 of 16,279,070 shares of Common Stock of
the Company pursuant to the rights offering made pursuant to the Company's
prospectus dated November 29, 1994. In the event such adjustment is made by
the grant of one or more additional options, the term "Option," "Option Price,"
and "Option Stock" shall also include such additional option or options, the
exercise prices thereof, and the shares subject thereto, respectively.
b. VESTING AND EXERCISE OF OPTIONS: The Executive shall have the
right to exercise the Option with respect to all or part of any portion of the
Option Stock that has vested in accordance with the following vesting schedule,
immediately upon its vesting:
(1) On October 18, 1995, the Executive's Option to
purchase two hundred thousand (200,000) shares of the Option Stock, at the
Option Price, shall vest; provided, however, that if the Company communicates
Notice of Termination Without Good Cause or Notice of Non-Renewal Without Good
Cause, or the Executive communicates a valid Notice of Resignation for Good
Reason, prior to October 18, 1995, the Executive's Option to purchase two
hundred thousand (200,000) shares of the Option Stock, at the Option Price,
shall vest on the date such Notice is communicated.
(2) On October 18, 1996, the Executive's Option to
purchase an additional one hundred thousand (100,000) shares of the Option
Stock, at the Option Price, shall vest; provided, however, that if the Company
communicates Notice of Termination Without Good Cause, or Notice of Non-Renewal
Without Good Cause, or the Executive communicates a valid
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Notice of Resignation for Good Reason, between October 19, 1995 and October 18,
1996, the Executive's Option to purchase an additional one hundred thousand
(100,000) shares of the Option Stock, at the Option Price, shall vest on the
date such Notice is communicated.
(3) On October 18, 1997, the Executive's Option to
purchase an additional one hundred thousand (100,000) shares of the Option
Stock, at the Option Price, shall vest; provided, however, that if the Company
communicates Notice of Termination Without Good Cause, or Notice of Non-Renewal
Without Good Cause, or the Executive communicates a valid Notice of Resignation
for Good Reason, between October 19, 1996 and October 18, 1997, the Executive's
Option to purchase an additional one hundred thousand (100,000) shares of the
Option Stock, at the Option Price, shall vest on the date such Notice is
communicated.
(4) In the event that a Change of Control (as defined in
Section 4(c) of this Agreement) occurs at any time during the Executive's
employment, the Executive's Option to purchase all four hundred thousand
(400,000) shares of the Option Stock, at the Option Price, shall, to the extent
not already fully vested, immediately become fully vested and exercisable on
the date the Change of Control occurs.
c. EXERCISE OF OPTIONS:
(1) The Executive shall have the right to exercise his
Option to purchase all or part of the Option Stock after such Option has vested
in accordance with the vesting provisions set forth in Section 6(b). Any
exercise by the Executive of his Option to purchase all or part of the Option
Stock shall be in writing addressed to the Corporate Secretary of the Company
at its principal place of business (a copy of the form of exercise to be used
will be available upon written request to the Secretary), and shall be
accompanied by a certified or bank check to the order of the Company in the
full amount of the Exercise Price of the whole number of Option Stock so
purchased. In no event shall the Executive exercise the Option for a fraction
of a share of Option Stock.
(2) The Option may not be exercised after the tenth (10th)
anniversary of the Grant Date. The unexercised portion of the Option, if any,
will automatically, and without notice, terminate and become null and void upon
the expiration of ten (10) years from the Grant Date. If, however, the
Executive's employment with the Company terminates or the Executive's service
on the Board of Directors of the Company terminates before the expiration of
ten (10) years from the Grant Date, the Option will terminate on the applicable
date as described in Section 6(c)(3) below.
(3) Upon the termination of the Executive's employment with
the Company, the Option shall automatically terminate and become null and void
as to shares of Option Stock not vested either immediately prior to the date of
the Executive's termination or as a result of his termination, and as to shares
of Option Stock vested for any reason on the date of his termination, shall to
the extent not previously exercised, be exercisable and then terminate only as
follows:
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(a) if the Executive dies while in the employ of the
Company, the Executive's estate may, until the earlier of (x) six (6)
months after the date of death or (y) the expiration of ten (10) years
from the Grant Date, exercise the Option with respect to all or any
part of the Option Stock which the Executive was entitled to purchase
immediately prior to the date of his death;
(b) in the case of termination of the Executive's
employment due to Disability, the Executive may, until the earlier of
(x) six (6) months after the date his employment terminates or (y) the
expiration of ten (10) years from the Grant Date, exercise the Option
with respect to all or any part of the Option Stock which the
Executive was entitled to purchase immediately prior to the date of
his termination;
(c) in the case of the Executive's termination
pursuant to the Company's communication of a Notice of Termination
Without Good Cause or a Notice of Non-Renewal Without Good Cause, or
the event the Executive communicates Notice of Resignation for Good
Reason, as that term is defined in Section 2(c)(5), the Executive may,
until the earlier of: (x) one (1) year after the date the Executive's
employment terminates in the event that such termination occurs prior
to the Expiration Date of this Agreement, or three (3) years after the
date that the Executive's employment terminates if such termination
occurs on or after the Expiration Date of this Agreement, or (y) the
expiration of ten (10) years from the Grant Date; exercise the Option
with respect to all or any part of the Option Stock which the
Executive was entitled to purchase immediately prior to the time of
such termination; and
(d) in the case of termination or resignation for
any reason other than those specified in (a), (b) or (c) above, the
Executive may, until the earlier of (x) thirty (30) days after the
date of his termination from employment or (y) the expiration of ten
(10) years from the Grant Date, exercise his Option with respect to
all or any part of the Option Stock which the Executive was entitled
to purchase immediately prior to the time of such termination or
resignation; provided, however, that if the Executive is terminated
for Good Cause, as defined in Section 2(c)(3), the Executive shall
forfeit his rights under the Option, except as to those shares of
Option Stock already purchased.
