<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10841
GREYHOUND LINES, INC.
and its Subsidiaries identified in Footnote (1) below
(Exact name of registrant as specified in its charter)
DELAWARE 86-0572343
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
15110 N. DALLAS PARKWAY, SUITE 600
DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip code)
(972) 789-7000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES X NO
--- ---
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.
CLASS OF COMMON STOCK OUTSTANDING AT MAY 8, 1998
--------------------- --------------------------
$.01 PAR VALUE 59,861,678 SHARES
(1) This Form 10-Q is also being filed by the co-registrants specified under
the caption "Co-Registrants", each of which is a wholly-owned subsidiary of
Greyhound Lines, Inc. and each of which has met the conditions set forth in
General Instructions H(1)(a) and (b) of Form 10-Q for filing Form 10-Q in a
reduced disclosure format.
<PAGE> 2
CO-REGISTRANTS
This Form 10-Q is also being filed by the following entities. Except as set
forth below, each entity has the same principal executive offices, zip code and
telephone number as that set forth for Greyhound Lines, Inc. on the cover of
this report:
<TABLE>
<CAPTION>
I.R.S. EMPLOYER
COMMISSION IDENTIFICATION STATE OF
NAME FILE NO. NO. INCORP.
- ---- ----------- --------------- --------
<S> <C> <C> <C>
Atlantic Greyhound Lines of Virginia, Inc. 333-27267-01 58-0869571 Virginia
Eagle Bus Manufacturing, Inc. 333-27267-02 74-2472777 Delaware
FCA Insurance Limited 333-27267-03 None Islands of
Bermuda
GLI Holding Company 333-27267-04 75-2146309 Delaware
Greyhound de Mexico S.A. de C.V. 333-27267-05 None Republic
of Mexico
Grupo Centro, Inc. 333-27267-06 75-2692522 Delaware
Los Buenos Leasing Co., Inc. 333-27267-07 85-0434715 New Mexico
Sistema Internacional de Transporte de Autobuses, 333-27267-08 75-2548617 Delaware
Inc.
T & V Holding Company 333-27267-09 75-2238995 Delaware
Texas, New Mexico & Oklahoma Coaches, Inc. 333-27267-10 75-0605295 Texas
1313 13th Street
Lubbock, Texas 79408
(806) 763-5389
T.N.M. & O. Tours, Inc. 333-27267-11 75-1188694 Texas
(Same as Texas, New Mexico & Oklahoma Coaches, Inc.)
Vermont Transit Co., Inc. 333-27267-12 03-0164980 Vermont
106 Main Street
Burlington, Vermont 05401
(802) 862-9671
</TABLE>
As of March 31, 1998, Atlantic Greyhound Lines of Virginia, Inc. had 150 shares
of common stock outstanding (at a par value of $50.00 per share); Eagle Bus
Manufacturing, Inc. had 1,000 shares of common stock outstanding (at a par value
of $0.01 per share); FCA Insurance Limited had 120,000 shares of common stock
outstanding (at a par value of $1.00 per share); GLI Holding Company had 1,000
shares of common stock outstanding (at a par value of $0.01 per share);
Greyhound de Mexico S.A. de C.V. had 10,000 shares of common stock outstanding
(at a par value of $0.10 Mexican currency per share); Grupo Centro, Inc. had
1,000 shares of common stock outstanding (at a
<PAGE> 3
par value of $0.01 per share); Los Buenos Leasing Co., Inc. had 1,000 shares of
common stock outstanding (at a par value of $1.00 per share); Sistema
Internacional de Transporte de Autobuses, Inc. had 1,000 shares of common stock
outstanding (at a par value of $0.01 per share); T & V Holding Company had 3,000
shares of common stock outstanding (at a par value of $0.01 per share); Texas,
New Mexico & Oklahoma Coaches, Inc. had 1,000 shares of common stock outstanding
(at a par value of $0.01 per share); T.N.M. & O. Tours, Inc. had 1,000 shares of
common stock outstanding (at a par value of $1.00 per share); and Vermont
Transit Co., Inc. had 505 shares of common stock outstanding (no par value).
Each of the above named co-registrants (1) have filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period such co-registrant was required
to file such reports), and (2) have been subject to such filing requirements for
the past 90 days.
<PAGE> 4
GREYHOUND LINES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements:
Interim Consolidated Statements of Financial Position as of
March 31, 1998 (Unaudited) and December 31, 1997............................. 6
Interim Consolidated Statements of Operations for the
Three Months Ended March 31, 1998 and 1997 (Unaudited)....................... 7
Condensed Interim Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 (Unaudited)....................... 8
Notes to Interim Consolidated Financial Statements (Unaudited)................. 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 21
Item 6. Exhibits.................................................................................. 22
SIGNATURES .................................................................................. 23
</TABLE>
4
<PAGE> 5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
5
<PAGE> 6
GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash and cash equivalents ....................................................... $ 3,379 $ 2,052
Accounts receivable, less allowance for doubtful accounts
of $285 and $268 ............................................................. 40,975 35,364
Inventories ..................................................................... 5,071 4,658
Prepaid expenses ................................................................ 7,257 4,949
Assets held for sale ............................................................ 3,845 3,889
Buses held for sale and leaseback ............................................... 7,684 --
Other current assets ............................................................ 12,949 9,694
--------- ---------
Total current assets ......................................................... 81,160 60,606
Prepaid Pension Plans ............................................................... 25,378 25,378
Property, Plant and Equipment, net of accumulated depreciation
of $130,953 and $124,374 ........................................................ 342,671 341,292
Investments in Unconsolidated Affiliates ............................................ 6,182 6,076
Insurance and Security Deposits ..................................................... 74,466 72,693
Goodwill, net of accumulated amortization of $836 and $499 .......................... 39,145 30,215
Intangible Assets, net of accumulated amortization of $23,611 and $22,188 ........... 30,337 30,333
--------- ---------
Total assets ................................................................. $ 599,339 $ 566,593
========= =========
Current Liabilities
Accounts payable ................................................................ $ 26,668 $ 32,731
Accrued liabilities ............................................................. 57,115 62,237
Unredeemed tickets .............................................................. 11,206 10,325
Current portion of reserve for injuries and damages ............................. 21,374 21,374
Current maturities of long-term debt ............................................ 6,141 4,469
--------- ---------
Total current liabilities .................................................... 122,504 131,136
Reserve for Injuries and Damages .................................................... 37,795 36,591
Long-Term Debt ...................................................................... 254,477 207,953
Other Liabilities ................................................................... 17,477 11,314
--------- ---------
Total liabilities ............................................................ 432,253 386,994
--------- ---------
Commitments and Contingencies (Note 5)
Stockholders' Equity
Preferred stock (10,000,000 shares authorized; par value $.01)
8 1/2% Convertible Exchangeable Preferred Stock (2,760,000 shares
authorized and 2,400,000 shares issued as of March 31, 1998 and
December 31, 1997; aggregate liquidation preference $60,000) ............. 60,000 60,000
Series A junior preferred stock (1,500,000 shares authorized as of
March 31, 1998 and December 31, 1997; none issued)........................ -- --
Common stock (100,000,000 shares authorized; par value $.01; 59,873,720
and 59,437,514 shares issued as of March 31, 1998 and December 31,
1997 respectively) ........................................................... 599 594
