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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-10841
GREYHOUND LINES, INC.
AND ITS SUBSIDIARIES IDENTIFIED IN FOOTNOTE (1) BELOW
(Exact name of registrant as specified in its charter)
DELAWARE 86-0572343
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
15110 N. DALLAS PARKWAY, SUITE 600, DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip code)
(972) 789-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
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8 1/2% CONVERTIBLE SUBORDINATED DEBENTURES, DUE MARCH 31, 2007 AMERICAN STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of Common Stock held by non-affiliates of the
registrant on March 15, 2000, was $0.
As of March 15, 2000, the registrant had 58,743,069 shares of Common
Stock, $0.01 par value, outstanding all of which are held by the registrant's
parent company.
(1) THIS FORM 10-K IS ALSO BEING FILED BY THE CO-REGISTRANTS SPECIFIED UNDER
THE CAPTION "CO-REGISTRANTS", EACH OF WHICH IS A WHOLLY-OWNED SUBSIDIARY
OF GREYHOUND LINES, INC. AND EACH OF WHICH HAS MET THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTIONS J(1)(a) AND (b) OF FORM 10-K FOR FILING FORM
10-K IN A REDUCED DISCLOSURE FORMAT.
(2) THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS
J(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT.
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CO-REGISTRANTS
This Form 10-K is also being filed by the following entities. Except as set
forth below, each entity has the same principal executive offices, zip code and
telephone number as that set forth for Greyhound Lines, Inc. on the cover of
this report:
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I.R.S. EMPLOYER JURISDICTION
COMMISSION IDENTIFICATION OF
NAME FILE NO. NO. INCORP.
- ---- ----------- --------------- ------------
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Atlantic Greyhound Lines of Virginia, Inc. 333-27267-01 58-0869571 Virginia
GLI Holding Company 333-27267-04 75-2146309 Delaware
Greyhound de Mexico, S.A. de C.V. 333-27267-05 None Republic of
Mexico
Los Buenos Leasing Co., Inc. 333-27267-07 85-0434715 New Mexico
Sistema Internacional de Transporte de Autobuses, Inc. 333-27267-08 75-2548617 Delaware
Texas, New Mexico & Oklahoma Coaches, Inc. 333-27267-10 75-0605295 Delaware
1313 13th Street
Lubbock, Texas 79408
(806) 763-5389
T.N.M. & O. Tours, Inc. 333-27267-11 75-1188694 Texas
(Same as Texas, New Mexico & Oklahoma Coaches, Inc.)
Vermont Transit Co., Inc. 333-27267-12 03-0164980 Vermont
106 Main Street
Burlington, Vermont 05401
(802) 862-9671
</TABLE>
As of December 31, 1999, Atlantic Greyhound Lines of Virginia, Inc. had 150
shares of common stock outstanding (at a par value of $50.00 per share); GLI
Holding Company had 1,000 shares of common stock outstanding (at a par value of
$0.01 per share); Greyhound de Mexico, S.A. de C.V. had 10,000 shares of common
stock outstanding (at a par value of $0.10 Mexican currency per share); 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); 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.
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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
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Item 1. Business........................................................................... 4
Item 2. Properties......................................................................... 9
Item 3. Legal Proceedings.................................................................. 9
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.......... 11
Item 7. Management's Narrative Analysis of Results of Operations........................... 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................... 16
Item 8. Financial Statements and Supplementary Data........................................ 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................................... 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 44
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Greyhound Lines, Inc. and subsidiaries (the "Company") is the only
nationwide provider of scheduled intercity bus transportation services in the
United States. The Company serves the value-oriented customer by connecting
rural and urban markets throughout the United States, offering scheduled
passenger service to more than 2,600 destinations with a fleet of 2,883 buses
and approximately 1,800 sales locations. The Company also provides package
express service, charter bus service and, in many terminals, food service. For
the year ended December 31, 1999, the Company generated total operating
revenues of $923.5 million and EBITDA of $69.9 million. EBITDA represents
income before interest, taxes, minority interest, depreciation and
amortization, extraordinary items and settlement of stock options. EBITDA is
presented because management believes investors consider it useful in
evaluating a company's ability to service and/or incur debt. EBITDA should not
be considered in isolation from or as a substitute for net income, cash flows
from operating activities and other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of profitability or liquidity. EBITDA as based on the above calculation
may not be comparable to other companies or industries, as all companies and
industries may not calculate EBITDA in the same manner.
The Company serves a diverse customer base, consisting primarily of low to
middle income passengers from a wide variety of ethnic backgrounds. Management
believes that the demographic groups that make up the core of the Company's
customer base are growing at rates faster than the U.S. population as a whole.
The Company believes that it is uniquely positioned to serve this broad and
growing market because (i) the Company's operating costs, which are lower on an
available-seat-mile basis than other modes of intercity transportation, enable
it to offer passengers everyday low prices, (ii) the Company offers the only
means of regularly scheduled intercity transportation in many of its markets,
and (iii) the Company provides additional capacity during peak travel periods
to accommodate passengers who lack the flexibility to shift their travel to
off-peak periods.
On March 16, 1999, the Company's stockholders approved the Agreement and
Plan of Merger with Laidlaw Inc. ("Laidlaw") and Laidlaw Transit Acquisition
Corp. ("Laidlaw Transit"), a wholly owned subsidiary of Laidlaw pursuant to
which Laidlaw Transit was merged with and into the Company (the "Merger"), with
the Company, as the surviving corporation, becoming a wholly owned subsidiary
of Laidlaw.
MARKETS
Passengers. While the Company's major passenger markets are large
metropolitan areas, its business is geographically fragmented with the 50
largest sales outlets accounting for approximately 50% of 1999 ticket sales,
and the 1,200 largest origin/destination city pairs producing only 44% of 1999
ticket sales. Demographic studies have shown that the Company's potential
riders are concentrated in the northeastern, southern and industrial
mid-western United States, as well as Texas and California. The typical
passenger travels to visit friends and relatives and generally has an annual
income below $35,000. In many cases, the Company's passengers report that they
own automobiles considered sufficiently reliable for a trip of a similar
distance, but travel by bus because they are traveling alone or because of the
lower cost of bus travel. The majority of the Company's customers usually make
the decision to take a trip only a short time before actually traveling and,
for the most part, pay cash for their tickets on the day of departure.
Package Express. The Company's package express service targets commercial
shippers and delivery companies that require rapid delivery of small parcels,
typically within 400 miles. The Company's product offerings include standard
delivery, the traditional low-value, terminal-to-terminal delivery product, as
well as priority and same day delivery, a premium priced product typically
delivered door to door. The Company satisfies the door-to-terminal portion of
priority and same day deliveries principally through relationships with over
300 courier companies, which serve over 400 markets. Shipments include
automotive repair parts, wholesale foods, computer parts and forms, fresh
flowers, eyeglasses, medical and dental supplies, architectural and legal
documents and pharmaceutical products.
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With its extensive network and multiple schedules, the Company is able to
provide expedited service, especially to rural areas. Most shipments arrive at
their destination on the same day they are shipped or by 8:00 a.m. the
following morning. During 1999, the Company acquired On-Time Delivery Service
in Minneapolis, MN and the assets of Larson Express in Chicago, IL, which
allows the Company to provide the highest possible level of door-to-door
service for its customers in these markets.
Food Service. The Company's Food Service division gives passengers the
ability to enjoy quality food while reaching their destinations at over 170
locations. In addition to cafeteria-style restaurants and quick grab `n go
snack bars, the Company also offers national brand concepts such as Star
Hardee's and Kentucky Fried Chicken in several terminals.
MARKETING AND ADVERTISING
The Company's marketing and advertising philosophy is geared toward
stimulating extra travel through price awareness, improving the awareness and
image of Greyhound among potential customers and inducing first-time and repeat
travel. The Company uses various means to advertise its passenger travel
business including radio, television and print media (primarily yellow pages).
Additionally, the Company offers convenient around-the-clock fare and schedule
quotations via a toll-free telephone number through its telephone information
centers and through the Company's internet web site. The Company's telephone
centers and web site handled 34.7 million requests in 1999, an increase of 8.0%
over 1998. The Company also markets its passenger and in-terminal services
through advertising in the terminal facilities and on its ticket jackets.
OPERATIONS
The Company utilizes approximately 150 company-operated bus terminals and
approximately 1,650 agency-operated terminals and/or sales agencies.
Maintenance garages are maintained at 24 strategic locations and are
supplemented by company-operated service islands and fueling points. The
Company currently has approximately 4,800 drivers based in approximately 90
different locations across the country. In the Greyhound Lines unit, drivers
report to driver supervisors who are organized into 11 districts reporting to
district managers of driver operations. The scheduling and dispatch of the
buses and driver corps is a coordinated and centralized function performed by
marketing and the operation support center whose purpose is to serve as a
liaison between management and the districts in the planning and execution of
daily operations through the existing network. This is accomplished through the
management of national dispatch operations for equipment and drivers, rental of
additional buses to cover peak demand periods, planning and coordinating extra
sections with the districts and analyzing and implementing pooling arrangements
with other carriers. This group also plans the fleet size and driver
requirements by location during the year and assists in determining the
resource needs based on the sales plan each year. Subsidiaries of Greyhound
Lines independently coordinate and manage their own driver and fleet resources.
Information technology is an integral component of the Company's
operations. The Company's information systems support, among other things, its
scheduling and pricing, dispatch, operations planning, bus maintenance,
telephone information center, customer service, point of sale, payroll and
finance functions. As of December 31, 1999, the Company's automated fare and
schedule quotation and ticketing system, called TRIPS, was in use at 322
locations.
COMPETITION
Passengers. The transportation industry is highly competitive. The
Company's primary sources of competition for passengers are automobile travel,
low cost air travel from both regional and national airlines, and in certain
markets, regional bus companies and trains. Airlines have increased their
penetration in intermediate-haul markets (450 to 1,000 miles), which has
resulted in the bus industry, in general, reducing prices in these markets in
order to compete. Additionally, airline discount programs have attracted
certain long-haul passengers away from the Company. However, these lower
airline fares usually contain restrictions and require advance purchase.
Typically, the Company's customers decide to travel only a short time before
their trip and purchase their tickets on the day of
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travel. The Company's everyday low pricing strategy results in "walk-up" fares
substantially below comparable airline fares. In instances where the Company's
fares exceed an airline discount fare, the Company believes the airline fares
typically are more restrictive and less readily available than travel provided
by the Company. However, the Company has also instituted numerous advance
purchase programs, in order to attract the price sensitive customer. Price,
destination choices and convenient schedules are the ways in which the Company
meets this competitive challenge.
The automobile is the most significant form of competition to the Company.
The out-of-pocket costs of operating an automobile are generally less expensive
than bus travel, particularly for multiple persons traveling in a single car.
The Company meets this competitive threat through price and convenient
scheduling.
Additionally, the Company experiences competition from regional bus
companies. Price, frequency of service, and convenient scheduling are the
current strategies of the Company to meet this competition. The Company's
competitors possess operating authority for, but do not currently operate over,
numerous routes potentially competitive to the Company. Based on market and
competitive conditions, the regional bus companies could operate such routes in
the future. Competition by U.S.-based bus and van operators for the market
represented by Spanish speaking customers in the U.S. is growing. As of January
1, 1997, barriers to entry into the cross-border intercity bus market between
the U.S. and Mexico were reduced under the North American Free Trade Agreement
("NAFTA"). Entry into either market is still regulated by the respective U.S.
and Mexican regulatory authorities. The U.S. government currently has a
moratorium on grants of cross-border authority to Mexican-owned or controlled
carriers of freight and passengers. There is no current indication as to when
the moratorium will be lifted; however, should the moratorium be lifted, the
Company could experience significant new competition on routes to, from and
across Mexican border points. Nevertheless, certain U.S.-based operators are
providing cross-border service into Mexico at this time. NAFTA also permits
U.S. carriers to make non-controlling, minority investments in Mexican-owned
carriers and permits Mexican carriers to make non-controlling, minority
investments in U.S.-owned carriers. In addition to bringing new competition,
the Company believes that the changes under NAFTA will increase the volume of
bus travel along both sides of the border and provide the Company with a growth
opportunity. The Company believes that the most effective way to service
passengers in this market is through joint ventures or other business
combinations with Mexico-based bus carriers and U.S.-based bus operators that
primarily serve these Spanish-speaking markets. The Company has established a
separate operating subsidiary that has completed joint ventures that provide
through-bus service at all major gateways between the United States and Mexico.