d. REGISTRATION: The Option shall specifically provide: (i) an
agreement from the Company to at all times maintain an effective registration
on Form S-8 covering the registration of the Option Stock under the Securities
Act of 1933, as amended ("the Act"); (ii) the Option Stock shall be issued free
of all restrictions (except those imposed by law), legends and stop transfer
instructions; and, (iii) the Option Stock shall not constitute "restricted
securities" within the meaning of Rule 144 of the Securities and Exchange
Commission. Concurrently with the executive of this Agreement, the Company
shall enter into a Registration Rights Agreement with the Executive, in the
form attached hereto as Exhibit "B," pursuant to which the Company shall grant
certain rights to the Executive to include the Option Stock on any registration
statement filed by the Company under the Act relating to a public offering of
any equity or debt securities by the Company.
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e. STATUS OF THE EXECUTIVE: The Executive shall not be
considered a stockholder of the Company with respect to any shares of Option
Stock subject to the Option, except to the extent that the shares of Option
Stock have been purchased by and transferred to the Executive.
7. SUCCESSORS AND ASSIGNS: The parties acknowledge and agree that this
Agreement may not be assigned by either party without the written consent of
the other party. In the event of a "Change of Control" as defined in Section
4(c), the Company shall be entitled to assign this Agreement to any successor
or assignee; provided, however, that such assignment shall not or be construed
to, in any way whatsoever, release, limit or excuse the Company from the
performance of its obligations and the payment of its liabilities under this
Agreement, regardless of whether such obligations or liabilities accrued or
accrue before, after or as a result of such assignment, and regardless of
whether such obligations or liabilities are or were assumed by any successor or
assignee. In the event of the Executive's death, this Agreement shall be
enforceable by the Executive's estate, executors or legal representatives, but
only to the extent that such persons may collect any compensation (including
stock options) due to the Executive under this Agreement.
8. INDEMNIFICATION: During and after the employment of the Executive
pursuant to this Agreement, the Company shall indemnify the Executive against
all judgments, penalties, fines, assessments, losses, amounts paid in
settlement and reasonable expenses (including, but not limited to, attorneys'
fees) for which the Executive may become liable as a result of his performance
of his duties and responsibilities pursuant to this Agreement, to the fullest
extent permissible under the laws of the State of Delaware. In addition, the
Company agrees to purchase officer and director liability insurance, with such
reasonable exclusions that are acceptable to the Executive, for any such
judgments, penalties, fines, assessments, losses, amounts paid in settlement
and reasonable expenses (including, but not limited to, attorneys' fees) for
which the Executive may become liable as a result of his performance of his
duties and responsibilities pursuant to this Agreement in an amount not less
than the amount of director and officer liability insurance in effect on the
Effective Date of this Agreement. In the event that the Company elects to
self-insure for any judgments, penalties, fines, assessments, losses, amounts
paid in settlement, and reasonable expenses (including, but not limited to,
attorneys' fees), for which the Executive may become liable as a result of the
performance of his duties as an officer and director of the Company, the
Company agrees to purchase and maintain an adequate, secured letter of credit
from an institution acceptable to the Executive as security for the Company's
performance under this section and to fully indemnify the Executive for any
such liabilities, as provided herein.
9. NON-COMPETITION AND NON-DISCLOSURE: The Company and the Executive
agree as follows:
a. During and after his employment by the Company, the Executive
agrees that he shall not directly or indirectly disclose any Confidential
Information, as defined in this section, unless such disclosure is: (i) to an
employee of the Company or its subsidiaries; or (ii) to a person to whom
disclosure is reasonably necessary or appropriate in connection with the
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performance of his duties as an executive of the Company; or (iii) authorized
in writing by the Board of Directors; or (iv) required by any Court or
administrative agency.
b. In the event that this Agreement is terminated for any reason,
the Executive agrees that he shall promptly return all records, files,
documents, materials and copies relating to the business of the Company or its
subsidiaries which came into the possession of the Executive during his
employment pursuant to this Agreement; provided, however, that nothing in this
section shall be construed as any limitation on the Executive's right to retain
any documents or other information which was in the possession of the Executive
prior to the Effective Date of this Agreement.
c. For purposes of this Agreement, the term "Confidential
Information" shall be defined as any information relating to the business of
the Company or its subsidiaries which is not generally available to the public
and which the Company takes affirmative steps to maintain as confidential. The
term shall not include any information that the Executive was aware of prior to
the Effective Date of this Agreement, information that is a matter of any
public record, information contained in any document filed or submitted to any
governmental entity, any information that is common knowledge in any industry
in which the Company does business, any information that has previously been
made available to persons who are not employees of the Company or any
information that is known to the Company's competitors.