Capital in excess of par value .................................................. 230,597 229,365
Retained deficit ................................................................ (115,559) (101,809)
Less: Unfunded accumulated pension obligation .................................. (7,513) (7,513)
Less: Treasury stock, at cost (109,192 shares) .................................. (1,038) (1,038)
--------- ---------
Total stockholders' equity ................................................... 167,086 179,599
--------- ---------
Total liabilities and stockholders' equity ............................... $ 599,339 $ 566,593
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING REVENUES
Transportation Services
Passenger services ................................. $ 153,659 $ 137,333
Package express .................................... 7,973 7,337
Food services and related .............................. 7,033 6,660
Other operating revenues ............................... 12,055 9,818
--------- ---------
Total Operating Revenues ........................ 180,720 161,148
--------- ---------
OPERATING EXPENSES
Maintenance ............................................ 19,880 18,900
Transportation ......................................... 46,124 42,166
Agents' commissions and station costs .................. 35,174 31,680
Marketing, advertising and traffic ..................... 7,041 7,035
Insurance and safety ................................... 11,643 9,761
General and administrative ............................. 24,602 21,987
Depreciation and amortization .......................... 8,439 7,542
Operating taxes and licenses ........................... 13,502 12,459
Operating rents ........................................ 15,764 13,886
Cost of goods sold - Food services and related ......... 4,769 4,488
Other operating expenses ............................... 677 747
--------- ---------
Total Operating Expenses ........................ 187,615 170,651
--------- ---------
Operating Loss ........................................... (6,895) (9,503)
Interest Expense ......................................... 6,654 7,586
--------- ---------
Loss Before Income Taxes ................................. (13,549) (17,089)
Income Tax Provision (Benefit) ........................... (1,096) 79
--------- ---------
Net Loss ................................................. (12,453) (17,168)
Preferred Dividends ...................................... 1,296 --
--------- ---------
Net Loss Attributable to Common Stockholders ............. $ (13,749) $ (17,168)
========= =========
Net Loss Per Share of Common Stock:
Basic ................................................. $ (0.23) $ (0.29)
========= =========
Diluted ............................................... $ (0.23) $ (0.29)
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ......................................................... (12,453) (17,168)
Non-cash expenses and gains included in net loss ................. 6,710 8,548
Net change in certain operating assets and liabilities .......... (21,797) (21,092)
-------- --------
Net cash used for operating activities ....................... (27,540) (29,712)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ............................................. (5,385) (1,208)
Buses purchased for sale and leaseback ........................... (7,683) --
Proceeds from assets sold ........................................ 764 440
Payments for business acquisitions, net of cash acquired ......... (1,004) --
Other investing activities ....................................... (172) 260
-------- --------
Net cash used for investing activities ....................... (13,480) (508)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt and capital lease obligations ................... (1,372) (1,491)
Proceeds from exercise of options ................................ 1,237 313
Payment of quarterly preferred dividends ......................... (1,296) --
Net change in revolving credit facility .......................... 43,778 31,826
-------- --------
Net cash provided by financing activities .................... 42,347 30,648
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................... 1,327 428
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................... 2,052 898
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................ $ 3,379 $ 1,326
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited Interim Consolidated Financial
Statements of Greyhound Lines, Inc. and Subsidiaries (the "Company") include all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the Company's financial position as of March 31, 1998, and the
results of its operations and cash flows for the three months ended March 31,
1998 and 1997. Due to the seasonality of the Company's operations, the results
of its operations for the interim period ended March 31, 1998 may not be
indicative of total results for the full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations promulgated by the Securities and Exchange
Commission. The unaudited Interim Consolidated Financial Statements should be
read in conjunction with the audited Consolidated Financial Statements of
Greyhound Lines, Inc. and Subsidiaries and accompanying notes for the year ended
December 31, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
Certain Reclassifications
Certain reclassifications have been made to the prior period statements to
conform them to the March 31, 1998 classifications.
Earnings/Loss Per Share
The Company adopted SFAS No. 128 "Earnings Per Share" (SFAS No. 128) effective
December 15, 1997. This statement requires the replacement of primary and fully
diluted earnings per share with basic and diluted earnings per share. The
adoption of SFAS No. 128 did not have a material impact on the earnings per
share calculation.
Basic earnings (loss) per common share is calculated by dividing net income
(loss) attributable to common stockholders by the weighted average shares of
common stock of the Company ("Common Stock"). The calculation of diluted
earnings (loss) per share of Common Stock considers the effect of Common Stock
equivalents outstanding during the period, the conversion of the Company's
8 1/2% Convertible Subordinated Debentures due 2007 (the "Convertible
Debentures") and 8 1/2% Convertible Exchangeable Preferred Stock (the "Preferred
Stock"). Common Stock equivalents represent the dilutive effect of the assumed
exercise of certain outstanding stock options. For the three months ended March
31, 1998 and March 31, 1997, the assumed exercise of outstanding in-the-money
stock options and conversion of Convertible Debentures and Preferred Stock have
an anti-dilutive effect. As a result, these shares are excluded from the final
determination of the weighted average shares outstanding at March 31, 1998, and
1997.
The 1998 earnings per share calculation reflects earnings (loss) attributable
to common shareholders after payment of preferred dividends. The following
tables detail the components utilized to calculate earnings per share for the
quarters ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1998
-------------------------------------
PER-SHARE
NET LOSS SHARES AMOUNT
-------- ------ ------
<S> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE
Net Loss attributable to common stockholders........ $(13,749,000) 59,427,216 $ (0.23)
============ ============ ============
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1997
-------------------------------------
PER-SHARE
NET LOSS SHARES AMOUNT
-------- ------ ------
<S> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE
Net Loss attributable to common stockholders........ $(17,168,000) 58,173,447 $ (0.29)
============ ============ ============
</TABLE>
Accounting Changes
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
No. 130"), "Reporting Comprehensive Income", effective for the Company's fiscal
year beginning January 1, 1998. SFAS No. 130 established standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income is defined as the
total of net income and all other non-owner changes in equity. As of March 31,
1998, the Company had no non-owner changes in equity.