Package Express. The Company faces intense competition in its package
express service from local courier services, the U.S. Postal Service and
overnight express and ground carriers. The Company continues to develop
programs to meet this competition and rebuild its package express business.
These programs focus on system upgrades to improve service, billing and
tracking for its customers, localized marketing strategies, and local or
regional alliances with, or acquisitions of, pick up and delivery carriers. Due
to the incremental nature of the package express business, the Company is able
to provide same-day package express service at distances of up to 400 miles at
a substantially lower price than those charged by other delivery services.
Food Service. The captive nature of the food service operations in the
Company's terminals limits competition; however, in some locations proximity 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 industry as a whole, with peaks during the summer months
and the Thanksgiving and Christmas holiday periods. As a result, the Company's
cash flows are also seasonal with a disproportionate amount of the Company's
annual cash flows being generated during the peak travel periods. Therefore, an
event that adversely affects ridership during any of these peak periods could
have a material adverse effect on the Company's financial condition and results
of operations for that year. The day of the week on which certain holidays
occur, the length of certain holiday periods, and the date on which certain
holidays occur within a fiscal quarter, may also affect the Company's quarterly
results of operations.
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WORKFORCE
At March 1, 2000, the Company employed approximately 13,400 workers,
consisting of approximately 4,600 terminal employees, 4,800 drivers, 1,500
supervisory personnel, 800 mechanics, 800 telephone information agents, and 900
clerical workers. Of the total workforce, approximately 10,700 are full-time
employees and approximately 2,700 are part-time employees.
At March 1, 2000, approximately 43% of the Company's employees were
represented by collective bargaining agreements. The Amalgamated Transit Union
(the "ATU") represents approximately 5,000 of the Company's employees,
including drivers, telephone information agents in the Omaha location, terminal
workers in seven locations and about half of the Company's mechanics. The
largest ATU agreement, which covers the drivers and maintenance employees,
expires on January 31, 2004. The International Association of Machinists and
Aerospace Workers (the "IAM") represents approximately 360 of the Company's
employees, including the remaining mechanics. The IAM agreements expire on
October 1, 2004. The Company also has bargaining agreements with the
International Brotherhood of Teamsters, which represent approximately 280
employees at six terminal locations and the United Transportation Union, which
represents employees at two of the Company's subsidiaries.
TRADEMARKS
The Company owns the Greyhound name and trademarks and the "image of the
running dog" trademarks worldwide. The Company believes that this name and the
trademarks have substantial consumer awareness.
GOVERNMENT REGULATION
The Department of Transportation. As a motor carrier engaged in
interstate, as well as intrastate, transportation of passengers and express
shipments, the Company is, and must remain, registered with the United States
Department of Transportation (the "DOT"). Failure to maintain a satisfactory
safety rating, designate agents for service of process or to meet minimum
financial responsibility requirements, after notice and opportunity to remedy,
may result in the DOT's ordering the suspension or revocation of the
registration of the Company and its right to provide transportation. DOT
regulations also govern the qualifications, duties and hours of service of
drivers, the standards for vehicles, parts and accessories, the maintenance of
records and the submission of reports pertaining to the Company's drivers,
buses and operations. The Company is subject to periodic and random inspections
and audits by the DOT or, pursuant to cooperative arrangements with the DOT, by
state police or officials, to determine whether the Company's drivers, buses
and records are in compliance with the DOT's regulations. The Company, from
time to time, has been cited by the DOT for noncompliance with its regulations
but, nevertheless, has retained a satisfactory safety rating. The DOT
establishes minimum financial responsibility requirements for motor carriers;
the Company has met these requirements and has been authorized to partially
self-insure its bodily injury and property damage liability. See "Insurance
Coverage." The DOT also administers regulations to assure compliance with
vehicle noise and emission standards prescribed by the Environmental Protection
Agency (the "EPA"). All of the buses in the Company's fleet contain engines
that comply with, or are exempt from compliance with, EPA regulations, but, on
occasion, the Company has been cited and fined for non-compliance with noise or
emission standards. Additionally, there is currently litigation pending in
California seeking to enforce the posting of public health warnings at
locations where diesel fuel emissions are present.
Surface Transportation Board. The Company is also regulated by the DOT's
Surface Transportation Board (the "STB"). The STB must grant advance approval
for the Company to pool operations or revenues with another passenger carrier.
The STB, moreover, must authorize any merger by the Company with, or its
acquisition or control of, another motor carrier of passengers. The Company
must maintain reasonable through routes with other motor carriers of
passengers, and, if found not to have done so, the STB can prescribe them. The
Company is party to certain agreements, which are subject to STB authorization
and supervision, for the adoption of mileage guides, rules, divisions or
general rate adjustments.
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State Regulations. As an interstate motor carrier of passengers, the
Company may engage in intrastate operations over any of its authorized routes.
By federal law, states are pre-empted from regulating the Company's fares or
its schedules, including the withdrawal of service over any route. However, the
Company's buses remain subject to state vehicle registration requirements, bus
size and weight limitations, fuel sales and use taxes, speed and traffic
regulations and other local standards not inconsistent with federal
requirements.
Other. The Company is subject to regulation under the Americans with
Disabilities Act (the "ADA"). Under final regulations issued by DOT in
September 1998, beginning in October 2000, all new buses received by the
Company for its fixed route operations will have to be equipped with wheelchair
lifts. Additionally, by October 2006, one-half of the Company's fleet involved
in fixed route operations will be required to be lift-equipped, and by October
2012, such fleet will need to be entirely lift-equipped. The regulations do not
require the retrofitting of existing buses with lift equipment. Nor do the
regulations require the purchase of accessible used buses. Under an initiative
to be fully implemented by the spring of 2000, and continuing until the fleet
is fully equipped, the Company will begin to provide an accessible bus to any
disabled passenger who provides at least 48 hours notice. This is over 18
months in advance of the October 2001 deadline for larger fixed route operators
being required to provide an accessible bus to any disabled passenger who
provides at least 48 hours notice. The Company currently estimates that a
built-in lift device will add approximately $30,000 to the cost of a new bus
and that maintenance and employee training costs will increase. Passenger
revenues could also be impacted by the loss of seating capacity when wheelchair
passengers are on the bus, partially offset by potentially increased ridership
by disabled persons.
INSURANCE COVERAGE
Following the Merger, the Company began to purchase its insurance through
Laidlaw with coverage subject to a $50,000 deductible for property damage
claims and no deductible for all other claims. As a result, the Company
requires no insurance reserve associated with claims arising after March 16,
1999. Additionally, on December 31, 1999, the Company transferred liability for
all known, and unknown claims, and all related insurance reserves, associated
with the period prior to March 16, 1999 to Laidlaw for which Laidlaw received
compensation in an amount equal to the book value of the reserves.
The predecessor agency to the STB granted the Company authority to
self-insure its automobile liability exposure for interstate passenger service
up to a maximum level of $5.0 million per occurrence, which has been continued
by the DOT. To maintain self-insurance authority, the Company is required to
maintain a satisfactory safety rating by the DOT, a tangible net worth of $10.0
million (as of December 31, 1999, the Company's tangible net worth was $156.7
million) and a $15.0 million trust fund (currently fully funded) to provide
security for payment of claims. Under the current insurance program with
Laidlaw, the Company is no longer self-insured; however, the Company has
continued to maintain its self-insurance authority should it be necessary or
desirable to reactivate a self-insurance program in the future.
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, 53 locations
have been identified as remaining sites requiring potential clean-up and/or
remediation as of December 31, 1999. Additionally, the Company has, or has
assumed, potential liability with respect to four active locations, which the
EPA has designated as Superfund sites. The Company, as well as other parties
designated by the EPA as potentially responsible parties, face exposure for
costs related to the clean-up of those sites. Based on the EPA's enforcement
activities to date, the Company believes its liability at these sites will not
be material because its involvement was as a de minimis generator of wastes
disposed of at the sites. In light of its minimal involvement, the Company has
been negotiating to be released from liability in return for the payment of
immaterial settlement amounts.
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The Company has recorded a total environmental reserve of $7.3 million at
December 31, 1999, of which approximately $0.7 million is indemnifiable by the
predecessor owner of Greyhound's domestic bus operations, now known as Viad
Corp. 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 report, the Company is not
aware of any additional sites to be identified, and management believes that
adequate accruals have been made related to all known environmental matters.
ITEM 2. PROPERTIES
LAND AND BUILDINGS
At December 31, 1999, the Company used 571 parcels of real property in its
operations, of which it owns 163 properties and leases 408 properties. Of those
properties, 410 are bus terminals, 37 are maintenance facilities, 34 are
terminal/maintenance facilities, and the remaining properties consist of driver
dormitories, parking/storage lots, office/storage/warehouse buildings and
telephone information centers. These properties are located throughout the
United States, with a few in Mexico and Canada. The Company believes the
current makeup of its properties is adequate for its operations, and although
there can be no assurance, based on its recent experience, the Company believes
that it will be able to find suitable replacement properties on acceptable
terms for any properties the Company chooses to replace, or which are
condemned, or for which leases are not renewed or are otherwise terminated.
FLEET COMPOSITION AND BUS ACQUISITIONS
During 1999, the Company took delivery of 353 new buses, and retired 117
buses, resulting in a fleet of 2,883 buses at year-end. Through March 20, 2000,
the Company has taken delivery of an additional 107 buses and retired 72 buses.
At March 20, 2000, the Company owned 1,288 buses and leased an additional 1,630
buses for a total fleet of 2,918. Motor Coach Industries, Inc. ("MCI") or its
affiliate, Dina Autobuses, S.A. de C.V. ("DASA"), hereafter referred to
collectively as "MCI", produced all but 106 of these buses. The Company is
party to a long-term supply agreement with MCI. The agreement extends through
2007, but may be canceled at the end of any year upon six months notice. If the
Company decides to acquire new buses, the Company and its affiliates must
purchase at least 80% of its new bus requirements from MCI pursuant to the
agreement.
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
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 arises from
traffic accidents involving buses operated by the Company. The vast majority of
these claims are covered by insurance for amounts in excess of the deductible
portion of the policies. Therefore, based on the Company's assessment of known
claims and its historical claims payout pattern and discussion with internal
and outside legal counsel and risk management personnel, management believes
that there is no proceeding either threatened or pending against the Company
that, if resolved against the Company, would materially exceed the amounts
recorded as estimated liabilities by the Company.
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SEC INVESTIGATION
In January 1995, the Company received notice that the Securities and
Exchange Commission (the "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 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.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
Prior to completing the Merger on March 16, 1999 (see Item 1, Business-in
this report), the Company's Common Stock, par value $.01 per share (the "Common
Stock"), was 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:
HIGH LOW
---- ---
First Quarter 1998................................. $ 5 3/4 $ 3 9/16
Second Quarter 1998................................ 6 7/8 4 3/8
Third Quarter 1998................................. 6 3/16 3 5/8
Fourth Quarter 1998................................ 6 1/16 3 3/8
January 1, 1999 - March 16, 1999................... $ 6 1/2 $ 5 3/4
HOLDERS
The number of shares of Common Stock outstanding as of March 15, 2000, was
58,743,069. As a result of the Merger, Laidlaw is the sole record holder of the
Company's Common Stock.
DIVIDENDS
The Company had not paid any dividends on its Common Stock during the last
three years.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF 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 84.8%, 4.2% and 4.3%,
respectively, of the Company's total operating revenues for 1999. The Company's
operations include a nationwide network of terminal and maintenance facilities,
a fleet of 2,883 buses and approximately 1,800 sales outlets.