d. In the event that the Executive's employment with the Company
is terminated as a result of either: (i) Notice of Termination for Good Cause
or Notice of Non-Renewal for Good Cause, as defined in Section 2(c)(3); or (ii)
the resignation of the Executive "Without Good Reason," as defined by Section
2(c)(5), the Executive covenants and agrees not to compete with the Company for
twelve (12) calendar months subsequent to such termination or resignation from
employment, in the business of providing inter-city transport of passengers or
cargo by automobile or motorbus in any city in which the Company engaged in
such business during the twelve (12) calendar months prior to such termination
or resignation. This provision shall not apply in the event that the
employment of the Executive is terminated for any reason other than "Good
Cause" or a "Resignation Without Good Reason."
e. Unless the Board of Directors provide prior written approval,
for one (1) year following the termination of the Executive's employment, the
Executive shall not, directly or indirectly:
(1) solicit, entice, persuade or induce any employee of
the Company, or its subsidiaries, to terminate his/her employment with the
Company, or its subsidiaries, or to become employed by any Person other than
the Company, or its subsidiaries; or
(2) approach any such employee for any of the foregoing
purposes; or
(3) authorize or assist in the taking of such actions by
any third party.
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10. ARBITRATION: The Company and the Executive agree as follows:
a. Any claim or controversy arising out of or relating to this
Agreement, or any breach of this Agreement, shall be settled by final and
binding arbitration in the city of Dallas, Texas in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in effect
on the date the claim or controversy arises. The Executive and the Company
agree that either party must request arbitration of any claim or controversy on
or before the earlier of: (i) the fifteenth (15th) business day after the
termination or non-renewal of this Agreement becomes effective; or (ii) the
sixtieth (60th) business day after the date the claim or controversy first
arises, by giving written notice of the party's request for arbitration
("Arbitration Notice"). Failure to effectively communicate the Arbitration
Notice within the time limitation set forth in this section shall constitute a
waiver of the claim or controversy.
b. In the event that any dispute arising under this Agreement
concerns any payment required to be made under any provision of this Agreement,
either party agrees to deposit the amount of the disputed payment in an
interest bearing account with a financial institution acceptable to the other
party within five (5) days after either party effectively communicates its
Arbitration Notice. In the event that any dispute arising under this Agreement
concerns the amount of any payment required to be made under any provision of
this Agreement, either party agrees to pay the undisputed portion of the
payment to the other party and deposit the disputed portion of the payment in
an interest bearing account with a financial institution acceptable to the
other party within five (5) days after either party effectively communicates
its Arbitration Notice.
c. All claims or controversies subject to arbitration under this
Agreement shall be submitted to an arbitration hearing within thirty (30) days
after the Arbitration Notice is communicated. All claims or controversies
shall be resolved by a panel of three (3) arbitrators selected in accordance
with the applicable Commercial Arbitration Rules. Either party may request
that the arbitration proceeding be stenographically recorded by a Certified
Shorthand Reporter. The arbitrators shall issue a written decision with
respect to all claims or controversies submitted under this section within
thirty (30) days after the completion of the arbitration hearing. The parties
are entitled to be represented by legal counsel at any arbitration hearing and
each party shall be responsible for its own attorneys' fees. The Company shall
be responsible for paying for all expenses in the event of any arbitration
under this section, except that in the event an arbitration panel finds against
the Executive, he may be required to reimburse the Company for up to one-half
(1/2) of the arbitrators' fees and expenses.
d. The parties agree that this section may be specifically
enforced by either party, and submission to arbitration compelled, by any court
of competent jurisdiction. The parties further acknowledge and agree that the
decision of the arbitrators may be specifically enforced by either party in any
court of competent jurisdiction.
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11. RULES OF CONSTRUCTION: The following provisions shall govern the
interpretation and enforcement of this Agreement:
a. SEVERABILITY: The parties acknowledge and agree that each
provision of this Agreement shall be enforceable independently of every other
provision. Furthermore, the parties acknowledge and agree that, in the event
any provision of this Agreement is determined to be unenforceable for any
reason, the remaining covenants and/or provisions will remain effective,
binding and enforceable.
b. WAIVER: The parties acknowledge and agree that the failure of
either to enforce any provision of this Agreement shall not constitute a waiver
of that particular provision, or of any other provisions, of this Agreement.
c. CHOICE OF LAW: The parties acknowledge and agree that except
as specifically provided otherwise in this Agreement, the law of Texas will
govern the validity, interpretation and effect of this Agreement and any other
dispute relating to, or arising out of, the employment relationship between the
Company and the Executive.
d. MODIFICATION: The parties acknowledge and agree that this
Agreement constitutes the complete and entire agreement between the parties;
that the parties have executed this Agreement based upon the express terms and
provisions set forth herein; that the parties have not relied on any
representations, oral or written, which are not set forth in this Agreement;
that no previous agreement, either oral or written, shall have any effect on
the terms or provisions of this Agreement; and that all previous agreements,
either oral or written, are expressly superseded and revoked by this Agreement.
In addition, the parties acknowledge and agree that the provisions of this
Agreement may not be modified by any subsequent agreement unless the modifying
agreement (i) is in writing (ii) contains an express provision referencing this
Agreement (iii) is signed by the Executive and (iv) is approved by the Board of
Directors.
e. EXECUTION: The parties agree that this Agreement may be
executed in multiple counterparts, each of which shall be deemed an Original
for all purposes.
f. HEADINGS: The parties agree that the subject headings set
forth at the beginning of each section in this Agreement are provided for ease
of reference only, and shall not be utilized for any purpose in connection with
the construction, interpretation or enforcement of this Agreement.