3. ACQUISITION
On February 9, 1998, the Company completed its acquisition of a 51% interest in
Gonzalez, Inc., d/b/a Golden State Transportation ("Golden State"), a Southern
California bus carrier. This purchase was accounted for using the purchase
method of accounting. The amount of the purchase price in excess of net assets
has been recorded as goodwill and is being amortized over a 20 year period.
4. INCOME TAXES
Income Tax Provision
The income tax provision (benefit) consisted of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
------- -------
<S> <C> <C>
Current
Federal ........................................ $ -- $ --
State .......................................... 88 79
------- -------
Total Current ............................ 88 79
------- -------
Deferred
Federal ........................................ (703) --
State .......................................... (481) --
------- -------
Total Deferred ........................... (1,184) --
------- -------
Income tax provision (benefit) ........... $(1,096) $ 79
======= =======
</TABLE>
Effective Tax Rate
The differences, expressed as a percentage of income before taxes, between the
statutory and effective federal income tax rates for the years ended December
31, 1998 and 1997 are as follows (1998 amounts are projected):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
------ ------
<S> <C> <C>
Statutory tax rate ................................................. 34.0% 34.0%
State income taxes ................................................. 2.9 6.1
Recognition of previously unrecognized deferred tax assets ......... (32.4) (31.0)
Other .............................................................. 3.5 2.0
------ ------
Effective tax rate .............................................. 8.0% 11.1%
====== ======
</TABLE>
10
<PAGE> 11
For the three months ended March 31, 1998, the Company recorded a tax benefit of
$1.1 million. An income tax benefit has been provided on the loss for the first
quarter of 1998 in accordance with the interim financial reporting guidelines of
generally accepted accounting principles. Through March 31, 1998, the Company's
results of operations have reflected the historical pattern and seasonal nature
of its business. The income tax benefit has been provided based on the Company's
1998 estimated annual effective tax rate of 8.0%.
This benefit resulted in a corresponding increase in the deferred tax asset by
$1.1 million. Since the Company believes that it is more likely than not that
this increase in the deferred tax asset will be realized in the current year, no
offsetting valuation allowance has been recorded. The Company did not provide an
income tax benefit on the loss for the first quarter of 1997 because the Company
did not believe it was more likely than not that the loss would be offset by
current income in that year, and an offsetting valuation allowance was recorded.
5. COMMITMENTS AND CONTINGENCIES
SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION
Between August and December 1994, seven purported class action lawsuits were
filed by purported owners of the Company's Common Stock, 8 1/2% Convertible
Subordinated Debentures due March 31, 2007 ("Convertible Debentures) and 10%
Senior Notes retired in May 1997 ("10% Senior Notes") against the Company and
certain of its former officers and directors. The suits sought unspecified
damages for securities laws violations as a result of statements made in public
reports and press releases and to securities analysts during 1993 and 1994 that
were alleged to have been false and misleading.
All the purported class action cases referred to above (with the exception of
one suit that was dismissed before being served on any defendants) were
transferred to the United States District Court for the Northern District of
Texas, the Court in which the first purported class action suit was filed, and
were pending under a case styled In re Greyhound Securities Litigation, Civil
Action 3-94-CV-1793-G. A joint pretrial order was entered in the litigation
which consolidated for pretrial and discovery purposes all of the stockholder
actions and, separately, all of the debtholder actions. The joint pretrial order
required plaintiffs to file consolidated amended complaints and excused answers
to the original complaints. In July 1995, the plaintiffs filed their
consolidated amended complaints, naming the Company, Frank J. Schmieder, J.
Michael Doyle, Phillip W. Taff, Robert R. Duty, Don T. Seaquist, Charles J. Lee,
Charles A. Lynch and Smith Barney Incorporated as defendants. Messrs. Lee, Lynch
and Taff were subsequently dismissed from the case by the plaintiffs. In
September 1995, the various defendants filed motions to dismiss plaintiffs'
complaints. In October 1995, plaintiffs filed a motion seeking to certify the
class of plaintiffs.
On October 3, 1996, the Court ruled in favor of the Company and all other
defendants, granting defendants' motions to dismiss. Pursuant to the Court's
order, the complaints were dismissed, with leave granted to the plaintiffs to
refile amended complaints within 20 days thereafter. On October 23, 1996, an
amended complaint was tendered to the Court. All seven class representatives
involved in the prior complaints were dropped from the case. A new purported
class plaintiff, John Clarkson, was named. A motion was filed seeking leave to
permit Mr. Clarkson to intervene as the new class representative. The amended
complaint alleged a class period of May 4, 1993 to October 26, 1993 and was
brought only on behalf of holders of Common Stock. The amended complaint named
the same defendants involved in the dismissed cases (the Company, Messrs.
Schmieder, Doyle, Duty and Seaquist and Smith Barney Incorporated); no new
defendants were added and none were dropped. The Court advised the parties that
no responsive pleading needed to be filed to the amended complaint until such
time as the Court ruled on the motion for intervention filed by Mr. Clarkson. In
December 1996, the defendants filed responses to plaintiff's motion for
intervention. In January 1997, the plaintiff filed a reply brief.
On August 15, 1997, the Court denied Mr. Clarkson leave to intervene and
dismissed the litigation, noting that all claims asserted had been adjudicated.
On September 12, 1997, a notice of appeal was filed by counsel for the original
seven plaintiffs, seeking a review of the Court's ruling of October 3, 1996. On
February 9, 1998, plaintiffs dismissed their appeal, without prejudice, with a
right to re-file the appeal within six months.
In November 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
11
<PAGE> 12
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 time for all defendants to answer, move or
otherwise plead with respect to the derivative complaint is not yet due.
In May 1995, a lawsuit was filed on behalf of two individuals, purported owners
of the Company's Common Stock, against the Company and certain of its former
officers and directors. The suit sought unspecified damages for securities laws
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 Ohio, was styled James Illius and Theodore J. Krawec v. Greyhound
Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action No.
1-95-CV-1140. The defendants filed a motion to transfer venue seeking to have
the case transferred to the United States District Court for the Northern
District of Texas where the class action litigation described above was pending.
In September 1995, the defendants' motion was granted, and the matter was
transferred and was consolidated into the Federal Court class action litigation
described above.
On October 29, 1996, a purported class action lawsuit was brought by a purported
holder of Common Stock against the Company, certain of its former officers and
directors and Smith Barney and Morgan Stanley & Company, Inc. The suit seeks
unspecified damages for alleged federal and Texas state securities laws
violations in connection with a Common Stock offering made by the Company in May
1993. The suit, filed in the 44th Judicial District Court of Dallas County,
Texas, is styled John Clarkson v. Greyhound Lines, Inc., Frank Schmieder, J.