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations as a
percentage of total operating revenue for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------ ------- -------
<S> <C> <C> <C>
Operating Revenues
Transportation Services
Passenger services .................. 84.8% 86.0% 85.4%
Package express ..................... 4.2 4.0 4.6
Food services .......................... 4.3 3.7 3.8
Other operating revenues ............... 6.7 6.3 6.2
----- ----- -----
Total Operating Revenues ........ 100.0 100.0 100.0
----- ----- -----
Operating Expenses
Maintenance ............................ 9.9 9.9 10.0
Transportation ......................... 23.9 23.8 24.3
Agents' commissions and station costs .. 18.7 18.4 18.3
Marketing, advertising and traffic ..... 3.4 3.2 3.5
Insurance and safety ................... 5.5 5.9 5.9
General and administrative ............. 12.9 11.8 11.8
Depreciation and amortization .......... 4.8 4.3 4.1
Operating taxes and licenses ........... 6.5 6.7 6.7
Operating rents ........................ 8.5 7.8 7.7
Cost of goods sold - Food services ..... 2.8 2.4 2.5
Other operating expenses ............... 0.3 0.3 0.4
----- ----- -----
Total Operating Expenses ........ 97.2 94.5 95.2
----- ----- -----
Operating Income ......................... 2.8 5.5 4.8
Settlement of Stock Options .............. 2.3 0.0 0.0
Interest Expense ......................... 2.4 3.3 3.6
Income Tax Provision (Benefit) ........... (0.5) (2.1) 0.1
Minority Interest ........................ 0.2 0.1 0.0
Extraordinary Items ...................... 0.2 0.0 3.3
----- ----- -----
Net Income (Loss) ........................ (1.8)% 4.2% (2.2)%
===== ===== =====
</TABLE>
12
<PAGE> 13
The following table sets forth certain operating data for the Company for
1999, 1998 and 1997. Certain statistics have been adjusted and restated from
those previously published to provide consistent comparisons.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Regular Service Miles (000's).............................................. 339,752 316,045 285,689
Total Bus Miles (000's).................................................... 347,392 323,393 291,537
Passenger Miles (000's).................................................... 8,739,219 7,820,225 7,049,637
Passengers Carried (000's)................................................. 24,698 22,552 19,893
Load (avg. number of passengers per regular service mile).................. 25.7 24.7 24.7
Load Factor (% of available seats filled).................................. 52.9% 52.3% 52.6%
Yield (regular route revenue/passenger mile)............................... $ 0.0896 $ 0.0931 $ 0.0934
Total Revenue Per Total Bus Mile........................................... 2.66 2.62 2.65
Operating Income Per Total Bus Mile........................................ 0.07 0.14 0.13
Cost per Total Bus Mile:
Maintenance.............................................................. $ 0.262 $ 0.258 $ 0.264
Transportation........................................................... 0.635 0.622 0.642
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
The Company's results of operations include the operating results of
Peoria-Rockford Bus Lines, Autobuses Americanos, Autobuses Amigos, On-Time
Delivery and LSX Delivery (collectively the "acquisitions"). Peoria-Rockford
Bus Lines, Autobuses Americanos and Autobuses Amigos were formed or acquired in
the fourth quarter of 1998, the purchase of On-Time Delivery occurred during
the first quarter of 1999 and the acquisition involving LSX Delivery occurred
during the second quarter of 1999. The results for the acquisitions are
included as of their respective purchase dates.
Operating Revenues. Total operating revenues increased $77.5 million (or
9.2%) for the year ended December 31, 1999 compared to the same period in 1998.
Acquisitions accounted for $26.9 million of this growth, resulting in internal
growth of $50.6 million or 6.0%.
Passenger services revenues increased $55.5 million (or 7.6%) in 1999
compared to 1998 (including $18.2 million related to the acquisitions). The
increase in regular route revenues reflect the consolidated impact of a 9.5%
increase in the number of passengers carried, partially offset by a 3.8%
decrease in yield. The decrease in yield is a reflection of a 2.0% increase in
average trip length as well as promotional pricing in the long-haul corridors
to meet airline competition and stimulate demand.
Package Express revenue increased $5.3 million (or 15.6%) in 1999 compared
to 1998 (including $7.2 million related to acquisitions). Excluding the
acquisitions, the Company experienced a $1.9 million decrease in revenue due to
reduced standard product deliveries (the traditional, low-value, terminal to
terminal market segment) offset somewhat by gains in same day and priority
product deliveries. The declines in the standard product are a result of
continued competition, as well as expanded product offerings (such as United
Parcel Service's guaranteed service "brown label" product), from larger package
delivery companies. In response, the Company continues to increase its focus on
the same day delivery market niche through selling of priority service and the
creation of new product offerings such as Daily Direct, a guaranteed same day
or early overnight service.
Food services revenues increased $8.0 million (or 25.7%) for the year
ended December 31, 1999, compared to the same period in 1998. Food services
revenues increased over the prior year due primarily to the increase in
passenger traffic discussed above, and the addition of eight in-terminal
restaurants that were previously concessionaire-operated Burger King locations.
13
<PAGE> 14
Other operating revenues, consisting primarily of revenue from charter and
other in-terminal sales and services, increased $8.8 million (or 16.4%) for the
year ended December 31, 1999 compared to the same period in 1998. The increase
was primarily due to increases in tenant income as a result of the Peter Pan
Pool, initiated on January 12, 1999, which results in income to the Company for
sharing its terminal space with Peter Pan. The Company also had an increase in
charter service revenue of $2.4 million.
Operating Expenses. Total operating expenses increased $98.8 million (or
12.4%) for the year ended December 31, 1999, compared to the same period in
1998. The increase is due primarily to increased bus miles (7.4%), increased
fuel cost, higher driver wages, increased terminal salaries, increased ticket
and express commissions due to higher sales, an increase in buses operated
under operating leases, and $23.8 million related to the operations of the
acquisitions.
Maintenance costs increased $7.6 million (or 9.1%) for the year ended
December 31, 1999, compared to the same period in 1998, primarily due to
increased bus miles. On a per-mile basis maintenance cost increased by only
1.6%.
Transportation expenses, which consist primarily of fuel costs and driver
salaries, increased $19.3 million (or 9.6%) for the year ended December 31,
1999, compared to the same period in 1998, due primarily to increased bus
miles, fuel costs, and contractual driver wage increases. Transportation
expenses increased on a per-mile basis by 2.1% due in part to the impact of the
driver wage increases and higher fuel prices in 1999 compared to the prior
year, offset somewhat by the acquisitions which generally have lower driver
wages on a per-mile basis. During 1999 the average cost per gallon of fuel
increased to $0.61 per gallon, compared to $0.53 per gallon in 1998, resulting
in increased fuel cost of $4.9 million during 1999.
Agents' commissions and station costs increased $17.3 million (or 11.1%)
for the year ended December 31, 1999, compared to the same period in 1998,
primarily due to commissions from increased ticket sales, terminal salaries
associated with staffing for the increase in passengers, terminal salary raises
and the inclusion of the acquisitions. Additionally, the Peter Pan Pool
increased terminal wages as the increase in sales resulted in increased
staffing needs. Income from the Peter Pan Pool that offsets these costs is
reflected in other operating revenue. As a result, agents' commissions and
station costs increased slightly as a percentage of total operating revenues.
Marketing, advertising and traffic expenses increased $4.0 million (or
14.5%) for the year ended December 31, 1999, compared to the same period in
1998, increasing slightly as a percentage of total operating revenues. The
increase as a percentage of revenue is principally due to higher advertising
rates.
Insurance and safety costs increased $1.4 million (or 2.9%) for the year
ended December 31, 1999, compared to the same period in 1998, due primarily to
increased bus miles and the inclusion of the acquisitions. Insurance and safety
costs decreased slightly as a percentage of revenue.
General and administrative expenses increased $19.6 million (or 19.6%) for
the year ended December 31, 1999, compared to the same period in 1998,
primarily due to the increase in revenues, $4.9 million of expenses associated
with remediation of the Company's computer systems related to the Year 2000
issue and $2.9 million of costs related to the Merger, which were primarily
comprised of severance payments.
Depreciation and amortization expense increased $8.1 million (or 22.2%)
for the year ended December 31, 1999, compared to the same period in 1998,
primarily due to increased capital expenditures in the current and prior
period, and goodwill amortization attributable to the acquisitions.
Operating taxes and license costs increased $3.1 million (or 5.5%) for the
year ended December 31, 1999, compared to the same period in 1998, primarily
due to increased payroll taxes resulting from increased salaries and
head-counts related to higher business volume (including increased miles
operated), increased fuel taxes due to increased miles and the inclusion of the
acquisitions.
14
<PAGE> 15
Operating rents increased $12.5 million (or 19.0%) for the year ended
December 31, 1999, compared to the same period in 1998, primarily due to an
increase in facilities rents and the number of buses leased under operating
leases and the inclusion of the acquisitions. The Peter Pan Pool resulted in an
increase in facility rents for which the Company receives income, reflected in
other operating revenue, as an offset.
Food services and related cost of goods sold increased $5.4 million (or
26.1%) for the year ended December 31, 1999, compared to the same period in
1998, primarily due to the 25.7% increase in food services revenues for the
same period.
As a result of the Merger, the Company incurred $21.3 million in charges
related to the settlement of the Company's outstanding stock options.
Interest expense decreased $5.9 million (or 21.2%) for the year ended
December 31, 1999, compared to the same period in 1998. The decrease is the
result of a lower outstanding balance on the Company's Revolving Credit
Facility through March 16, 1999. Additionally, on March 17, 1999, subsequent to
the Merger, all amounts outstanding under the revolving credit facility were
paid and the revolving credit facility was terminated.
In 1999, the Company recorded an extraordinary loss of $1.9 million, net
of tax benefit of $1.0 million, related to the termination of the Company's
Revolving Credit Facility. The amount represents the write-off of previously
incurred debt issuance costs that were being amortized over the life of the
revolving credit facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are to provide working
capital, to finance capital expenditures, including bus acquisitions, to meet
debt service requirements, including the payment of interest on the 11 1/2%
Senior Notes and to pay dividends and amounts due to the remaining holders of
the Company's redeemable preferred stock. The Company's principal sources of
liquidity are expected to be cash flow from operations and funds provided by
Laidlaw. The Company believes that its cash flow from operations, together with
funds provided by Laidlaw will be sufficient to meet its liquidity needs.
Net cash provided by operating activities was $74.9 million, $46.1 million
and $49.8 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The increase in cash provided by operating activities in 1999 is
principally due to the $45.8 million reduction in insurance and security
deposits which were obtained following the Merger with Laidlaw, partially
offset by the $21.3 million payment for settlement of stock options. Net cash
used for investing activities was $81.2 million, $47.4 million and $80.8
million for 1999, 1998 and 1997, respectively, principally due to capital
expenditures, consisting primarily of acquisitions of buses and real estate and
facility improvements, totaling $78.9 million, $33.7 million and $45.1 million
for 1999, 1998 and 1997, respectively. Additionally, cash used for investing
activities includes payments relating to the acquisitions of $7.5 million in
1999, $10.9 million in 1998 and $40.1 million in 1997. Net cash provided by
financing activities was $9.8 million, $4.0 million and $32.1 million for 1999,
1998 and 1997, respectively.
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's experience
indicates that as the age of its bus fleet increases, the dependability and
quality of service declines, which may make the Company less competitive. In
addition, 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.
COMPUTER SYSTEMS / YEAR 2000 READINESS
Some computers, software, and other equipment include computer code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are commonly
15
<PAGE> 16
referred to as the "Year 2000 Problem." Although only minor problems were
observed in systems operated by the Company during the transition from 1999 to
2000, Company management continues to believe that it is not possible to
determine with complete certainty that all Year 2000 Problems that could affect
the Company have been identified or resolved. The number of devices that could
be affected and the interactions among these devices are simply too numerous.
It is possible that additional problems could occur later this year as month
end, quarter end and year-end processes are executed. As a result, the Company
is continuing to review and monitor systems it believes could be affected and
to take precautions as appropriate.
The Company believes that it has identified substantially all of the
major computers, software applications, and related equipment used in
connection with its internal operations that had to be modified, upgraded, or
replaced to minimize the possibility of a material disruption to its business.
The Company estimates the total costs of completing modifications, upgrades, or
replacements to internal systems is $14.4 million, most of which was incurred
during 1999 and 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk includes
"forward-looking statements" that involve risk and uncertainties. Actual
results could differ materially from these projections. The Company is
currently exposed to market risk from changes in commodity prices for fuel and
investment prices. In addition, the Company has market risk related to its
put/call agreement for certain buses owned by the Company. The Company does not
use derivative instruments to mitigate market risk, nor does the Company use
market risk sensitive instruments for speculative or trading purposes.
COMMODITY PRICES. The Company currently has exposure to commodity risk from its
fuel inventory and its advance purchase commitments for fuel. The Company has
fuel inventory at December 31, 1999, at a carrying value of $1.0 million. The
Company's fuel inventory is used in operations before a change in the market
price of fuel could have a material effect on the Company's results of
operation. Additionally, the Company has entered into an advance purchase
commitment for fuel whereby the Company has agreed to take delivery of 252,000
gallons during January 2000 for a fixed price of $167,000. A 10% increase or
decrease in the cost of fuel would not have a material effect on this
commitment, or the Company's financial position, annual results of operations or
cash flows.