12. LEGAL CONSULTATION: The parties acknowledge and agree that both
parties have been accorded a reasonable opportunity to review this Agreement
with legal counsel prior to executing the agreement.
13. NOTICES: The parties acknowledge and agree that any and all Notices
required to be delivered under the terms of this Agreement shall be forwarded
by personal delivery or certified U.S. mail. Either party may change their
respective address for the purpose of receiving notices only by providing
written notification via certified mail, five (5) days in advance of such
change.
18
<PAGE> 19
Notices shall be deemed to be communicated and effective on the day of receipt.
Such Notices shall be addressed to each party as follows:
Craig R. Lentzsch Greyhound Lines Inc.
5625 Exeter Blvd. 15110 North Dallas Parkway
Phoenix, Arizona 85018 Dallas, Texas 75248
With a copy to:
Robert E. Sheeder, Esq. Chairman of the Compensation Committee
1445 Ross Avenue, Suite 3200 Board of Directors
Dallas, Texas 75202 Greyhound Lines Inc.
15110 North Dallas Parkway
Dallas, Texas 75248
EXECUTED on this 10th day of February, 1995.
CRAIG R. LENTZSCH
/s/ CRAIG R. LENTZSCH
--------------------------------
GREYHOUND LINES, INC.
By: /s/ CHARLES A. LYNCH
--------------------------------
Title: Chairman of the Board
-----------------------------
19
<PAGE> 20
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
BETWEEN GREYHOUND LINES, INC. CRAIG R. LENTZSCH
OPTION AGREEMENT
November 22, 1994
Mr. Craig R. Lentzsch
5625 Exeter Blvd.
Phoenix, Arizona 85108
RE: GRANT OF NON-QUALIFIED STOCK OPTION
Dear Mr. Lentzsch:
On March 26, 1993, the Board of Directors of Greyhound Lines,
Inc. (the "Company") adopted the Company's 1993 Management Stock Option Plan
(the "Plan"). A copy of the Plan is annexed to this Option Agreement and shall
be deemed a part of this Option Agreement as if fully set forth herein. Unless
the context otherwise requires, all terms defined in the Plan shall have the
same meaning when used herein.
I. THE GRANT
The Company hereby grants to you, effective as of November 22,
1994 (the "Grant Date"), as a matter of separate inducement and not in lieu of
any salary or other compensation for your services, the right and option to
purchase (the "Option") an aggregate of 400,000 shares of Common Stock of the
Company (the "Option Shares") a price per share equal to $2.06 1/4 (the
"Exercise Price"), in accordance with the terms of, and subject to the
limitations set forth in, this Option Agreement, your October 19, 1994
Executive Employment Agreement (the "Employment Agreement") and the Plan. This
Option, and the number of Option Shares subject hereto, shall be increased,
adjusted, or additional options issued to the Executive, in the same manner as
options held by other employees of the Company, as the Board of Directors may
in good faith determine, to effect an appropriate equitable adjustment
reflecting the issuance on or about December 29, 1994 of 16,279,070 shares of
Common Stock of the Company pursuant to and by virtue of the rights offering
made pursuant to the Company's prospectus dated November 29, 1994. In the
event such adjustment is made by the grant of one or more additional options,
the terms "Option," "Exercise Price" and "Option Shares" shall also include
such additional option or options, the exercise prices thereof, and the shares
subject thereto,
<PAGE> 21
respectively. This Option is not intended to be an incentive stock option
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). It is intended to be a non-qualified stock option,
within the purview of section 83 of the Code, granted under Paragraph 6 of the
Plan.
II. VESTING AND EXERCISE
(a) The Option shall vest as to the right to purchase,
and simultaneously become immediately exercisable, as follows:
(i) 50% of the Option Shares on October 18, 1995
if you remain employed by the Company as of
that date pursuant to your Employment
Agreement; provided, however, that in event
the Company terminates your employment by
communicating Notice of Non-Renewal Without
Good Cause or Notice of Termination Without
Good Cause or you communicate Notice of
Resignation for Good Reason (as each of such
terms is defined in Paragraph III) prior to
October 18, 1995, the Option shall vest as to
such 50% of the Option Shares on the date
such Notice of Non-Renewal Without Good
Cause, Notice of Termination Without Good
Cause or Notice of Resignation for Good
Reason is communicated.
(ii) an additional 25% of the Option Shares on
October 18, 1996 if you remain employed by
the Company as of that date pursuant to your
Employment Agreement; provided, however, that
in event the Company terminates your
employment by communicating Notice of
Termination Without Good Cause or Notice of
Non-Renewal Without Good Cause, or you
communicate Notice of Resignation for Good
Reason between October 18, 1995 and October
18, 1996, the Option shall vest as to such
25% of the Option Shares on the date such
Notice of Termination Without Good Cause, or
Notice of Non-Renewal Without Good Cause, or
Notice of Resignation for Good Reason is
communicated, and
(iii) an additional 25% of the Option Shares on
October 18, 1997 if you remain employed by
the Company as of that date pursuant to your
Employment Agreement; provided, however, that
in event your employment is terminated by the
Company by communicating Notice of
Termination Without Good Cause, or Notice of
Non-Renewal Without Cause, or you communicate
Notice of Resignation for Good Reason between
October 18, 1996 and October 18, 1997, the
Option shall vest as to such 25% of the
Option Shares on the date such Notice of
Termination Without Good Cause, or Notice of
Non-Renewal Without Good Cause, or Notice of
Resignation for Good Reason is communicated.