Michael Doyle, Robert R. Duty, Don T. Seaquist, Smith Barney, Inc. and Morgan
Stanley & Company, Inc., Case No. 96-11329-B. Plaintiff, John Clarkson, is the
same individual who sought to intervene in the Federal Court class action
litigation described above, and the same law firms have appeared for the
plaintiff in both cases. On December 20, 1996, the defendants filed their
answers to the lawsuit and pleas in abatement asking the Court to stay all
proceedings pending resolution of the intervention motion and Federal Court
class action lawsuit. On February 28, 1997, the suit was transferred to a
different judge in the 68th Judicial District Court in Dallas. On March 28,
1997, the Court denied the defendants' pleas in abatement requesting the stay.
On September 12, 1997, plaintiff filed a motion seeking to certify the class of
plaintiffs. This motion, which will be contested by the defendants, is currently
set for hearing on May 18, 1998. The Court has presently set a deposition date
for this case of June 29, 1998.
Settlement discussions among the Company, the Company's insurance carriers and
the plaintiffs have led to a tentative settlement of all of the foregoing
actions, subject to preparation of the necessary papers, court approvals and
class acceptance.
As currently structured, the settlement, if completed, would not have a material
adverse effect on the Company's business, financial condition, results of
operations and liquidity. Should the settlement not be completed, 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 ultimate outcome of the above described lawsuits would have a material
adverse effect on its business, financial condition, results of operations and
liquidity. In such event, the Company would 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.
In January 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
former officers, directors and employees and other persons. The Commission's
Order of Investigation (the "Order of Investigation") states that the Commission
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
Commission has stated that it will investigate the adequacy of the Company's
record
12
<PAGE> 13
keeping with respect to the passenger reservation system and its internal
auditing controls. Although the Commission has not announced the targets of the
investigation, it does not appear from the Order of Investigation that the
Company is a target of the insider trading portion of the investigation. In
September 1995, the Commission served a document subpoena on the Company
requiring the production of documents, most of which the Company had voluntarily
produced to the Commission in late 1994. The Company has fully cooperated with
the Commission's investigation of these matters. The Company has had limited
contact with the Commission in connection with the investigation since January
1996. The probable outcome of this investigation cannot be predicted at this
stage in the proceeding.
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 solely by Company personnel or its experts, 45 locations have
been identified as remaining sites requiring potential clean-up and/or
remediation as of March 31, 1998. The Company has estimated the clean-up and/or
remediation costs of these sites to be $3.7 million, of which approximately $0.5
million is indemnifiable by Viad.
The Company has potential liability with respect to two locations which the EPA
has designated Superfund sites. The Company, as well as other parties designated
by the EPA as potentially responsible parties, face exposure for costs related
to the clean-up of those sites. Based on the EPA's enforcement activities to
date, the Company believes its liability at these sites will not be material
because its involvement was as a de minimis generator of wastes disposed of at
the sites. In light of its minimal involvement, the Company has been negotiating
to be released from liability in return for the payment of immaterial settlement
amounts. Additionally, there are 12 Superfund sites that Viad had initially
assumed responsibility and liability for addressing under the indemnity
provisions of the 1987 acquisition agreement, as amended in 1991. All of these
locations involve alleged disposal of hazardous wastes occurring years prior to
the Company's corporate existence. In late 1997, Viad notified the Company, and
asserted that the Company was responsible for any liabilities at such sites. The
Company is contesting Viad's assertions and believes that the acquisition
agreement, as amended, requires Viad to bear these liabilities. Viad had
previously acknowledged in writing to the Company its responsibility for certain
of the sites; in some cases, Viad has been managing the liability since
mid-1991. Viad has advised the Company that, to date, it has incurred
approximately $0.2 million in clean-up costs at these sites. At this point, the
Company is unable to assess on-going or future potential liabilities at such
sites should it be determined that the Company, and not Viad, will assume the
liabilities at some or all of the 12 locations.
The Company has recorded a total environmental reserve of $2.9 million at March
31, 1998, a portion of which has also been recorded as a receivable from Viad
for indemnification. The environmental reserve relates to sites identified for
potential clean-up and/or remediation and represents the present value of
estimated cash flows discounted at 8.0%. As of the date of this filing, the
Company is not aware of any additional sites to be identified, and management
believes that adequate accruals have been made related to all known
environmental matters.
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 and employment-related
claims. Although these lawsuits involve a variety of different facts and
theories of recovery, the majority arise from traffic accidents involving buses
operated by the Company. The vast majority of these claims are covered by
insurance for amounts in excess of the 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 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 materially exceed the
amounts recorded.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Greyhound is the only nationwide provider of scheduled intercity bus
transportation services in the United States. The Company's primary business
consists of scheduled passenger service, package express service and food
services at certain terminals, which accounted for 85.0%, 4.4% and 3.9%,
respectively, of the Company's total operating revenues for the quarter ended
March 31, 1998. The Company's operations include a nationwide network of
terminal and maintenance facilities, a fleet of approximately 2,400 buses and
approximately 1,650 sales outlets.
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations as a
percentage of total operating revenue for the quarters ended March 31, 1998 and
1997:
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31,
------------------------
1998 1997
------ ------
<S> <C> <C>
Operating Revenues
Transportation services
Regular route ...................................... 85.0% 85.2%
Package express .................................... 4.4 4.6
Food services and related ............................. 3.9 4.1
Other operating revenues .............................. 6.7 6.1
------ ------
Total operating revenues ...................... 100.0 100.0
Operating Expenses
Maintenance ........................................... 11.0 11.7
Transportation ........................................ 25.5 26.2
Agents' commissions and station costs ................. 19.5 19.7
Marketing, advertising and traffic .................... 3.9 4.4
Insurance and safety .................................. 6.4 6.1
General and administrative ............................ 13.6 13.6
Depreciation and amortization ......................... 4.7 4.7
Operating taxes and licenses .......................... 7.5 7.7
Operating rents ....................................... 8.7 8.6
Cost of good sold - food services and related ......... 2.6 2.8
Other operating expenses .............................. 0.4 0.4
------ ------
Total operating expenses ...................... 103.8 105.9
------ ------
Operating loss .......................................... (3.8) (5.9)
Interest expense ........................................ 3.7 4.7
------ ------
Loss before income taxes ................................ (7.5) (10.6)
Income tax provision (benefit) .......................... (0.6) 0.1
------ ------
Net loss ................................................ (6.9) (10.7)
Preferred dividends ..................................... 0.7 0.0
------ ------
Net Loss attributable to common stockholders ............ (7.6) (10.7)
====== ======
</TABLE>
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<PAGE> 15
The following table sets forth certain operating data for the Company for the
quarters ended March 31, 1998 and 1997. Certain statistics have been adjusted
and restated from that previously published to provide consistent comparisons.