INVESTMENT PRICES. The Company currently has exposure in the market price of
investments in its available for sale securities. At December 31, 1999, the
Company has approximately $5.2 million of investments classified as available
for sale and a 10% decrease in the market price would not have a material
effect on the Company's financial position. As required by GAAP, we have
reported these investments at fair value, with any unrecognized gains or losses
excluded from earnings and reported in a separate component of stockholders'
equity.
MARKET RISK. The Company negotiated a put/call agreement whereby the Company
prearranged the sale of certain buses. This agreement allows the Company to put
these buses to the contracting party for $3.2 million during January 2001 or
allows the contracting party to call these buses for $3.9 million during
January 2001. A 10% decrease in the market value of these buses would result in
a market value that is lower than the call price, but higher than the put
price, and thus have no effect on the Company. A 10% increase in market value
would result in a market value that is greater than the call price and could,
therefore, limit the proceeds the Company would have otherwise received from
the disposal of these units by an immaterial amount.
INTEREST RATE SENSITIVITY. The table below presents principal cash flows and
related weighted average interest rates by contractual maturity dates as of
December 31, 1999
Long Term Debt:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt (in thousands) $5,671 $5,002 $4,672 $7,087 $ 442 $157,378 $180,252 $197,866
Average Interest Rate 9.23% 9.32% 10.44% 10.23% 13.24% 11.42% 11.22% --
</TABLE>
16
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Management Report on Responsibility for Financial Reporting ....................................... 18
Reports of Independent Public Accountants.......................................................... 19
Consolidated Statements of Financial Position as of December 31, 1999 and 1998..................... 21
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998, and 1997........ 22
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998,
and 1997...................................................................................... 23
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997........ 24
Notes to Consolidated Financial Statements......................................................... 25
Schedule II - Valuation and Qualifying Accounts - For the Years Ended December 31, 1999, 1998,
and 1997...................................................................................... 42
</TABLE>
17
<PAGE> 18
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 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
PricewaterhouseCoopers LLP as of and for the year ended December 31, 1999, and
by Arthur Andersen LLP as of December 31, 1998 and for the years ended December
31, 1998 and 1997 (the "Independent Public Accountants"). Management has made
available to the Independent Public Accountants 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 the Independent Public Accountants during their 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
their audits of the Company's consolidated financial statements, the
Independent Public Accountants 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 Independent Public Accountants' 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.
Jeffrey W. Sanders
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Cheryl W. Farmer
Vice President and Controller
(Principal Accounting Officer)
Dallas, Texas
March 24, 2000
18
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To Greyhound Lines, Inc:
In our opinion, the consolidated financial statements listed in the
accompanying index, present fairly, in all material respects, the financial
position of Greyhound Lines, Inc. and its subsidiaries at December 31, 1999,
and the results of their operations and their cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, the financial statement schedule listed in
the accompanying index presents fairly, in all material respects, the
information set forth therein for the year ended December 31, 1999 when read in
conjunction with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audit.
We conducted our audit of these statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
March 24, 2000
19
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Greyhound Lines, Inc.:
We have audited the accompanying consolidated statement of financial
position of Greyhound Lines, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1998. 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, 1998, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
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. The
financial data for each of the two years in the period ended December 31, 1998,
included in 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 15, 1999 (except with respect to the
merger of Greyhound Lines, Inc. and subsidiaries
with Laidlaw, Inc. as discussed in Note 1, as to
which the date is March 16, 1999)
20
<PAGE> 21
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents ....................................................... $ 8,295 $ 4,736
Accounts receivable, less allowance for doubtful accounts of $402 and $198 ...... 46,830 40,774
Inventories, less allowance for shrinkage of $226 and $205 ...................... 7,494 5,705
Prepaid expenses ................................................................ 5,694 5,170
Assets held for sale ............................................................ 4,545 3,029
Current portion of deferred tax assets .......................................... 12,864 24,053
Other current assets ............................................................ 1,851 9,907
----------- -----------
Total Current Assets ...................................................... 87,573 93,374
Prepaid Pension Plans .............................................................. 29,983 27,917
Property, Plant and Equipment, net of accumulated depreciation of $173,273
and $151,468 ................................................................... 397,077 362,417
Investments in Unconsolidated Affiliates ........................................... 16,028 13,560
Deferred Income Taxes .............................................................. 14,711 8,988
Insurance and Security Deposits .................................................... 22,220 67,908
Goodwill, net of accumulated amortization of $3,523 and $1,755 ..................... 45,384 39,510
Intangible Assets, net of accumulated amortization of $31,825 and $28,503 .......... 25,821 29,704
----------- -----------
Total Assets .............................................................. $ 638,797 $ 643,378
=========== ===========
Current Liabilities
Accounts payable ............................................................... $ 23,824 $ 27,724
Due to Laidlaw ................................................................. 42,560 --
Accrued liabilities ............................................................ 76,367 64,819
Unredeemed tickets ............................................................. 11,956 12,143
Current portion of reserve for injuries and damages ............................ 1,473 22,967
Current maturities of long-term debt ........................................... 5,671 7,970
----------- -----------
Total Current Liabilities ................................................. 161,851 135,623
Reserve for Injuries and Damages ................................................... 5,840 37,392
Long-Term Debt, net ................................................................ 174,581 225,688
Minority Interests ................................................................. 4,233 3,058
Other Liabilities .................................................................. 22,432 23,604
----------- -----------
Total Liabilities ......................................................... 368,937 425,365
Redeemable Preferred Stock (2,400,000 shares authorized and 1,678,150 shares
issued as of December 31, 1999) ........................................... 41,954 --
Commitments and Contingencies (Notes 15 and 16)
Stockholders' Equity
Preferred Stock (10,000,000 shares authorized as of December 31,1998; par
value $.01)
8 1/2% Convertible Exchangeable Preferred Stock (2,760,000 shares
authorized and 2,400,000 shares issued as of December 31, 1998) ........... -- 60,000
Series A Junior Preferred Stock (1,500,000 shares authorized as of
December 31, 1998; par value $.01; none issued) ........................... -- --
Common Stock (100,000,000 shares authorized; 58,743,069 and 60,255,117
shares issued as of December 31, 1999 and 1998, respectively; par
value $.01) ............................................................... 587 603
Treasury Stock, at cost (109,192 shares as of December 31, 1998) .............. -- (1,038)
Capital in Excess of Par Value ................................................ 322,026 237,441
Accumulated Other Comprehensive Loss, net of tax benefit of $1,360
and $3,181 .......................................................... (2,525) (7,232)
Retained Deficit .............................................................. (92,182) (71,761)
----------- -----------
Total Stockholders' Equity ................................................ 227,906 218,013
----------- -----------
Total Liabilities and Stockholders' Equity ................................ $ 638,797 $ 643,378
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 22
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues
Transportation services
Passenger services ........................................ $ 783,299 $ 727,786 $ 658,396
Package express ........................................... 39,051 33,790 35,676
Food services ............................................... 39,124 31,127 29,611
Other operating revenues .................................... 62,057 53,293 47,439
----------- ----------- -----------
Total Operating Revenues .............................. 923,531 845,996 771,122
----------- ----------- -----------
Operating Expenses
Maintenance ................................................. 90,999 83,444 77,022
Transportation .............................................. 220,477 201,190 187,311
Agents' commissions and station costs ....................... 173,091 155,799 141,100
Marketing, advertising and traffic .......................... 31,325 27,349 26,860
Insurance and safety ........................................ 51,178 49,748 45,860
General and administrative .................................. 119,396 99,836 91,307
Depreciation and amortization ............................... 44,396 36,332 31,259
Operating taxes and licenses ................................ 59,818 56,703 51,511
Operating rents ............................................. 78,222 65,756 59,105
Cost of goods sold - Food services .......................... 26,045 20,656 19,631
Other operating expenses .................................... 3,054 2,352 3,050
----------- ----------- -----------
Total Operating Expenses .............................. 898,001 799,165 734,016
----------- ----------- -----------
Operating Income ............................................... 25,530 46,831 37,106
Settlement of Stock Options .................................... 21,294 -- --
Interest Expense ............................................... 21,993 27,899 27,657
----------- ----------- -----------
Net Income (Loss) Before Income Taxes .......................... (17,757) 18,932 9,449
Income Tax Provision (Benefit) ................................. (4,612) (16,856) 1,051
Minority Interests ............................................. 1,278 556 --
----------- ----------- -----------
Net Income (Loss) Before Extraordinary Items ................... (14,423) 35,232 8,398
Extraordinary Items (net of a tax benefit of $1,021 and $0) .... 1,897 -- 25,323
----------- ----------- -----------
Net Income (Loss) .............................................. $ (16,320) $ 35,232 $ (16,925)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE> 23
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 ............................. -- $ -- 58,469 $ 585 109 $(1,038)
Issuance of stock in connection with
employee benefit plans ............................ -- -- 801 7 -- --
Issuance of preferred stock .......................... 2,400 60,000 -- -- -- --
Dividends on preferred stock ......................... -- -- -- -- -- --
Acquisition of Carolina .............................. -- -- 168 2 -- --
Benefit of pre-bankruptcy deferred tax assets ........ -- -- -- -- -- --
Comprehensive Income (Loss):
Adjustment for unfunded
accumulated pension obligation .............. -- -- -- -- -- --
Net Loss ........................................ -- -- -- -- -- --
Total Comprehensive (Loss) .............
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 ........................... 2,400 60,000 59,438 594 109 (1,038)
Issuance of stock in connection with
employee benefit plans
including tax benefit of $844 .................... -- -- 817 9 -- --
Dividends on preferred stock ......................... -- -- -- -- -- --
Benefit of pre-bankruptcy deferred tax assets ........ -- -- -- -- -- --
Comprehensive Income (Loss):
Market value adjustment for securities held ....... -- -- -- -- -- --
Adjustment for unfunded accumulated
pension obligation, net of tax of $857 ........ -- -- -- -- -- --
Deferred tax benefit on prior years
unfunded accumulated pension obligation ....... -- -- -- -- -- --
Net Income ........................................ -- -- -- -- -- --
Total Comprehensive Income ....................
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 ........................... 2,400 60,000 60,255 603 109 (1,038)
Reclassification of preferred stock due to Merger .... (2,400) (60,000)
Issuance of stock in connection with
employee benefits plans ........................... -- -- 6 -- -- --
Dividends on preferred stock ......................... -- -- -- -- -- --
Purchase and cancellation of shares .................. -- -- (1,518) (16) (109) 1,038
Redemption of preferred stock ........................ -- -- -- -- -- --
Issuance of stock to Laidlaw ......................... -- -- -- -- -- --
Comprehensive Income (Loss):
Market value adjustment for securities held ....... -- -- -- -- -- --
Adjustment for unfunded accumulated
pension obligation, net of tax of $1,821 ...... -- -- -- -- -- --
Net Loss .......................................... -- -- -- -- -- --
Total Comprehensive (Loss) ....................
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 ........................... -- $ -- 58,743 $ 587 -- $ --
========= ========= ========= ========= ========= =========
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER TOTAL
EXCESS OF RETAINED COMPREHENSIVE COMPREHENSIVE
PAR VALUE DEFICIT LOSS INCOME (LOSS)
---------- --------- ------------- -------------
BALANCE, JANUARY 1, 1997 ............................. $ 229,103 $ (81,236) $ (6,533) $
Issuance of stock in connection with
employee benefit plans ............................ 1,385 -- -- --
Issuance of preferred stock .......................... (2,440) -- -- --
Dividends on preferred stock ......................... -- (3,648) -- --
Acquisition of Carolina .............................. 748 -- -- --
Benefit of pre-bankruptcy deferred tax assets ........ 569 -- -- --
Comprehensive Income (Loss):
Adjustment for unfunded
accumulated pension obligation .............. -- -- (980) (980)
Net Loss ........................................ -- (16,925) -- (16,925)
---------
Total Comprehensive (Loss) ............. $ (17,905)
---------- --------- ------------- =========
BALANCE, DECEMBER 31, 1997 ........................... 229,365 (101,809) (7,513)
Issuance of stock in connection with
employee benefit plans
including tax benefit of $844 .................... 3,785 -- -- $ --
Dividends on preferred stock ......................... -- (5,184) -- --
Benefit of pre-bankruptcy deferred tax assets ........ 4,291 -- -- --
Comprehensive Income (Loss):
Market value adjustment for securities held ....... -- -- (682) (682)
Adjustment for unfunded accumulated
pension obligation, net of tax of $857 ........ -- -- (1,361) (1,361)
Deferred tax benefit on prior years
unfunded accumulated pension obligation ....... -- -- 2,324 2,324
Net Income ........................................ -- 35,232 -- 35,232
---------
Total Comprehensive Income .................... $ 35,513
---------- --------- ------------- =========
BALANCE, DECEMBER 31, 1998 ........................... 237,441 (71,761) (7,232)
Reclassification of preferred stock due to Merger ....