2
<PAGE> 22
No further vesting of the Option shall occur following termination of your
employment, whether or not you were Terminated Without Good Cause.
(b) The Option may not be exercised after the tenth
(10th) anniversary of the Grant Date. The unexercised portion of the Option,
if any, will automatically, and without notice, terminate and become null and
void upon the expiration of ten (10) years from the Grant Date. If, however,
your employment with the Company terminates or your service on the Board of
Directors of the Company terminates before the expiration of ten (10) years
from the Grant Date, the Option will terminate on the applicable date as
described in Paragraph IV below.
(c) Any exercise by you of the Option shall be in writing
addressed to the Corporate Secretary of the Company at its principal place of
business (a copy of the form of exercise to be used will be available upon
written request to the Secretary), and shall be accompanied by a certified or
bank check to the order of the Company in the full amount of the Exercise Price
of the whole number of Option Shares so purchased, or in such other manner as
described in the Plan. In no event shall you exercise the Option for a
fraction of an Option Share.
III. DEFINITIONS
(a) For purposes of this Option Agreement, the term
"Notice of Non-Renewal Without Good Cause" shall mean that the Company
communicates its intention not to renew your Employment Agreement on or before
the ninetieth (90th) day prior to the "Expiration Date" of your Employment
Agreement or on or before the ninetieth (90th) day prior to the expiration of
any renewal term of your Employment Agreement, for any reason other than "Good
Cause" (as defined in Section 2(c)(3) of your Employment Agreement) or your
death or disability, in accordance with Section 2(c)(4)(b) of your Employment
Agreement.
(b) For purposes of this Option Agreement, the term "Notice
of Termination Without Good Cause" shall mean that the Company communicates at
least ninety (90) days notice of its intention to terminate your Employment
Agreement for any reason other than "Good Cause" (as defined in Section 2(c)(3)
of your Employment Agreement) or your death or disability, in accordance with
Section 2(c)(4)(a) of your Employment Agreement.
(c) In accordance with Section 2(c)(4)(c) of your Employment
Agreement, in the event the Company communicates a Notice of Termination for
Good Cause or a Notice of Non-Renewal for Good Cause, and either the Board of
Directors (under Section 2(c)(3)(e) of your Employment Agreement) or the
arbitrators (under Section 10(c) of your Employment Agreement) determine that
no Good Cause exists or existed for the Notice of Termination or Notice of
Non-Renewal that was originally communicated, then such Notice of Termination
or Notice of Non-Renewal shall be deemed to have been a Notice of Termination
Without Good Cause or a Notice of Non-Renewal Without Good Cause, as
appropriate, for all purposes under this Option Agreement.
3
<PAGE> 23
(d) For purposes of this Option Agreement, the term "Notice
of Resignation for Good Reason" shall mean that you communicate at least ninety
(90) days notice your intention to resign from your position with the Company
for any reason constituting "Good Reason" under Section 2(c)(5)(a) of your
Employment Agreement.
IV. TERMINATION OF EMPLOYMENT
Upon the termination of your employment with the Company, this
Option shall automatically terminate and become null and void as to Option
Shares not vested as to the right to purchase and not then exercisable on the
date of your termination, and as to Option Shares vested as to the right to
purchase and exercisable for any reason on the date of your termination, shall
to the extent not previously exercised, be exercisable and then terminate only
as follows:
(a) DEATH: If you shall die while in the employ of
the Company, your estate may, until the earlier of (x) six (6) months
after the date of death or (y) the expiration of ten (10) years from
the Grant Date, exercise the Option with respect to all or any part of
the Option Shares which you were entitled to purchase immediately
prior to the date of your death;
(b) DISABILITY: In the case of termination of your
employment due to Disability (as defined in Section 2(c)(2) of your
Employment Agreement), you may, until the earlier of (x) six (6)
months after the date your employment terminates or (y) the expiration
of ten (10) years from the Grant Date, exercise the Option with
respect to all or any part of the Option Shares which you were
entitled to purchase immediately prior to the date of your
termination;
(c) WITHOUT GOOD CAUSE: In the case of termination
of your employment pursuant to the Company's communication of a Notice
of Termination Without Good Cause or a Notice of Non-Renewal Without
Good Cause, you may, until the earlier of: (x) one (1) year after the
date your employment terminates in the event that such termination
occurs prior to the Expiration Date of your Employment Agreement; or
(y) three (3) years after the date that your employment terminates if
such termination occurs on or after the Expiration Date of your
Employment Agreement; or (z) the expiration of ten (10) years from the
Grant Date; exercise the Option with respect to all or any part of the
Option Shares which you were entitled to purchase immediately prior to
or as a result of the time of such termination; and
(d) RESIGNATION FOR GOOD REASON: In the event you
resign from employment for "Good Reason," as that term is defined in
Section 2(c)(5)(a) of your Employment Agreement, you may, until the
earlier of: (x) one (1) year after the date your employment terminates
in the event that such resignation occurs prior to the Expiration Date
of your Employment Agreement; or (y) three (3) years after the date
that your employment terminates if such resignation occurs on or after
the Expiration Date of your Employment Agreement; or (z) the
expiration of ten (10) years from the Grant Date; exercise the Option
with respect to all or any part of the Option Shares which you
4
<PAGE> 24
were entitled to purchase immediately prior to or as a result of the
time of such termination; and
(e) RESIGNATION WITHOUT GOOD REASON: In the case of
a resignation for any reason other than "Good Reason," as that term is
defined in Section 2(c)(5)(a) of your Employment Agreement, you may,
until the earlier of (x) thirty (30) days after the date of your
resignation from employment or (y) the expiration of ten (10) years
from the Grant Date, exercise your Option with respect to all or any
part of the Option Shares which you were entitled to purchase at the
time of such resignation.