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31,
------------------------ PERCENTAGE
1998 1997 CHANGE
---------- ----------- ----------
<S> <C> <C> <C>
Regular Service Miles (000's) ......................... 69,058 62,683 10.2
Total Bus Miles (000's) ............................... 71,167 63,940 11.3
Passenger Miles (000's) ............................... 1,691,898 1,533,824 10.3
Passengers Carried (000's) ............................ 4,975 4,326 15.0
Average Trip Length (passenger
miles/passengers carried) .......................... 340 355 (4.2)
Load (avg. number of passengers per
regular service mile) .............................. 24.5 24.4 0.4
Load Factor (% of available seats filled) ............. 52.3% 52.1% 0.4
Yield (regular route revenue/passenger miles) ......... $ 0.0908 $ 0.0896 1.3
Total Revenue Per Total Bus Mile ...................... 2.54 2.52 0.8
Operating Loss Per Total Bus Mile ..................... (0.10) (0.15) 33.3
Cost per Total Bus Mile:
Maintenance ......................................... $ 0.279 $ 0.296 (5.7)
Transportation ...................................... 0.648 0.659 (1.7)
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 RESULTS OF OPERATIONS
The Company's results of operations include the operating results of Carolina
Coach Company, and affiliates ("Carolina"), Valley Transit, Inc., and affiliates
("Valley") and Golden State collectively referred to as "the acquisitions". The
results for the acquisitions are included as of their respective purchase dates.
The purchases of Carolina and Valley both occurred during the third quarter of
1997 and the purchase of Golden State was completed in February 1998.
Operating Revenues. Total operating revenues increased $19.6 million, or 12.1%,
for the three months ended March 31, 1998, compared to the same period in 1997.
Increases in all of the operating revenue categories were achieved despite the
shift of Easter holiday travel from the first quarter (last year) to the second
quarter this year.
Transportation services revenues increased $17.0 million, or 11.7%, for the
first quarter of 1998 compared to 1997 due to a $16.3 million, or 11.9%,
increase in regular route revenues (including $6.8 million related to the
acquisitions) and a $0.6 million, or 8.7%, increase in package express revenues.
The 11.9% increase in regular route revenues reflects a 15.0% increase in the
number of passengers carried combined with a 1.3% increase in yield, partially
offset by a 4.2% decrease in trip length. Average trip length decreased for the
three months ended March 31, 1998, reflecting the impact of the acquisitions who
carry passengers traveling on shorter trip lengths.
Excluding the impact of the acquisitions, the Company experienced a 3.6%
increase in passengers carried, and a 6.2% increase in passenger miles and
realized a 4.2% increase in average ticket price. The Company achieved growth in
all trip lengths but most significantly in long-haul traffic (passengers
traveling more than 450 miles) as the Company promoted and priced this product
for growth. Yield is up slightly compared to prior year despite a 3.7% increase
in average trip length, reflecting the significant growth in long-haul traffic.
Food Services and related revenues increased $0.4 million, or 5.6%, for the
quarter compared to the same quarter in 1997. Food Service and related revenues
have been restated to include sales of retail products. Previously, sales of
retail products were included in other operating revenues. Food Services and
related revenues, as restated, increased over the prior year due primarily to
increased passenger traffic at the Company terminals where Food Service
facilities reside. Food Services and related revenues decreased slightly as a
percentage of total operating revenues.
Other operating revenues, consisting primarily of revenue from charter and
in-terminal sales and services, increased $2.2 million, or 22.8%, for the three
months ended March 31, 1998, compared to the same period in 1997. The
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<PAGE> 16
increase was primarily attributable to a $1.4 million, or 70.5%, increase in
charter service revenue as well as an increase in revenues from other
in-terminal services, reflecting the increase in passenger volume.
Operating Expenses. Total operating expenses increased $17.0 million, or 9.9%,
for the three months ended March 31, 1998, compared to the same period in 1997.
The increase is due primarily to an increase in bus miles operated (11.8%),
higher driver wages and training costs, increased terminal salaries, increased
ticket and express commissions due to higher sales, and increased bus operating
leases. Also, expenses attributable to the operations of the recent acquisitions
of $6.8 million are included in the quarter ended March 31, 1998. Despite these
increases, total operating expenses decreased as a percentage of total operating
revenues.
Maintenance costs increased $1.0 million, or 5.2%, for the three months ended
March 31, 1998, compared to the same period in 1997 due to increased bus miles
and the inclusion of the acquisitions. Despite these increases, maintenance
costs decreased on a cost per bus mile basis. This decrease can be attributed to
the stability in the Company's fleet age and a reduction in accident-related
costs.
Transportation expenses increased $4.0 million, or 9.4%, for the three months
ended March 31, 1998, compared to the same period in 1997 due to increased bus
miles, a contractual driver wage increase, training more drivers and training
earlier in the year to prepare for anticipated growth, and the inclusion of the
acquisitions. The increased expenses were offset by a decrease in the cost of
fuel for the first quarter 1998 as compared to the same quarter in 1997. The
average cost per gallon of fuel decreased to $0.58 per gallon during first
quarter 1998 compared to $0.73 per gallon during first quarter 1997. The lower
fuel prices resulted in a reduction in fuel costs of $1.9 million compared to
first quarter 1997. On a cost per bus mile basis, transportation expenses
decreased primarily due to the impact of the lower fuel prices partially offset
by driver wage increases and higher training costs.
Agents' commissions and station costs increased $3.5 million, or 11.0%, for
the three months ended March 31, 1998, compared to the same period in 1997
primarily due to commissions associated with increased ticket and express sales,
pay increases for terminal staff and the inclusion of the acquisitions. Despite
these increases, agents' commissions and station costs decreased as a percentage
of total operating revenues.
Marketing, advertising and traffic expenses remained flat compared to the prior
year despite a $0.6 million increase in media advertising and traffic salaries.
The higher costs were completely offset by bus wrap trade credits of $0.6
million for the three months ended March 31, 1998. Marketing, advertising and
traffic costs decreased as a percentage of total operating revenues.
Insurance and safety costs increased $1.9 million, or 19.3%, for the three
months ended March 31, 1998, compared to the same period in 1997 due primarily
to increased bus miles and the inclusion of the acquisitions.
General and administrative expenses increased $2.6 million, or 11.9%, for the
quarter ended March 31, 1998 compared to the same period in 1997 due to a higher
management incentive plan expense related to improved company performance and
the inclusion of the acquisitions.
Depreciation and amortization increased by $0.9 million, or 11.9%, for the three
months ended March 31, 1998, compared to the same period in 1997 due primarily
to depreciation and amortization of the assets and goodwill attributable to the
acquisitions. Depreciation and amortization costs, as a percentage of total
revenues, did not change from the same period in the prior year.
Operating taxes and licenses costs increased $1.0 million, or 8.4%, for the
three months ended March 31, 1998, compared to the same period in 1997. This
increase results from higher payroll taxes due to increased salaries and
headcounts related to higher business volume, as well as increased fuel and oil
taxes resulting from an increase in total bus miles. Operating taxes and
licenses costs decreased as a percentage of total operating revenues.