Issuance of stock in connection with
employee benefits plans ........................... (108) -- -- $ --
Dividends on preferred stock ......................... -- (4,101) -- --
Purchase and cancellation of shares .................. (267,953) --
Redemption of preferred stock ........................ (6,012) -- -- --
Issuance of stock to Laidlaw ......................... 358,658 -- -- --
Comprehensive Income (Loss):
Market value adjustment for securities held ....... -- -- 682 682
Adjustment for unfunded accumulated
pension obligation, net of tax of $1,821 ...... -- -- 4,025 4,025
Net Loss .......................................... -- (16,320) -- (16,320)
---------
Total Comprehensive (Loss) .................... $ (11,613)
---------- --------- ------------- =========
----------
BALANCE, DECEMBER 31, 1999 ........................... $ 322,026 $ (92,182) $ (2,525)
========== ========= =============
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 24
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income (Loss) ....................................................... $ (16,320) $ 35,232 $ (16,925)
Extraordinary items ..................................................... 1,897 -- 25,323
Non-cash expenses and gains included in net income (loss)
Depreciation and amortization ......................................... 44,396 36,332 31,259
Other non-cash expenses and gains, net ................................ 2,337 (19,134) 1,618
Net Change in Certain Operating Assets and Liabilities
Accounts receivable ................................................... (4,855) (4,121) (1,099)
Inventories ........................................................... (1,789) (1,032) (278)
Prepaid expenses ...................................................... (482) 273 5,359
Other current assets .................................................. 8,052 1,608 (261)
Insurance and security deposits ....................................... 45,828 3,042 3,838
Intangible assets ..................................................... (4,583) (5,911) (11,610)
Accounts payable ...................................................... (3,964) (5,469) 6,798
Due to Laidlaw ........................................................ 18,566 -- --
Accrued liabilities ................................................... 13,985 (545) 7,335
Reserve for injuries and damages ...................................... (28,350) 1,985 (1,999)
Unredeemed tickets .................................................... (186) 1,817 501
Other liabilities ..................................................... 415 2,012 (16)
---------- ---------- ----------
Net Cash Provided by Operating Activities .......................... 74,947 46,089 49,843
---------- ---------- ----------
Cash Flows From Investing Activities
Capital expenditures .................................................. (78,915) (33,706) (45,114)
Proceeds from assets sold ............................................. 6,052 3,935 6,547
Payments for business acquisitions, net of cash acquired .............. (7,491) (10,924) (40,104)
Other investing activities ............................................ (796) (6,753) (2,146)
---------- ---------- ----------
Net Cash Used for Investing Activities ............................. (81,150) (47,448) (80,817)
---------- ---------- ----------
Cash Flows From Financing Activities
Payments on debt and capital lease obligations ........................ (11,919) (5,730) (20,297)
Redemption of Preferred Stock ......................................... (24,058) -- --
Proceeds from issuance of Common Stock to Laidlaw ..................... 358,658 -- --
Purchase of Common Stock from Laidlaw ................................. (266,931) -- --
Proceeds from 11 1/2% Senior Notes and Preferred Stock Issuance ...... -- -- 203,031
Redemption of 10% Senior Notes ........................................ -- -- (161,022)
Redemption of 8 1/2% Debentures ....................................... (3,740) -- --
Payment of Preferred Stock dividends .................................. (4,355) (5,184) (2,784)
Retirement of interest swap ........................................... -- -- (3,010)
Issuance of Common Stock in connection with employee benefit plans .... (108) 2,950 1,097
Net change in revolving credit facility ............................... (37,785) 12,007 15,113
---------- ---------- ----------
Net Cash Provided by Financing Activities .......................... 9,762 4,043 32,128
---------- ---------- ----------
Net Increase in Cash and Cash Equivalents .................................. 3,559 2,684 1,154
Cash and Cash Equivalents, Beginning of Year ............................... 4,736 2,052 898
---------- ---------- ----------
Cash and Cash Equivalents, End of Year ..................................... $ 8,295 $ 4,736 $ 2,052
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE> 25
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BACKGROUND AND OPERATING ENVIRONMENT
Greyhound Lines, Inc. and subsidiaries (the "Company") is the only
nationwide provider of scheduled intercity bus service in the United States. The
Company provides various services including scheduled passenger service, package
express service and food service at certain terminals. The Company's operations
include a nationwide network of terminal and maintenance facilities, a fleet of
2,883 buses and approximately 1,800 sales outlets. The Company's operating
subsidiaries include Texas, New Mexico & Oklahoma Coaches, Inc. ("TNM&O"),
Vermont Transit Co., Inc. ("Vermont Transit"), Carolina Coach Company
("Carolina"), Valley Transit Co., Inc., Sistema Internacional de Transporte de
Autobuses, Inc., On-Time Delivery Service, Inc., LSX Delivery, L.L.C., and
Peoria Rockford Bus Lines, LLC. The Company is subject to regulation by the
Department of Transportation (the "DOT") and certain states.
On March 16, 1999, the Company's stockholders approved the Agreement and
Plan of Merger with Laidlaw Inc. ("Laidlaw") and Laidlaw Transit Acquisition
Corp. ("Laidlaw Transit"), a wholly owned subsidiary of Laidlaw), pursuant to
which Laidlaw Transit was merged with and into the Company (the "Merger"), with
the Company, as the surviving corporation, becoming a wholly owned subsidiary of
Laidlaw. The consolidated financial statements of the Company do not reflect any
purchase accounting adjustments relating to the Merger.
As a result of the Merger, the Company incurred $21.3 million in charges
related to the settlement of the Company's outstanding stock options.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company. Investments in companies that are 20% to 50% owned ("affiliates")
are accounted for using the equity method. All significant intercompany
transactions and balances have been eliminated.
Certain Reclassifications
Certain reclassifications have been made to the prior period statements to
conform them to the current year presentation.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments that are part of
the Company's cash management portfolio. These investments are highly liquid and
have original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market, with costs
determined using the weighted average method.
25
<PAGE> 26
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment, including capitalized leases, are recorded
at cost, including interest during construction, if any. Depreciation is
recorded over the estimated useful lives or lease terms and range from three to
twenty years for structures and improvements, four to eighteen years for revenue
equipment, and five to ten years for all other items. The Company principally
uses the straight-line method of depreciation for financial reporting purposes
and accelerated methods for tax reporting purposes. Maintenance costs are
expensed as incurred, and renewals and betterments are capitalized.
Investments and Security Deposits
At December 31, 1998, the Company held one equity investment that was
classified as an "available-for-sale" investment. Any unrealized holding gains
or losses, net of taxes, were excluded from operating results and were
recognized as a separate component of stockholders' equity until realized. This
investment had an unrealized loss at December 31, 1998 of $0.7 million, which
was recognized in stockholders' equity. During 1999, this investment ceased
trading on a national exchange and accordingly, the Company reversed the
unrealized losses which had been recognized in stockholders' equity and is now
accounting for this investment on the historical cost basis which is less than
the estimated fair value.
At December 31, 1998, security deposits consisting of debt securities were
recorded at cost plus earned interest, as it was the intent of the Company to
hold these securities until maturity. As a result, the temporary gains and
losses associated with the change in market value of these securities were
excluded from operating results or stockholders' equity. As a result of a change
in investment strategy following the Merger, the Company no longer intends to
hold these securities to maturity and, during 1999, the Company started
classifying these securities as "available-for-sale."
Goodwill
Goodwill represents the excess of cost over fair value of assets acquired
related to the acquisition of regional bus carriers and courier companies as
prescribed by the purchase method of accounting. The Company is amortizing
goodwill on a straight-line basis over a 20 to 30 year period.
Debt Issuance Costs
Costs incurred related to the issuance of debt are deferred, and such costs
are amortized to interest expense over the life of the related debt.
Software Development Costs
Direct costs of materials and services consumed in developing or obtaining
internal use software and certain payroll costs for employees directly
associated with internal use software projects are capitalized. Amortization of
these costs begins when the software is available for its intended use and is
recognized on a straight-line basis over 5 years.
26
<PAGE> 27
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. Following the Merger, the Company began to purchase its insurance
through Laidlaw with coverage subject to a $50,000 deductible for property
damage claims and no deductible for all other claims. As a result, the Company
requires no insurance reserve associated with claims arising after March 16,
1999. Additionally, on December 31, 1999 the Company transferred liability for
all known and unknown claims, and all related insurance reserves, associated
with the period prior to March 16, 1999 to Laidlaw for which Laidlaw received
compensation in an amount equal to the book value of the reserves.
Prior to the Merger, automobile and general liability insurance coverages
were subject to a $1.5 million deductible per occurrence. The Company also
maintained property insurance subject to a $0.1 million deductible per
occurrence, and workers' compensation insurance subject to a $1.0 million
deductible per occurrence. A reserve for injuries and damages had been
established for these claim payments. The reserve at December 31, 1998, was
based on an assessment of actual claims and claims incurred but not reported,
based upon historical experience, and were discounted at 8.75%.
This reserve also includes an estimate of environmental liabilities. The
environmental reserve includes all sites identified for potential clean-up
and/or remediation and represents the present value of estimated cash flows
discounted at 8.0%.
Revenue Recognition
Transportation revenue is recognized when the service is provided. A
liability for tickets sold but not used is recorded as unredeemed tickets on the
Consolidated Statements of Financial Position.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Long-Lived Assets
The Company periodically evaluates whether the remaining useful life of
long-lived assets may require revision or whether the remaining unamortized
balance is recoverable. When factors indicate that an asset should be evaluated
for possible impairment, the Company uses an estimate of the asset's
undiscounted cash flows in assessing for a possible impairment.
3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES
Cash paid for interest was $22.3 million, $26.3 million and $29.4 million
for the years ended December 31, 1999, 1998 and 1997, respectively. There were
no cash payments for federal income taxes for the years ended December 31, 1999,
1998 and 1997.
Significant non-cash investing and financing activities during 1999
included a sale of property in exchange for a $2 million note receivable payable
in 2000. In 1998, non-cash activity included a garage that was acquired under a
capital lease for $1.0 million. In 1997, non-cash activity included $0.9 million
primarily related to stock issued in July 1997 for consideration in the purchase
of Carolina.
27
<PAGE> 28
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------- -------
<S> <C> <C>
Service parts........................................................... $ 4,770 $ 3,811
Fuel.................................................................... 984 631
Food service operations................................................. 1,966 1,468
------- -------
Total Inventories.................................................... 7,720 5,910
Less: Allowance for shrinkage....................................... (226) (205)
------- -------
Inventories, net.................................................. $ 7,494 $ 5,705
======= =======
</TABLE>
5. PREPAID EXPENSES
Prepaid expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------- -------
<S> <C> <C>
Insurance............................................................... $ -- $ 813
Taxes and licenses...................................................... 3,521 1,645
Rents................................................................... 1,238 1,493
Other................................................................... 935 1,219
------- -------
Prepaid expenses...................................................... $ 5,694 $ 5,170
======= =======
</TABLE>
6. OTHER CURRENT ASSETS
Other current assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------- -------
<S> <C> <C>
Deposits on insurance................................................... $ -- $ 8,658
Other deposits.......................................................... 289 465
Other................................................................... 1,562 784
------- -------
Other current assets.................................................. $ 1,851 $ 9,907
======= =======
</TABLE>
Deposits on insurance held as of December 31, 1998 represented the current
portion of self-insurance deposits required by the Company's previous primary
insurance carrier to cover interstate and certain intrastate claims for bodily
injury and property damage liability. As a result of the Company's change in
insurance coverage following the Merger, these deposits were no longer required
and returned to the Company.