(f) GOOD CAUSE: If you were terminated for Good
Cause (as defined in Section 2(c)(3) of your Employment Agreement),
you shall forfeit your rights under the Option, except as to those
Option Shares already purchased.
V. CHANGE OF CONTROL
Upon the occurrence of an event constituting a Change of
Control (as that term is defined in Section 4(c) of your Employment Agreement)
while you are employed by the Company or any parent corporation or subsidiary
corporation of the Company, the Option will become immediately fully vested, to
the extent not already fully vested, and immediately exercisable in full,
effective on the date of the Change of Control.
VI. TRANSFERABILITY
The Option is not transferable by you otherwise than by will
or the laws of descent and distribution and is exercisable, during your
lifetime, only by you. The Option may not be assigned, transferred (except by
will or the laws of descent and distribution), pledged or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar proceeding. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of this Option contrary to
the provisions hereof or of the Plan, and the levy of any attachment or similar
proceeding upon the Option, shall be null and void and without effect. The
continuing validity of the Option shall not be impaired by this provision, by
the attempted assignment, transfer, pledge, hypothecation or other disposition
or by the voided levy or similar proceeding.
By your acceptance of this Option Agreement, you agree that
you will not sell or otherwise dispose of the Option, any common stock acquired
pursuant to the Option or any other "derivative security" (as defined by Rule
16a-1(c) under the Securities Exchange Act of 1934, as amended) during the
period ending six months from the date hereof.
VII. REGISTRATION
(a) REGISTRATION OF OPTIONS SHARES: The Company
represents and warrants to you that the Plan is covered by an effective
registration statement on Form S-8 filed with the Securities and Exchange
Commission relating to the Option Shares issuable upon exercise of this
5
<PAGE> 25
Option, and the Option Shares issuable upon exercise of this Option are and
shall continue at all times to be registered under the Securities Act of 1933,
as amended (the "Act") and the Option Shares issuable upon exercise of this
Option shall be issued free of any and all restrictive legends and stop
transfer instructions. Without limitation upon the generality of the
foregoing, the Option Shares issuable upon exercise of this Option shall not
constitute "restricted securities" with the meaning of Rule 144 under the Act,
and shall be freely transferable by you in the open market and otherwise. The
Company agrees that so long as this Option is outstanding, it shall at all
times maintain an effective registration statement under the Act covering the
issuance of the Option Shares to you.
(b) OBLIGATIONS OF THE COMPANY: Concurrently with the
execution of this Agreement, the Company shall enter into a Registration Rights
Agreement with the Executive, in the form attached hereto as Exhibit "B,"
pursuant to which the Company shall grant certain rights to the Executive to
include the Option Stock on any registration statement filed by the Company
under the Act relating to a public offering of any equity or debt securities by
the Company.
VIII. WITHHOLDING TAXES
By your acceptance hereof, and in accordance with Section
10(d) of the Plan, you agree that in the case of issuance of Option Shares
hereunder, the Company, as a condition of such issuance, may require the
payment (through withholding from any payment otherwise due you from the
Company or any parent corporation or subsidiary corporation of the Company,
reduction of the number of Option Shares to be issued hereunder, or otherwise)
of any federal, state, local or foreign taxes required by law to be withheld
with respect to such issuance.
IX. MISCELLANEOUS
(a) This Option Agreement is subject to all the terms,
conditions, limitations and restrictions contained in the Plan, except as
specifically modified by this Option Agreement and your Employment Agreement.
In the event of any conflict between this Option Agreement, your Employment
Agreement and/or the Plan, the terms of this Option Agreement shall be
controlling.
(b) This Option Agreement is not a contract of employment
and the terms of your employment shall not be affected hereby or by any
agreement referred to herein except to the extent specifically so provided
herein or therein. Nothing herein shall be construed to impose any obligation
on the Company or on any parent corporation or subsidiary corporation of the
Company to continue your employment, and it shall not impose any obligation on
your part to remain in the employ of the Company or of any parent corporation
or subsidiary corporation of the Company.
(c) The obligations of this Option Agreement shall bind the
corporate successors of the Company, and the corporate successors of such
successors.
6
<PAGE> 26
(d) NO IMPAIRMENT: The Company will not, by amendment of its
certificate of incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Option, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the holders of the Options against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable upon the exercise of the Option above the amount payable therefore
upon such exercise and (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable stock. The Company agrees that the shares issuable upon
exercise of this Option shall be duly authorized, fully paid and non-assessable
shares, free of pre-emption rights.
(e) RESERVATION OF STOCK ISSUABLE ON EXERCISE OF OPTIONS:
The Company covenants and agrees that during the period within which the rights
represented by this Option may be exercised, the Company will at all times have
authorized, and in reserve, solely for issuance and delivery upon the exercise
of this Option, all such shares of Common Stock and other stock, securities and
property as from time to time shall be receivable upon the exercise of this
Option.