Operating rents increased $1.9 million, or 13.5%, for the three months ended
March 31, 1998, compared to the same period in 1997 due to an increase in fleet
size as the Company financed most of the new buses under operating leases. The
increase in bus operating leases reflects the Company's growth strategy to add
resources to accommodate growth in the passenger business during the peak
periods and generate charter business during the off-peak periods with those
added resources. As a percentage of total revenues, operating rents increased
slightly over the prior year.
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<PAGE> 17
Food Services and related cost of goods sold increased $0.3 million, or 6.3%,
for the three months ended March 31, 1998, compared to the same period in 1997
primarily due to the 5.6% increase in Food Services and related sales. Food
Services and related cost of goods sold have been restated to include the costs
associated with sales of retail products. Previously those costs were recorded
in other operating expenses. As a percentage of total operating revenues, cost
of goods sold decreased slightly compared to the prior year.
Interest expense decreased $0.9 million, or 12.3%, for the quarter compared to
the same period in 1997. The quarterly decrease is the result of the
renegotiation of lower interest rates under the Revolving Credit Facility,
termination of the interest rate swap agreements and the retirement of a bus
obligation. This decrease is partially offset by an increase in interest
expenses associated with an increase in the Revolving Credit Facility balance
over the same period in 1997. Interest expense decreased as a percentage of
total revenues.
For the three months ended March 31, 1998, the Company recorded an income tax
benefit of $1.1 million compared to an income tax provision of $0.1 million for
the same period in 1997. An income tax benefit has been provided for the loss
for the first quarter of 1998 in accordance with the interim financial reporting
guidelines of general accepted accounting principles. The income tax benefit has
been provided based upon the Company's 1998 estimated annual effective tax rate
of 8.0%.
This benefit resulted in a corresponding increase in the deferred tax asset by
$1.1 million. Since the Company believes that it is more likely than not that
this increase in the deferred tax asset will be realized in the current year, no
offsetting valuation allowance has been recorded. The Company did not provide an
income tax benefit on the loss for the first quarter of 1997 because the Company
did not believe it was more likely than not that the loss would be offset by
current income, and an offsetting valuation allowance was recorded.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are working capital, capital
expenditures, including bus acquisitions, debt service requirements, including
the payment of principal and interest on borrowings under the Revolving Credit
Facility and interest on the 11 1/2% Senior Notes due 2007 ("11 1/2% Senior
Notes"), and dividends on the 8 1/2% Convertible Exchangeable Preferred Stock
("Preferred Stock"). The Company's principal sources of liquidity are expected
to be cash flow from operations and borrowings under the Revolving Credit
Facility. The Company believes that its cash flow from operations, together with
borrowings under the Revolving Credit Facility, will be sufficient to meet its
liquidity needs for the foreseeable future.
Net cash used for operating activities decreased $2.2 million, or 7.3%, to $27.5
million in 1998 from $29.7 million in 1997. The decrease in cash used for
operating activities is primarily due to the decreased net loss. Net cash used
for investing activities increased $13.0 million, to $13.5 million in 1998 from
$0.5 million in 1997, principally due to a $7.7 million increase in buses
purchased for sale-leaseback, and a $4.2 million increase in capital
expenditures due mainly to the purchase of a bus terminal. Net cash provided by
financing activities increased $11.7 million, or 38.2%, to $42.3 million in 1998
from $30.6 million in 1997. This increase can be attributed to a $12.0 million
increase in borrowings under the Revolving Credit Facility.
As a part of its operating strategy, the Company anticipates continuing to make
significant capital expenditures in connection with improvements to its
infrastructure, including acquiring buses, making improvements to its terminals
and maintaining and upgrading its computer systems. The Company believes that
acquiring new buses and improving the Company's terminals and computer systems
will permit the Company to continue to improve customer service, which the
Company believes has contributed significantly to its improved operating results
over the last three years. The Company accepted delivery of 89 new buses during
the first quarter and expects deliveries of 64 in the second quarter and 53 in
the fall. The first quarter deliveries were, and future deliveries will be,
temporarily financed through MCI or one of its affiliates and/or by the
Revolving Credit Facility. The Company intends to seek permanent operating lease
financing for all or most of these buses.
The Company generally uses lease financing with purchase options as the
principal source of bus financing in order to achieve the lowest net cost of bus
financing. Depending on the specific terms of a lease, such lease may be
accounted for as either an operating or capital lease. The Company may also
acquire buses outright and may purchase buses and subsequently engage in
sale-leaseback transactions with respect to such buses.
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<PAGE> 18
The Company requires significant cash flows to meet its debt service and other
continuing obligations. As of March 31, 1998, the Company had $254.5 million of
long-term indebtedness outstanding, including $69.6 million of borrowings under
the Revolving Credit Facility and $150.0 million of 11 1/2% Senior Notes. In
addition, as of MarcH 31, 1998, the Company had total availability of $36.3
million under the Revolving Credit Facility.
The Company is a party to a Revolving Credit Facility which was amended on April
20, 1998. The amended facility increased the borrowing availability from $125.0
million to $150.0 million. The amended Revolving Credit Facility consists of (i)
a revolving facility providing for advances of up to $117.5 million based on the
liquidation value of certain bus collateral, (ii) a revolving facility providing
for advances of up to $2.5 million based on a formula of eligible accounts
receivable and (iii) a real estate facility providing for borrowings of up to
$35.0 million based on fair market value of certain core real property
collateral (the "Real Estate Facility") with a maximum combined borrowing of
$150.0 million. The Revolving Credit Facility has two interest rate options,
prime and LIBOR. As of April 30, 1998, the Company had borrowings under the
Revolving Credit Facility bearing interest at LIBOR plus 1.75% (weighted average
of 7.4325%). Borrowings under the Revolving Credit Facility mature on May 21,
2002, although availability under the Real Estate Facility will be subject to
yearly reductions commencing in 1999. The Revolving Credit Facility is secured
by liens on substantially all of the assets of the Company. The Revolving Credit
Facility is subject to certain operating and financial covenants, including
maintenance of a minimum consolidated net worth, ratio of total indebtedness to
cash flow and ratio of cash flow to interest expense. In addition, non-bus
capital expenditures are limited to $30.0 million annually with no spending
limitations on bus purchases. As of March 31, 1998, the Company was in
compliance with all such covenants.
The Company has entered into four advance purchase commitments for fuel. Under
these agreements the Company agrees to take delivery of fuel at a specific
location at a fixed price at a specific date in the future. The agreements have
been entered into, with four suppliers, for approximately 30% of projected fuel
needs for the remainder of 1998, at an average price per gallon of $0.58.
Management believes that this strategy is a conservative method to hedge against
fuel price fluctuations.