28
<PAGE> 29
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. BENEFIT PLANS
Pension Plans
The Company has nine defined benefit pension plans. The first plan (the
"ATU Plan") covers certain of the Company's hourly employees hired before
November 1, 1983. The ATU Plan provides normal retirement benefits to the
covered employees based upon a percentage of average final earnings, reduced pro
rata for service of less than 15 years. Participants in 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 benefits 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 multi-employer pension plan, instituted in 1992,
to cover certain union mechanics represented by the International Association of
Machinists and Aerospace Workers. The remaining six plans are held by TNM&O,
Vermont Transit, and Carolina and cover substantially all of their salaried and
hourly personnel. It is the Company's policy to fund the minimum required
contribution under existing laws.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION: (IN THOUSANDS)
Benefit Obligation at Beginning of Year................................. $ 749,372 $ 729,421
Service Cost............................................................ 5,309 4,614
Interest Cost........................................................... 50,605 51,011
Plan Participants' Contributions........................................ 210 137
Plans Transferred due to Acquisition.................................... - 922
Actuarial Gain.......................................................... 9,922 43,649
Benefits Paid........................................................... (79,280) (80,382)
----------- -----------
Benefit Obligation at End of Year....................................... $ 736,138 $ 749,372
----------- -----------
CHANGE IN PLAN ASSETS:
Fair Value of Plan Assets at Beginning of Year.......................... $ 810,160 $ 820,168
Actual Return on Plan Assets............................................ 61,699 67,340
Employer Contribution................................................... 2,677 2,219
Plans Transferred due to Acquisition.................................... - 612
Plan Participants' Contributions........................................ 210 203
Benefits Paid........................................................... (79,280) (80,382)
----------- -----------
Fair Value of Plan Assets at End of Year................................ $ 795,466 $ 810,160
----------- -----------
Funded Status........................................................... $ 59,328 $ 60,788
Unrecognized Net Gain................................................... (27,291) (32,333)
----------- -----------
Prepaid Benefit Cost (Net Amount Recognized)............................ $ 32,037 $ 28,455
=========== ===========
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
AMOUNTS RECOGNIZED IN THE STATEMENTS OF FINANCIAL POSITION: (IN THOUSANDS)
Prepaid Benefit Cost.................................................... $ 31,130 $ 26,257
Accrued Benefit Liability............................................... (2,978) (7,533)
Accumulated Other Comprehensive Loss.................................... 3,885 9,731
----------- -----------
Prepaid Benefit Cost (Net Amount Recognized)............................ $ 32,037 $ 28,455
=========== ===========
</TABLE>
As of December 31, 1999, two of the Company's pension plans have
accumulated benefit obligations in excess of plan assets, for which the
projected benefit obligations, accumulated benefit obligations and fair value of
plan assets are $39,020, $39,020 and $38,455, respectively. As of December 31,
1998, six of the Company's pension plans have accumulated benefit obligations in
excess of plan assets, for which the projected benefit obligations, accumulated
benefit obligations and fair value of plan assets are $66,710, $65,916 and
$56,699, respectively. As of December 31, 1999, three of the Company's pension
plans have projected benefit obligations in excess of plan assets, for which the
projected benefit obligations, accumulated benefit obligations and fair value of
plan assets are $43,112, $42,403 and $42,548, respectively. As of December 31,
1998, seven of the Company's pension plans have projected benefit obligations in
excess of plan assets, for which the projected benefit obligations, accumulated
benefit obligations and fair value of plan assets are $70,876, $68,842 and
$60,595, respectively.
Plan assets consist primarily of government-backed securities, corporate
equity securities, guaranteed insurance contracts, annuities and corporate debt
obligations.
In determining the benefit obligations and service costs for the Company's
defined benefit pension plans, the following assumptions were used:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS FOR END OF YEAR DISCLOSURE:
Weighted Average Discount Rate.......................................... 7.25-7.50% 6.75%
Rate of Salary Progression.............................................. 0.00-6.00% 0.00-6.00%
Expected Long-Term Rate of Return on Plan Assets........................ 7.75-9.00% 7.25-9.00%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
COMPONENTS OF NET PERIODIC PENSION COST: (IN THOUSANDS)
Service Cost............................................................ $ 5,309 $ 4,614
Interest Cost........................................................... 50,605 51,011
Expected Return on Assets............................................... (56,785) (57,507)
Amortization of Actuarial (Gain) Loss................................... (34) 303
----------- -----------
Net Periodic Pension (Income)........................................... $ (905) $ (1,579)
=========== ===========
</TABLE>
30
<PAGE> 31
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Statement of Financial Accounting Standards No. 87, "Employers Accounting
for Pensions," required the Company to record a decrease in the additional
minimum liability of $4.0 million, net of a tax liability of $1.8 million as of
December 31, 1999 and an increase in the additional minimum liability of $1.4
million, net of a $0.8 million tax benefit as of December 31, 1998. These
amounts are reflected as a component of comprehensive income.
Included in the above is a multi-employer pension plan, instituted in 1992,
to cover certain union mechanics, for which the Company made contributions of
$0.6 million and $0.5 million for the years ended December 31, 1999 and 1998,
respectively.
Cash or Deferred Retirement Plans
The Company sponsors 401(k) cash or deferred retirement plans that cover
substantially all of its ongoing salaried, hourly and represented employees.
Costs to the Company related to these plans were $2.9 million, $1.9 million, and
$1.7 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Other Plans
A contributory trusteed health and welfare plan has been established for
all active hourly employees which are represented by collective bargaining
agreements and a contributory health and welfare plan has been established for
salaried employees and hourly employees who are not represented by collective
bargaining agreements. For the years ended December 31, 1999, 1998 and 1997, the
Company incurred costs of $21.9 million, $18.1 million, and $17.8 million,
respectively, related to these plans. No post-retirement health and welfare
plans exist.
The Company also has a Supplemental Executive Retirement Plan (the "SERP"),
which covers only key executives of the Company. During 1995, the SERP was
converted from a defined benefit plan to a defined contribution plan. For the
years ended December 31, 1999, 1998 and 1997, the Company incurred costs of $0.8
million, $0.6 million and $0.2 million, respectively.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
---------- ---------
<S> <C> <C>
Land and improvements................................................... $ 85,173 $ 90,258
Structures and improvements
Owned................................................................. 120,660 111,445
Capitalized leased assets............................................. 1,395 1,626
Lease interests....................................................... 4,376 4,376
Leasehold improvements................................................ 37,633 35,417
Revenue equipment
Owned................................................................. 221,990 170,506
Capitalized leased assets............................................. 23,153 36,046
Leasehold improvements................................................ 5,278 3,957
Furniture and fixtures.................................................. 57,850 49,050
Vehicles, machinery and equipment ...................................... 12,842 11,204
---------- ----------
Property, plant and equipment........................................... 570,350 513,885
Accumulated depreciation............................................ (173,273) (151,468)
---------- ----------
Property, plant and equipment, net.............................. $ 397,077 $ 362,417
========== ==========
</TABLE>
31
<PAGE> 32
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During 1999, the Company took delivery of 353 new buses, all of which were
manufactured by Motor Coach Industries, Inc. or its affiliate, Dina Autobuses,
S.A. de C.V (collectively "Motor Coach"). The Company purchased 302 of these
buses, and the remaining were financed as long-term operating leases. In
addition, the Company purchased 147 buses from expiring leases (97 from capital
and 50 from operating leases).
During 1998, the Company took delivery of 293 buses, all but three of which
were manufactured by Motor Coach. The Company purchased 23 of these buses and
the remaining were financed as long-term operating leases.
Accumulated depreciation of capitalized leased revenue equipment amounted
to $5.0 million and $14.9 million at December 31, 1999, and 1998, respectively.
9. INSURANCE AND SECURITY DEPOSITS
Insurance and security deposits consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Insurance deposits..................................... $ 15,270 $ 32,443
Security deposits...................................... 5,642 31,808
Other.................................................. 1,308 3,657
--------- ---------
Insurance and security deposits............. $ 22,220 $ 67,908
========= =========
</TABLE>
Insurance deposits are required to retain the Company's self-insurance
authorizations. Security deposits at December 31, 1999, include two separate
deposits pledged as collateral in connection with the sale and leaseback of 125
buses. During 1999, a significant portion of the insurance and security deposits
were returned to the Company as a result of the change in insurance coverage and
improved credit rating following the Merger.
10. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Trademarks.......................................... $ 10,198 $ 10,198
Software............................................ 37,151 34,398
Debt issuance costs................................. 6,254 10,741
Deferred lease costs................................ 3,847 2,841
Other............................................... 196 29
--------- ---------
Intangible assets................................... 57,646 58,207
Accumulated amortization.......................... (31,825) (28,503)
--------- ---------
Intangible assets, net.......................... $ 25,821 $ 29,704
========= =========
</TABLE>
Trademarks are amortized using the straight-line method over 15 years.
32
<PAGE> 33
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Compensation, benefits and payroll-related taxes........................ $ 22,491 $ 20,036
Bus and property operating leases and rentals........................... 17,729 10,188
Interest................................................................ 3,971 4,288
Operating, property and income taxes.................................... 6,455 6,161
Dividends payable....................................................... 609 864
Other expenses.......................................................... 25,112 23,282
--------- ---------
Accrued liabilities................................................. $ 76,367 $ 64,819
========= =========
</TABLE>
12. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Secured Indebtedness
Revolving bank loans, prime plus 0.25% or LIBOR plus 1.75%
(weighted average 7.7%) as of December 31, 1998....................... $ -- $ 37,785
Capital lease obligations (weighted average 10.7% at December 31, 1999
and 10.8% at December 31, 1998) due through 2033...................... 18,752 31,967
Real estate mortgages (weighted average 8.6% at December 31, 1999
and 9.5% at December 31, 1998) due through 2005...................... 633 623
Unsecured Indebtedness
11 1/2% Senior notes, due 2007....................................... 150,000 150,000
8 1/2% Convertible debentures, due 2007.............................. 6,064 9,804
Other long-term debt (weighted average 8.3% at December 31, 1999
and 5.6% at December 31, 1998) due through 2003...................... 4,803 3,479
--------- ----------
Long-term debt............................................................ 180,252 233,658
Less current maturities................................................. (5,671) (7,970)
--------- ----------
Long-term debt, net................................................. $ 174,581 $ 225,688
========= ==========
</TABLE>
11 1/2% Senior Notes
The Company's 11 1/2% Senior Notes due 2007 (the "11 1/2% Senior Notes")
bear interest at the rate of 11 1/2% per annum, payable each April 15 and
October 15. The 11 1/2% Senior Notes are redeemable at the option of the Company
in whole or in part, at any time on or after April 15, 2002, at redemption
prices of 105.750% in 2002, 103.834% in 2003, 101.917% in 2004 and 100% in 2005
and thereafter plus any accrued but unpaid interest. The 11 1/2% Senior Note
indenture contains certain covenants that, among other things, limit the ability
of the Company to incur additional indebtedness, pay dividends or make other
distributions, repurchase equity interests or subordinated indebtedness, create
certain liens, sell assets or enter into certain mergers or consolidations. As
of December 31, 1999, the Company was in compliance with all such covenants.
8 1/2% Convertible Debentures
During 1992, the Company issued $98.9 million of 8 1/2% Convertible
Subordinated Debentures ("Convertible Debentures") of which $6.1 million remains
outstanding as of December 31, 1999. Interest on the Convertible Debentures is
payable semiannually (each March 31 and September 30). Prior to the Merger, the
Convertible
33
<PAGE> 34
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Debentures were convertible into shares of Common Stock at any time prior to
maturity (unless earlier redeemed or repurchased), at a conversion rate of
approximately 80.81 shares of Common Stock per $1,000 principal amount of
Convertible Debentures. Following the Merger, the Convertible Debentures may be
converted into $525.27 in cash per $1,000 principal amount of Convertible
Debentures.
At December 31, 1999, maturities of long-term debt for the next five years
ending December 31 and all years thereafter, are as follows (in thousands):
<TABLE>
<S> <C>
2000............................................. $ 5,671
2001............................................. 5,002
2002............................................. 4,672
2003 ............................................ 7,087
2004 ............................................ 442
Thereafter....................................... 157,378
----------
$ 180,252
==========
</TABLE>
For the year ended December 31, 1999, the Company recorded an extraordinary
loss of $1.9 million, net of tax benefit of $1.0 million, related to the
termination of the Company's revolving credit facility. The amount represents
the write-off of previously incurred debt issuance costs that were being
amortized over the life of the revolving credit facility.
For the year ended December 31, 1997, the Company recorded an extraordinary
loss of $25.3 million relating to (i) the retirement of an interest rate swap
($2.5 million), (ii) the retirement of the Company's 10% Senior Notes due 2001
($21.3 million) and (iii) the write-off of debt issuance costs related to the
refinancing of the Company's revolving credit facility ($1.5 million).
13. INCOME TAXES
Tax Allocation Agreement
Effective with the Merger, the Company became a member of Laidlaw's U.S.
consolidated tax return group ("U.S. Group") and subject to a tax allocation
agreement. The Company is allocated its share of the tax liability of the U.S.