X. ARBITRATION
(a) Any claim or controversy arising out of or relating to
this Option Agreement, or any breach of this Option Agreement, shall be settled
by final and binding arbitration in the city of Dallas, Texas in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
in effect on the date the claim or controversy arises. The Executive and the
Company agree that either party must request arbitration of any claim or
controversy within sixty (60) days of the date the claim or controversy first
arises, by giving written notice of the party's request for arbitration
("Arbitration Notice"). Failure to effectively communicate the Arbitration
Notice within the time limitation set forth in this section shall constitute a
waiver of the claim or controversy.
(b) In the event that any dispute arising under this
Option Agreement concerns any payment required to be made under any provision
of this Option Agreement, either party agrees to deposit the amount of the
disputed payment in an interest bearing account with a financial institution
acceptable to the other party within five (5) days after either party
effectively communicates its Arbitration Notice. In the event that any dispute
arising under this Option Agreement concerns the amount of any payment required
to be made under any provision of this Option Agreement, either party agrees to
pay the undisputed portion of the payment to the other party and deposit the
disputed portion of the payment in an interest bearing account with a financial
institution acceptable to the other party within five (5) days after either
party effectively communicates its Arbitration Notice.
(c) All claims or controversies subject to arbitration
under this Option Agreement shall be submitted to an arbitration hearing within
thirty (30) days after the
7
<PAGE> 27
Arbitration Notice is communicated. All claims or controversies shall be
resolved by a panel of three (3) arbitrators selected in accordance with the
applicable Commercial Arbitration Rules. Either party may request that the
arbitration proceeding be stenographically recorded by a Certified Shorthand
Reporter. The arbitrators shall issue a written decision with respect to all
claims or controversies submitted under this section within thirty (30) days
after the completion of the arbitration hearing. The parties are entitled to
be represented by legal counsel at any arbitration hearing and each party shall
be responsible for its own attorneys' fees. The Company shall be responsible
for paying for all expenses in the event of any arbitration under this section.
(d) The parties agree that this section may be
specifically enforced by either party, and submission to arbitration compelled,
by any court of competent jurisdiction. The parties further acknowledge and
agree that the decision of the arbitrators may be specifically enforced by
either party in any court of competent jurisdiction.
Please indicate your acceptance of all the terms and
conditions of the Option and the Plan by signing and returning a copy of this
Option Agreement.
Very truly yours,
GREYHOUND LINES, INC.
By: /s/ CHARLES A. LYNCH
------------------------------
Charles A. Lynch
Chairman of the Board
ACCEPTED:
CRAIG R. LENTZSCH
/s/ CRAIG R. LENTZSCH
-------------------------------------
Date: 2/27/95
-----------------------
8
<PAGE> 1
EXHIBIT 10.55
AMENDMENT NUMBER 2
TO
BUS PURCHASE REQUIREMENTS AGREEMENT
This Amendment Number 2 to the Bus Purchase Requirements Agreement
("Amendment") is made and entered into by and among Greyhound Lines, Inc.
("GLI") and Motor Coach Industries, Inc. ("MCI"), and amends that certain Bus
Purchase Requirements Agreement entered into as of March 18, 1987, as amended
("Agreement").
GLI and MCI hereby agree as follows:
1. Anything contained in the Agreement to the contrary notwithstanding,
the term of the Agreement is hereby extended to March 18, 1988. The obligation
to purchase buses under the Agreement is binding upon GLI and its affiliated
(parent, subsidiary and commonly controlled) entities.
2. Reference is made to that certain Exhibit "C" to the Claims
Treatment Agreement made and entered into as of August 23, 1991 by and among
Greyhound Lines, Inc. and various companies affiliated with Greyhound Lines,
Inc. which were debtors in several pending Chapter 11 bankruptcy cases, and The
Dial Corp ("Exhibit 'C'"), which amends the Agreement. Anything contained in
Exhibit "C" to the contrary notwithstanding, GLI and MCI agree that the design
and performance objectives set forth in Exhibit "C" are goals which the parties
will mutually try to achieve, but conditions of MCI's performance of the
Agreement.
3. Transportation Leasing Co. and Transportation Manufacturing
Corporation (now known as Transit Bus International, Inc.) are no longer
parties to the Agreement. This Amendment will become effective as between GLI
and MCI upon its execution by them, without regard to whether or not it has
been executed by Transportation Leasing Co. and Transit Bus International, Inc.
4. Except as otherwise specifically set forth herein, no provision,
term or condition of
<PAGE> 2
the Agreement is affected or amended by this Amendment.
In witness whereof, this Amendment Number 2 has been executed by the parties as
of December 21, 1994.
GREYHOUND LINES, INC. MOTOR COACH INDUSTRIES, INC.
/s/ CRAIG R. LENTZSCH /s/ JOHN R. NASI
---------------------------- ----------------------------
Name: Craig R. Lentzsch Name: John R. Nasi
Title: President CEO & CFO Title: President and Chief
Executive Officer
Acknowledged and agreed as to Item #3.
TRANSPORTATION MANUFACTURING
CORPORATION (now known as Transit
TRANSPORTATION LEASING CO. Bus International, Inc.)