ACQUISITION
On February 9, 1998, the Company completed its acquisition of a 51% interest in
Golden State, a Southern California bus carrier. See Note 3, in the Notes to
Interim Consolidated Financial Statements, included elsewhere in this filing.
SUBSTANTIAL LEVERAGE
The Company has consolidated indebtedness that is substantial in relation to its
stockholders' equity. As of March 31, 1998, the Company had outstanding
consolidated long-term indebtedness (including current portions) of
approximately $260.6 million and total stockholders' equity of approximately
$167.1 million. The seasonal fluctuations in the Company's cash flows can be
significant. As such, the Company typically is at its highest leveraged position
at the end of the first quarter.
HISTORY OF LOSSES
The Company reported a net loss in each of its last four fiscal years. Although
the Company has implemented strategic and operational initiatives intended to
enhance revenues and operating income, the Company's operations generally are
subject to economic, financial, competitive, seasonal and other factors, many of
which are beyond its control.
COMPETITION
The transportation industry is highly competitive. The Company's primary sources
of competition for passengers are automobile travel, low cost air travel from
both regional and national airlines, and in certain markets, regional bus
companies and trains.
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<PAGE> 19
SELF INSURANCE
The Company maintains cash deposits held for insurance claims and bus lease
collateral, which as of March 31, 1998 aggregated approximately $79.3 million,
including the following deposits. The Company maintains $15.0 million on deposit
in a trust fund to support its self-insurance program pursuant to the U.S.
Department of Transportation's approval of such program. Additionally, as of
March 31, 1998, the Company had pledged $30.2 million in cash and $10.1 million
in letters of credit to secure its other liability insurance obligations.
Depending on the Company's future claims history and the policies of its
insurance carriers, the amount of collateral that the Company is obligated to
pledge to secure its liability insurance obligations may vary. As of March 31,
1998 the Company also has deposits of $24.8 million (at market value) pledged as
collateral in connection with the sale and leaseback of 319 buses. Additionally,
the Company has a deposit of $9.5 million (at market value) pledged as
collateral in connection with a sale and leaseback agreement for 125 buses.
Insurance coverage and risk management expense are key components of the
Company's cost structure. The DOT is currently studying whether to continue or
modify the self-insurance program available to the motor carrier industry. The
loss of self-insurance authority from the DOT or a decision by the Company's
insurers to modify the Company's program substantially, by either increasing
cost, reducing availability or increasing collateral, could have a materially
adverse effect on the Company's liquidity, financial condition, and results of
operations.
PENSION PLAN FUNDING
The Company maintains nine defined benefit pension plans, the most significant
of which (the ATU Plan) covers approximately 16,400 current and former
employees, fewer than 1,500 of which are active employees of the Company. The
ATU Plan was closed to new participants in 1983 and, as a result, over 85% of
its participants are over the age of 50. For financial reporting and investment
planning purposes, the Company currently uses an actuarial mortality table that
closely matches the actual experience related to the existing participant
population. Based upon the application of this table and other actuarial and
investments assumptions, the Company believes that the ATU Plan is adequately
funded.
For funding purposes, legislation passed by the United States Congress in 1994,
and amended in 1997, mandates the use of a prescribed actuarial mortality table
and discount rates that differ from those used by the Company for financial
reporting and investment planning purposes. Nevertheless, based upon the
application of the actuarial mortality table, discount rates and funding
calculations prescribed by the legislation, as amended, the Company does not
anticipate that it will be required to make any contributions to the ATU Plan in
the foreseeable future. However, there is no assurance that the ATU Plan will be
able to obtain the assumed rate of return or that contributions to the ATU Plan
will not be significant.
COMPUTER SYSTEMS/YEAR 2000
Many existing computer systems and software products, including several used by
the Company, are coded to accept only two digit entries in the date code field.
Beginning in the year 2000, these date code fields will need to accept four
digit entries to distinguish 21st century dates from 20th century dates. As a
result, the Company's date critical functions related to the year 2000 and
beyond, such as scheduling, dispatch, sales, purchasing, planning and financial
systems may be materially adversely affected unless these computer systems are
or become year 2000 compliant.
During the past three years, the Company has been replacing and enhancing its
computer systems to gain operational efficiencies. In addition, management has
initiated an enterprise-wide program to prepare the Company's computer systems
and applications for the year 2000. Many of the Company's computer systems or
applications which are not year 2000 compliant are being upgraded or replaced in
the normal course of business as the Company takes steps to improve its customer
service and operating efficiencies. The Company's dispatching and bus and driver
tracking system is the most operationally critical of these systems. This
upgrade was largely completed by May 1998. The Company believes that the new
system is year 2000 compliant. Nevertheless, the Company is taking steps to
ensure that adequate contingency measures are in place to eliminate or minimize
the operational impact of year 2000 problems which may occur despite the
Company's efforts to ensure that all of its systems are compliant.
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<PAGE> 20
To ensure that the Company has identified all software that is not year 2000
compliant, the Company is completing a comprehensive assessment of all of its
systems and applications, as well as third party systems on which the Company
relies. The Company expects this assessment to be complete by mid-year 1998.
The Company expects to make revisions or upgrades to its software or processes
to render them year 2000 compliant prior to the end of 1999, where necessary.
Despite these efforts there can be no assurance that the systems of other
companies on which the Company's systems rely also will be timely converted or
that any such failure to convert by another company would not have an adverse
effect on the Company's systems.
SEASONALITY
The Company's business is seasonal in nature and generally follows the pattern
of the travel industry as a whole, with peaks during the summer months and the
Thanksgiving and Christmas holiday periods. As a result, the Company's cash
flows are seasonal in nature with a disproportionate amount of the Company's
annual cash flows being generated during the peak travel periods. Therefore, an
event that adversely affects ridership during any of these peak periods could
have a material adverse effect on the Company's financial condition and results
of operations for that year. The day of the week on which certain holidays
occur, the length of certain holiday periods, and the date on which certain
holidays occur within a fiscal quarter, may also affect the Company's quarterly
results of operations.
GOVERNMENT REGULATION
The Company is subject to regulation under the Americans with Disabilities Act
(the "ADA"). Under proposed final regulations issued by DOT in March 1998,
beginning with a proposed effective date of October 2000, all new buses
received by the Company for its fixed route operations would have to be
equipped with wheelchair lifts. Additionally, by October 2006, one-half of the
Company's fleet involved in fixed route operations would be required to be
lift-equipped, and by October 2012, such fleet would need to be entirely
lift-equipped. The proposed regulations do not require the retrofitting of
existing buses with lift equipment. Nor would the regulations require the
purchase of accessible used buses. Moreover, beginning in 2002, until the fleet
is fully equipped, the Company would be required to provide an accessible bus
to any disabled passenger who provides at least 48 hours notice. For larger
charter/tour operators, beginning in October 2002, ten percent of their fleet
would need to be accessible. As well, charter/tour operators would be required
to provide an accessible bus to any disabled passenger who provides at least 48
hours notice. If the proposed regulations become final, the Company currently
estimates that a built-in lift device will add $20,000 to $40,000 to the cost
of a new bus and that maintenance and employee training costs will increase.