Group or receives a benefit for any losses used by the U.S. Group based on its
separate taxable income or loss.
Income Tax Provision
The income tax provision (benefit) consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Current
Federal........................................................... $ (9,125) $ 6,843 $ --
State............................................................. 868 862 482
--------- -------- --------
Total Current............................................... (8,257) 7,705 482
---------- -------- --------
Deferred
Federal........................................................... 3,595 (22,376) 478
State............................................................. 50 (2,185) 91
--------- -------- --------
Total Deferred.............................................. 3,645 (24,561) 569
--------- -------- --------
Income tax provision (benefit).............................. $ (4,612) $(16,856) $ 1,051
========= ======== ========
</TABLE>
34
<PAGE> 35
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Additionally, the Company recorded a $1.0 million benefit for income taxes
as an offset to the extraordinary loss recorded in 1999.
Effective Tax Rate
The differences, expressed as a percentage of income before taxes and
extraordinary items, between the statutory and effective federal income tax
rates are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Statutory tax rate ............................................ (35.0)% 35.0% 34.0%
State income taxes, net of federal benefit .................... 3.4 4.6 6.1
Recognition of previously unrecognized deferred tax assets .... -- (132.6) (31.0)
Other ......................................................... 5.6 4.0 2.0
------ ------ ------
Effective tax rate ......................................... (26.0)% (89.0)% 11.1%
====== ====== ======
</TABLE>
Deferred Tax Assets
Significant components of deferred income taxes at December 31, 1999 and
1998, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
---------- -----------
<S> <C> <C>
Deferred Tax Assets
Federal and state NOL carryforwards................................... $ 41,168 $ 37,571
Reserve for injuries and damages...................................... 2,591 18,703
Other accrued expenses and liabilities................................ 17,704 7,828
Other deferred tax assets............................................. 701 716
---------- -----------
Total deferred tax assets........................................... 62,164 64,818
---------- -----------
Deferred Tax Liabilities
Tax over book depreciation and amortization........................... 20,881 20,407
Pension cost for tax purposes in excess of books...................... 8,791 6,546
Other deferred tax liabilities........................................ 967 874
---------- -----------
Total deferred tax liabilities...................................... 30,639 27,827
---------- -----------
Net deferred tax assets.................................................... 31,525 36,991
Valuation allowance........................................................ (3,950) (3,950)
---------- -----------
Net deferred tax assets, net of valuation allowance................. $ 27,575 $ 33,041
========== ===========
</TABLE>
35
<PAGE> 36
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During 1998 the Company recognized deferred tax assets primarily related to
net operating losses from prior years expected to be realized in the current or
future years. These tax assets had been previously reserved; however, the
Company recognized these tax assets due to a continued trend of earnings
improvement and current and future expected positive earnings, as well as the
successful negotiation of the new union agreement.
The changes in the valuation allowance are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Decrease resulting from identification of additional temporary
differences ......................................................... $ -- $ (3,953)
Decrease related to income recorded as deferred tax benefit ............... -- (5,898)
Decrease in deferred income tax asset recorded to capital in excess
of par .............................................................. -- (960)
Deferred tax asset recognized due to a change in estimate of future
realization recorded as a deferred tax benefit ...................... -- (25,144)
Deferred tax asset recognized due to a change in estimate of future
realization recorded as an increase in additional paid in capital ... -- (3,331)
-------- --------
Net change in valuation allowance ............. $ -- $(39,286)
======== ========
</TABLE>
Availability and Amount of NOL's
As a result of the ownership change from the Merger and in a previous period,
Section 382 of the Internal Revenue Code places an annual limitation on the
amount of federal net operating loss ("NOL") carryforwards which the Company and
the U.S. group may utilize. Consequently the Company's NOL carryforwards are
subject to an annual limitation of $22.2 million and a fifteen-year carryforward
period. The NOL carryforwards of $99.0 million expire as follows (in thousands):
<TABLE>
<S> <C>
2008............................................. $ 5,208
2009............................................. 17,685
2010............................................. 23,536
2011 ............................................ 19,670
2012 ............................................ 20,589
2014............................................. 12,308
----------
$ 98,996
==========
</TABLE>
The Company has additional federal NOLs of $5.5 million that can only be used
against a specific subsidiary's income. A full valuation allowance has been
provided for these NOLs.
Included in the deferred tax assets is $4.6 million less a valuation allowance
of $2.0 million for the Company's various state NOLs which have carryforward
periods of 3 to 15 years and expiration dates of 2000 and later.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments",
36
<PAGE> 37
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 accounts receivable, the carrying amounts
reported in the Consolidated Statements of Financial Position approximate fair
value. The fair values of the short-term deposits and long-term insurance
deposits are based upon quoted market prices at December 31, 1999 and 1998,
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 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, 1999 and 1998.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1999 and 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other Current Assets
Deposits on Insurance ......................... $ -- $ -- $ 8,658 $ 8,658
Other Deposits ................................ 289 289 465 465
Insurance and Security Deposits
Insurance Deposits ............................ 15,270 15,270 32,443 32,443
Security Deposits ............................. 5,642 5,642 31,808 33,166
Long-Term Debt
Real Estate Mortgages ......................... (633) (560) (623) (467)
11 1/2% Senior Notes .......................... (150,000) (168,000) (150,000) (170,250)
8 1/2% Convertible Subordinated Debentures .... (6,064) (6,200) (9,804) (9,951)
Other Long-term Debt .......................... (4,803) (4,354) (3,479) (3,434)
</TABLE>
15. LEASE COMMITMENTS
The Company leases buses and terminals from various parties pursuant to
capital and operating lease agreements expiring at various dates through 2065.
At December 31, 1999, scheduled future minimum payments for the next five
years ending December 31, under the capital leases and non-cancelable operating
leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
2000................................................ $ 5,106 $ 61,484
2001................................................ 4,738 57,757
2002................................................ 5,091 47,861
2003................................................ 7,015 52,776
2004................................................ 532 45,524
Thereafter.......................................... 1,734 60,834
--------- ----------
Total minimum lease payments................ 24,216 $ 326,236
==========
Amounts representing interest................... 5,464
---------
Present value of minimum lease payments..... $ 18,752
=========
</TABLE>
37
<PAGE> 38
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For the years ended December 31, 1999, 1998 and 1997, rental expenses for
operating leases (net of sublease rental income of approximately $2.8 million,
$2.2 million and $2.1 million, respectively) amounted to $76.5 million, $60.0
million and $57.6 million, respectively. Rental expenses for bus operating
leases, excluding casual rents and other short term leases during peak periods,
amounted to $39.4 million, $34.4 million and $32.1 million in 1999, 1998 and
1997, respectively.
16. COMMITMENTS AND CONTINGENCIES
SEC INVESTIGATION
In January 1995, the Company received notice that the Securities and
Exchange Commission (the "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 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, 53 locations
have been identified as remaining sites requiring potential clean-up and/or
remediation as of December 31, 1999. Additionally, the Company has, or has
assumed, potential liability with respect to four active locations which the
Environmental Protection Agency ("EPA") has designated as Superfund sites. The
Company, as well as other parties designated by the EPA as potentially
responsible parties, face exposure for costs related to the clean-up of those
sites. Based on the EPA's enforcement activities to date, the Company believes
its liability at these sites will not be material because its involvement was as
a de minimis generator of wastes disposed of at the sites. In light of its
minimal involvement, the Company has been negotiating to be released from
liability in return for the payment of immaterial settlement amounts.
The Company has recorded a total environmental reserve of $7.3 million at
December 31, 1999 of which approximately $0.7 million is indemnifiable by the
predecessor owner of the Company's domestic bus operations, now known as Viad
Corp. 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%. The Company expects the majority of this environmental
liability to be paid over the next five to seven years. As of the date of this
report, the Company is not aware of any additional sites to be identified, and
management believes that adequate accruals have been made related to all known
environmental matters.
38
<PAGE> 39
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
POTENTIAL PENSION PLAN FUNDING REQUIREMENTS
The Company maintains nine defined benefit pension plans, the most
significant of which (the ATU Plan) covers approximately 15,650 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 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 current regulations, 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 earn the assumed rate of return or that contribution to the ATU Plan
will not be significant. Additionally, there can be no assurance that new
regulations may result in changes in the prescribed actuarial mortality table
and discount rates, which would result in the Company being required to make
substantial contributions in the future.
REDEEMABLE PREFERRED STOCK
During 1997, the Company issued 2,400,000 shares of 8 1/2% convertible
exchangeable preferred stock ("the Preferred Stock"). The Preferred Stock
carries a liquidation preference of $25.00 per share plus accumulated and unpaid
dividends. The holders of the Preferred Stock are currently entitled to vote
with the holders of the Common Stock on all matters submitted to a vote of
stockholders of the Company, each share of Preferred Stock entitling the holder
thereof to one vote. Dividends accrue at a rate per annum equal to 8 1/2% of the
liquidation preference per share of Preferred Stock and are payable quarterly in
arrears on February 1, May 1, August 1 and November 1. Prior to the Merger, the
Preferred Stock was convertible, at the option of the holder thereof, into
approximately 5.128 shares of Common Stock. Following the Merger, each share of
Preferred Stock is convertible into $33.33 in cash which, based upon the number
of shares outstanding at December 31, 1999, results in a total conversion value
of $55.9 million. The Preferred Stock will be redeemable at the option of the
Company, in whole or in part, at any time on or after May 3, 2000, at redemption
prices of 104.86% in 2000, 103.64% in 2001, 102.43% in 2002, 101.21% in 2003 and
100% in 2004 and thereafter plus accumulated and unpaid dividends. The Company
is recording the conversion of Preferred Stock as a reduction in the carrying
value with the excess deducted from paid in capital. Subsequent to year end and
through March 24, 2000, 1,069,600 shares of preferred stock were converted.
LEGAL PROCEEDINGS
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 arises 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 internal and outside legal counsel and risk management
personnel, management believes that there is no proceeding either threatened or
pending against the Company that, if resolved against the Company, would
materially exceed the amounts recorded as estimated liabilities by the Company.
39
<PAGE> 40
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. RELATED PARTY TRANSACTIONS
Following the Merger, the Company began to purchase its insurance through
Laidlaw. The Company has a $50,000 deductible for property damage claims and no
deductible for all other claims. As a result, there is no insurance reserve
associated with claims arising after March 16, 1999. The Company has recorded
$31.7 million in insurance expense under this program, which the Company
believes is comparative to the cost under its previous insurance program.
Additionally, on December 31, 1999, the Company transferred liability for all
known and unknown claims, and all related insurance reserves, associated with
the period prior to March 16, 1999 to Laidlaw for aggregate consideration of
$24.0 million, which equaled the book value of the reserves. The consideration
received included $1.9 million of Company deposits which had been required by
the Company's previous primary insurance carrier.
Laidlaw has provided credit support in the form of corporate guarantees and
letters of credit for certain of the Company's operating leases. As of February
29, 2000, Laidlaw has guaranteed $123.0 million of future minimum lease payments
on buses under lease by the Company, and has provided $22.0 million in letters
of credit.
The Company's SERP has been funded, through a rabbi trust, with a $2.5
million letter of credit issued by Laidlaw.
Certain of the Company's employees participate in a stock option program
offered by Laidlaw.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the years ended December
31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1999 QUARTER QUARTER QUARTER QUARTER
---------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues...................................... $ 194,738 $ 228,353 $ 268,377 $ 232,063
Operating expenses...................................... 207,150 219,655 242,363 228,833
--------- --------- --------- ---------
Operating income (loss)................................. (12,412) 8,698 26,014 3,230
Settlement of stock options............................. 19,929 1,365 -- --
Interest expense........................................ 6,280 5,377 5,304 5,032
Income tax provision (benefit).......................... (17,353) 881 10,789 1,071
Minority Interest....................................... 56 267 460 495
--------- --------- --------- ---------
Net income (loss) before extraordinary item............. (21,324) 808 9,461 (3,368)
Extraordinary item...................................... 1,607 -- -- 290
--------- --------- --------- ---------
Net income (loss)....................................... $ (22,931) $ 808 $ 9,461 $ (3,658)
========= ========= ========= ==========
</TABLE>
Adjustments to the Company's annual effective income tax rate in the fourth
quarter of 1999 increased the net loss before extraordinary items by
approximately $1.5 million and resulted in the adjustment to the extraordinary
item. The total after-tax effect of these adjustments reduced net income in the
fourth quarter by approximately $1.8 million.