/s/ JOHN R. NASI
---------------------------- ----------------------------
Name: Name: John R. Nasi
Title: Title: President and Chief
Executive Officer
Date: Date:
<PAGE> 1
EXHIBIT 11.3
PAGE 1 OF 2
GREYHOUND LINES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
PRIMARY EARNINGS PER SHARE
Loss before extraordinary item and cumulative effect of a change in
accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (115,794,000)
Shares
Weighted average number of common shares issued . . . . . . . . . . . . . 15,401,561
Less weighted average treasury stock . . . . . . . . . . . . . . . . . . . (117,511)
Assuming exercise of options reduced by the number of common
shares which could have been purchased with the proceeds from
exercise of such options . . . . . . . . . . . . . . . . . . . . . . . . --- *
----------------
Weighted average number of common shares outstanding, as adjusted . . . . 15,284,050
----------------
Loss before extraordinary item and cumulative effect of a change in
accounting principle per share . . . . . . . . . . . . . . . . . . . . . . . $ (7.58)
================
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,373,000
Cumulative effect of a change in accounting principle . . . . . . . . . . . . ---
Weighted average number of common shares outstanding, as adjusted . . . . . . 15,284,050
----------------
Extraordinary item and cumulative effect of a change in accounting
principle per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.51
================
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (77,421,000)
Weighted average number of common shares outstanding, as adjusted . . . . . . 15,284,050
----------------
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5.07)
================
</TABLE>
* Option exercises not considered in calculation as exercise would not have a
dilutive effect.
<PAGE> 2
EXHIBIT 11.3
PAGE 2 OF 2
GREYHOUND LINES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
FULLY DILUTED EARNINGS PER SHARE
Loss before extraordinary item and cumulative effect of a change in accounting
principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (115,794,000)
Plus interest expense on Convertible Debentures . . . . . . . . . . . . . . . --- **
----------------
Adjusted income before extraordinary item an cumulative effect of a change in
accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (115,794,000)
================
Shares
Weighted average number of common shares issued . . . . . . . . . . . . . 15,401,561
Less weighted average treasury stock . . . . . . . . . . . . . . . . . . . (117,511)
Assuming exercise of options reduced by the number of common shares
which could have been purchased with the proceeds from exercise of
such exercise of such options . . . . . . . . . . . . . . . . . . . . . --- *
Assuming conversion of Convertible Debentures into shares of
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- **
Weighted average number of common shares outstanding, as adjusted . . . . 15,284,050
----------------
Loss before extraordinary item and cumulative effect of a change in
accounting principle per share . . . . . . . . . . . . . . . . . . . . . . . $ (7.58)
================
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,373,000
Cumulative effect of a change in accounting principle . . . . . . . . . . . . ---
Weighted average number of common shares outstanding, as adjusted . . . . . . 15,284,050
----------------
Extraordinary item per share . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.51
================
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (77,421,000)
Weighted average number of common shares outstanding, as adjusted . . . . . . 15,284,050
----------------
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5.07)
================
</TABLE>
* Option exercises not considered in calculation as exercise would not have a
dilutive effect.
** Not used in calculation of weighted average number of common shares due to
the antidilutive effect of the assumed conversion of the Convertible
Debentures.
<PAGE> 1
EXHIBIT 22
<TABLE>
<CAPTION>
C O N F I D E N T I A L
September 1, 1994
---------------
GREYHOUND LINES
---------------
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------ -------------- ------------------- --------------- -----------------
AMARILLO TRAILWAYS AZABACHE, INC. EAGLE BUS GLK CONTRACT UNION BUS STATION
BUS COMPANY CENTER, MANUFACTURING, INC. SERVICES, INC.* OF OKLAHOMA CITY,
INC. (75%) OKLAHOMA (40%)
------------------ -------------- ------------------- --------------- -----------------
------------------ ---------------- ----------- ------------------- -------------------
ATLANTIC GREYHOUND CONTINENTAL GLI HOLDING GREYHOUND DE MEXICO WILMINGTON UNION
LINES OF VIRGINIA, PANHANDLE LINES, COMPANY S.A. DE. C.V. BUS STATION
INC. INC. (50%) (99.96%) CORPORATION (24.6%)
------------------ ---------------- ----------- ------------------- -------------------
---------------
FCA INSURANCE
LIMITED
---------------
---------------
T & V HOLDING
COMPANY
---------------
---------------------
TEXAS, NEW MEXICO
& OKLAHOMA
COACHES, INC.
---------------------
---------------------
T.N.M.&O. TOURS, INC.
---------------------
---------------------
VERMONT TRANSIT
CO., INC.
---------------------
* Dissolution in process
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement on Form S-8 No. 33-63506.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS FOR 10K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 9,454
<SECURITIES> 0
<RECEIVABLES> 34,424
<ALLOWANCES> 840
<INVENTORY> 3,779
<CURRENT-ASSETS> 94,600
<PP&E> 356,263
<DEPRECIATION> 68,388
<TOTAL-ASSETS> 511,449
<CURRENT-LIABILITIES> 111,758
<BONDS> 197,125
<COMMON> 538
0
0
<OTHER-SE> 152,658
<TOTAL-LIABILITY-AND-EQUITY> 511,449
<SALES> 0
<TOTAL-REVENUES> 616,331
<CGS> 0
<TOTAL-COSTS> 435,902
<OTHER-EXPENSES> 2,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,456
<INCOME-PRETAX> (98,932)
<INCOME-TAX> 16,862
<INCOME-CONTINUING> (115,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 38,373
<CHANGES> 0
<NET-INCOME> (77,421)
<EPS-PRIMARY> (5.07)
<EPS-DILUTED> (5.07)
</TABLE>