The Company does not expect such maintenance and training costs to be
materially higher than the costs currently incurred in complying with the
interim bus access regulations promulgated under the ADA. Passenger revenues
could also be impacted by the loss of seating capacity when wheelchair
passengers are on the bus, offset by potentially increased ridership by
disabled persons. The Company, as well as the rest of the bus industry, have
substantial concerns regarding the regulations as they have been proposed and
have the opportunity to submit comments responsive to the proposed regulations
which are due in May 1998. The DOT has announced that it expects to finalize
the regulations in September 1998.
LITIGATION
The Company is a party to various lawsuits the outcome of which, if adverse to
the Company, could have a material adverse effect on the business, financial
condition, results of operations and liquidity. See "Part II, Item 1 - Legal
Proceedings."
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION
Between August 1994 to December 1994, seven purported class action lawsuits were
filed by purported owners of the Company's Common Stock, Convertible Debentures
and Senior Notes against the Company and certain of its former officers and
directors. The suits seek unspecified damages for securities law violations. In
November 1994, a shareholder derivative lawsuit was filed against present
directors and former officers and directors of the Company and the Company as a
nominal defendant. In October 1996, a purported class action lawsuit was filed
by a purported owner of the Company's Common Stock in the State Court of Texas.
Settlement discussions among the Company, the Company's insurance carriers and
the plaintiffs have led to a tentative settlement of all of the foregoing
actions, subject to preparation of the necessary papers, court approvals and
class acceptance. In addition, in January 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 other parties. See Note 5 to the Interim Consolidated
Financial Statements for the three months ended March 31, 1998, included
elsewhere in this filing.
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 and employment-related
claims. Although these lawsuits involve a variety of different facts and
theories of recovery, the majority arise from traffic accidents involving buses
operated by the Company. The vast majority of the personal injury and property
damage 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 relating to such personal injury and/or property damage
claims arising in the ordinary course of business that, if resolved against the
Company, would materially exceed the amounts recorded.
21
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
11.1 - Computation of Registrant's earnings per share for the three months
ended March 31, 1997. (1)
11.2 - Computation of Registrant's earnings per share for the three months
ended March 31, 1998. (2)
27 - Financial Data Schedule as of and for the three months ended March
31, 1998. (3)
- --------------------------------------------------------------------------------
(1) Incorporated by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997.
(2) Filed herewith.
(3) Filed only in EDGAR format with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998.
(B) REPORTS ON FORM 8-K
During the quarter ended March 31, 1998, the Company did not file any
current reports on Form 8-K with the Securities and Exchange Commission.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 1998
GREYHOUND LINES, INC.
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
(Duly Authorized Officer
and Chief Accounting Officer)
ATLANTIC GREYHOUND LINES OF
VIRGINIA, INC.
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
EAGLE BUS MANUFACTURING, INC.
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
FCA INSURANCE LIMITED
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
GLI HOLDING COMPANY
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
GREYHOUND de MEXICO S.A. de C.V.
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
GRUPO CENTRO, INC.
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
23
<PAGE> 24
LOS BUENOS LEASING CO., INC.
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Financial Officer and
Secretary
SISTEMA INTERNACIONAL de
TRANSPORTE de AUTOBUSES, INC.
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
T & V HOLDING COMPANY
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
TEXAS, NEW MEXICO & OKLAHOMA
COACHES, INC.
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
T.N.M.&O. TOURS, INC.
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
VERMONT TRANSIT CO., INC.
By: /s/ T. Scott Kirksey
-------------------------------------
T. Scott Kirksey
Chief Accounting Officer
24
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11.1 - Computation of Registrant's earnings per share for the three months
ended March 31, 1997. (1)
27 - Financial Data Schedule as of and for the three months ended March
31, 1998. (3)
</TABLE>
25
<PAGE> 1
EXHIBIT 11.2
PAGE 1 OF 1
GREYHOUND LINES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
------------------
<S> <C>
BASIC EARNINGS PER SHARE
Net loss attributable to common shareholders................................................ $ (13,749,000)
=============
Shares:
Weighted average number of common shares issued......................................... 59,536,408
Less weighted average treasury stock.................................................... (109,192)
-------------
Weighted average number of common shares outstanding, as adjusted....................... 59,427,216
-------------
Per share:
Net loss attributable to common shareholders................................................ $ (0.23)
=============
DILUTED EARNINGS PER SHARE
Net loss attributable to common shareholders................................................ $ (13,749,000)
Plus interest expense on 8 1/2% Convertible Subordinated Debentures......................... -- *
Plus dividends on the 8 1/2% Convertible Exchangeable Preferred Stock....................... -- *
-------------
Adjusted loss attributable to common shareholders........................................... $ (13,749,000)
=============
Shares:
Weighted average number of common shares issued......................................... 59,536,408
Less weighted average treasury stock.................................................... (109,192)
Assuming exercise of options reduced by the number of common shares which
could have been purchased with the proceeds from exercise of such options.......... -- *
Assuming conversion of 8 1/2% Convertible Subordinated Debentures
into shares of Common Stock........................................................ -- *
Assuming conversion of the 8 1/2% Convertible Exchangeable Preferred Stock.............. -- *
-------------
Weighted average number of common shares outstanding, as adjusted....................... 59,427,216
-------------
Per share:
Net loss attributable to common shareholders................................................ $ (0.23)
=============
</TABLE>
* Not used in calculation of weighted average number of common shares due to
the antidilutive effect of the "in-the-money" stock options, the assumed
conversion of the 8 1/2% Convertible Subordinated Debentures and the 8 1/2%
Convertible Exchangeable Preferred Stock.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS FOR 3-MOS 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,379
<SECURITIES> 0
<RECEIVABLES> 41,260
<ALLOWANCES> 285
<INVENTORY> 5,071
<CURRENT-ASSETS> 81,160
<PP&E> 473,624
<DEPRECIATION> 130,953
<TOTAL-ASSETS> 599,339
<CURRENT-LIABILITIES> 122,504
<BONDS> 254,477
0
60,000
<COMMON> 599
<OTHER-SE> 106,487
<TOTAL-LIABILITY-AND-EQUITY> 599,339
<SALES> 0
<TOTAL-REVENUES> 180,720
<CGS> 0
<TOTAL-COSTS> 120,934
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,654
<INCOME-PRETAX> (13,549)
<INCOME-TAX> (1,096)
<INCOME-CONTINUING> (12,453)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,749)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