40
<PAGE> 41
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1998 QUARTER QUARTER QUARTER QUARTER
---------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues...................................... $ 180,720 $ 211,247 $ 244,134 $ 209,895
Operating expenses...................................... 187,623 201,890 211,350 198,302
--------- --------- --------- ---------
Operating income (loss)................................. (6,903) 9,357 32,784 11,593
Interest expense........................................ 6,654 7,305 7,263 6,677
Income tax provision (benefit).......................... (1,096) 179 (16,250) 311
Minority Interest....................................... (8) (83) 134 513
---------- --------- --------- ---------
Net income (loss)....................................... $ (12,453) $ 1,956 $ 41,637 $ 4,092
========= ========= ========= =========
</TABLE>
41
<PAGE> 42
SCHEDULE II
GREYHOUND LINES, INC. AND SUBSIDIARIES(a)
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
-------------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1997:
Allowance for Doubtful Accounts...... $ 241 $ 302 $ (61) $ (214) (b) $ 268
Inventory Reserves................... 95 80 -- -- 175
Accumulated Amortization of
Intangible Assets................. 19,105 5,434 -- (2,351) (c) 22,188
Reserves for Injuries and Damages.... 59,963 32,687 (194) (34,491) (d) 57,965
---------- ---------- ---------- ---------- ---------
Total Reserves and Allowances... $ 79,404 $ 38,503 $ (255) $ (37,056) $ 80,596
========== ========== ========== ========== =========
December 31, 1998:
Allowance for Doubtful Accounts...... $ 268 $ 342 $ (40) $ (372) (b) $ 198
Inventory Reserves................... 175 30 -- -- 205
Accumulated Amortization of
Intangible Assets................. 22,188 6,908 -- (594) (c) 28,503
Reserves for Injuries and Damages.... 57,965 35,237 (1,021) (31,822) (d) 60,359
---------- ---------- ---------- ---------- ---------
Total Reserves and Allowances... $ 80,596 $ 42,517 $ (1,061) $ (32,788) $ 89,265
========== ========== ========== ========== =========
December 31, 1999:
Allowance for Doubtful Accounts...... $ 198 $ 510 $ 224 $ (530) (b) $ 402
Inventory Reserves................... 205 21 -- -- 226
Accumulated Amortization of
Intangible Assets................. 28,503 4,996 -- (1,674) (c) 31,825
Reserves for Injuries and Damages.... 60,359 10,026 -- (63,072) (d) 7,313
---------- ---------- ---------- ---------- ---------
Total Reserves and Allowances... $ 89,265 $ 15,553 $ 224 $ (65,276) $ 39,766
========== ========== ========== ========== =========
</TABLE>
- ----------
(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.
(b) Write-off of uncollectible receivables, net of recovery of receivables
previously written-off.
(c) Write-off or amortization of other assets and deferred costs.
(d) Payments of settled claims and, in 1999, $24.0 million represents the
payment to Laidlaw for liabilities assumed by Laidlaw.
42
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Subsequent to the merger of Greyhound Lines, Inc. (the "Company") with
Laidlaw Inc. ("Laidlaw"), PricewaterhouseCoopers LLP was engaged to audit the
consolidated financial statements of the Company in connection with the audit of
Laidlaw's consolidated financial statements as of and for the fiscal year ended
August 31, 1999. PricewaterhouseCoopers LLP is the independent accountants for
Laidlaw. Additionally, the Company engaged PricewaterhouseCoopers LLP to audit
the consolidated financial statements of the Company as of and for the year
ended December 31, 1999, in place of the Company's previous independent
accountants, Arthur Andersen LLP.
The reports of Arthur Andersen LLP on the consolidated financial statements
of the Company for the two years in the period ended December 31, 1998,
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle.
In connection with its audits for the two years ended December 31, 1998,
and through March 29, 2000, there have been no disagreements with Arthur
Andersen LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to the satisfaction of Arthur Andersen LLP would have caused them
to make reference thereto in their report on the consolidated financial
statements for such years.
The Company has requested that Arthur Andersen LLP furnish it with a letter
addressed to the Securities and Exchange Commission stating whether or not it
agrees with the above statements. A copy of such letter, dated March 29, 2000,
is filed as Exhibit 16.1 to this Form 10-K.
43
<PAGE> 44
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 statement schedule are set
forth in Item 8 of this report. Financial statement schedules not included in
this report have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto. Financial
statements for fifty percent or less owned companies accounted for by the equity
method have been omitted because, considered in the aggregate, they have not
been considered to constitute a significant subsidiary.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Management Report on Responsibility for Financial Reporting................................. 18
Reports of Independent Public Accountants................................................... 19
Consolidated Statements of Financial Position at December 31, 1999 and 1998................. 21
Consolidated Statements of Operations for the years ended December 31, 1999, 1998
and 1997.................................................................................. 22
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999,
1998 and 1997............................................................................. 23
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998
and 1997.................................................................................. 24
Notes to Consolidated Financial Statements.................................................. 25
Schedule II - Valuation and Qualifying Accounts............................................. 42
</TABLE>
3. EXHIBITS
2.1 -- Amended and Restated Agreement and Plan of Merger dated as
of November 5, 1998 (the "Merger Agreement") by and among
Greyhound Lines, Inc., Laidlaw Inc. and Laidlaw Transit
Acquisition Corp. (14)
3.1 -- Restated Certificate of Incorporation of Greyhound Lines,
Inc. (15)
3.2 -- Bylaws of Greyhound Lines, Inc. (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. (3)
4.2 -- First Supplemental Indenture to the 8 1/2% Convertible
Subordinated Debentures Indenture between the Registrant and
Shawmut Bank Connecticut, N.A., as Trustee. (6)
4.3 -- Second Supplemental Indenture to the 8 1/2% Convertible
Subordinated Debentures Indenture between the Registrant and
State Street Bank and Trust Company, as trustee. (15)
4.4 -- Indenture, dated April 16, 1997, by and among the Company,
the Guarantors and PNC Bank, N.A., as Trustee. (9)
4.5 -- First Supplemental Indenture dated as of July 9, 1997
between the Registrant and PNC Bank, N.A. as Trustee. (12)
4.6 -- Second Supplemental Indenture dated as of August 25, 1997
between the Registrant and PNC Bank, N.A. as Trustee. (13)
4.7 -- Third Supplemental Indenture dated as of February 1, 1999,
between the Registrant and Chase Manhattan Trust Company as
Trustee. (16)
4.8 -- Fourth Supplemental Indenture dated as of May 14, 1999,
between the Registrant and Chase Manhattan Trust Company as
Trustee. (16)
4.9 -- Form of 11 1/2% Series A Senior Notes due 2007. (9)
4.10 -- Form of 11 1/2% Series B Senior Notes due 2007. (11)
4.11 -- Form of Guarantee of 11 1/2% Series A and B Senior Notes.
(11)
44
<PAGE> 45
4.12 -- Indenture dated April 16, 1997, by and between the Company
and U.S. Trust of Texas, N.A., as Trustee. (10)
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 -- 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. (2)
10.7 -- 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. (2)
10.8 -- Affiliated Companies Demand Loan Agreement dated March 16,
1999, between the Registrant and Laidlaw Transportation Inc.
(17)
10.9 -- Tax Allocation Agreement dated June 1, 1982, between the
Registrant and Laidlaw Transportation Inc. (17)
10.10 -- Loss Portfolio Transfer Agreement dated December 31, 1999,
between the Registrant and Laidlaw Transportation Inc. (17)
10.11 -- Memorandum of Agreement, dated September 30, 1998, between
the Registrant and the Amalgamated Transit Union National
Local 1700. (14)
10.12 -- Lease Agreement No. 1, dated as of December 29, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.13 -- Lease Agreement No. 2, dated as of December 29, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.14 -- Lease Agreement No. 3, dated as of December 29, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.15 -- Lease Supplement No. 1-1, dated as of December 30, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.16 -- Lease Supplement No. 2-1, dated as of December 30, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.17 -- Lease Supplement No. 3-1, dated as of December 30, 1993,
between Wilmington Trust Company and the Registrant. (4)
10.18 -- Tax Indemnification Agreement, dated as of December 29,
1993, between NationsBank Lease Investments, Inc. and the
Registrant. (4)
10.19 -- Pledge Agreement, dated as of December 29, 1993, among the
Registrant, Wilmington Trust Company and NationsBank Lease
Investments, Inc. (4)
10.20 -- Participation Agreement, dated as of December 29, 1993,
among NationsBank Lease Investments, Inc. and the
Registrant. (4)
10.21 -- Lease Agreement, dated as of March 28, 1994, between
Wilmington Trust Company and the Registrant. (5)
10.22 -- Lease Supplement No. 1, dated as of March 28, 1994, between
Wilmington Trust Company and the Registrant. (5)
10.23 -- Pledge Agreement, dated as of March 28, 1994, among the
Registrant, Wilmington Trust Company and Cargill Leasing
Corporation. (5)
10.24 -- Participation Agreement, dated as of March 28, 1994, among
Cargill Leasing Corporation and the Registrant. (5)
10.25 -- Bill of Sale, dated as of March 28, 1994, between the
Registrant and Wilmington Trust Company. (5)
45
<PAGE> 46
10.26 -- Tax Indemnification Agreement, dated as of March 28, 1994,
between Cargill Leasing Corporation and the Registrant. (5)
10.27 -- Lease Agreement, dated as of March 29, 1994, between
Wilmington Trust Company and the Registrant. (5)
10.28 -- Lease Supplement No. 1, dated as of March 29, 1994, between
Wilmington Trust Company and the Registrant. (5)
10.29 -- Pledge Agreement, dated as of March 29, 1994, among the
Registrant, Wilmington Trust Company and Cargill Leasing
Corporation. (5)
10.30 -- Participation Agreement, dated as of March 29, 1994, among
Cargill Leasing Corporation and the Registrant. (5)
10.31 -- Bill of Sale, dated as of March 29, 1994, between the
Registrant and Wilmington Trust Company. (5)
10.32 -- Tax Indemnification Agreement, dated as of March 29, 1994,
between Cargill Leasing Corporation and the Registrant. (5)
10.33 -- Termination Agreement dated as of March 17, 1999, by and
between Greyhound Lines, Inc. and Foothill Capital
Corporation and BankBoston N.A. (15)
10.34 -- Greyhound Lines, Inc. Supplemental Executive Retirement
Plan. (7)
10.35 -- First Amendment to Supplemental Executive Retirement Plan.
(8)
10.36 -- Second Amendment to Supplemental Executive Retirement Plan.
(15)
10.37 -- Supplemental Executive Retirement Plan Trust Agreement (15)
10.38 -- Second Amended Employment Agreement dated March 16, 1999,
between Registrant and Craig R. Lentzsch. (15)
10.39 -- Second Amended Employment Agreement dated March 16, 1999,
between Registrant and John Werner Haugsland. (15)
10.40 -- First Amendment to the Second Amended Executive Employment
Agreement dated December 1999 between Registrant and John
Warner Haugsland. (17)
10.41 -- 1998 Stock Option Plan for ATU Represented Drivers and
Mechanics, dated July 22, 1998. (14)
10.42 -- Greyhound Lines, Inc. Change in Control Severance Pay
Program. (14)
10.43 -- Form of Change in Control Agreement between the Company and
certain officers of the Company. (14)
16.1 -- Arthur Andersen letter dated March 29, 2000. (17)
21 -- Subsidiaries of the Registrant. (17)
27 -- Financial Data Schedule as of and for the year ended
December 31, 1999. (18)
- -----
(1) Incorporated by reference from the Annual Report Form 10-K/A for the year
ended December 31, 1994.
(2) 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.
(3) 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.
(4) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.
(5) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994.
(6) Incorporated herein by reference from the Registrant's Issuer Tender
Offer Statement on Schedule 13E-4 (File No. 5-41800).
46
<PAGE> 47
(7) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995.
(8) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996.
(9) Incorporated by reference from the Company's Registration Statement on
Form S-4 regarding the Company's 11 1/2% Series B Senior Notes due 2007.
(10) Incorporated by reference from the Company's Registration Statement on
Form S-3 regarding the Company's 8 1/2% Convertible Exchangeable
preferred Stock, Common Stock and 8 1/2% Convertible Subordinated
Debentures due 2009.
(11) Incorporated by reference from Amendment 1 to Form S-4 filed on June 27,
1997.
(12) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997.
(13) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
(14) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998.
(15) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998.
(16) Incorporated by reference from the Registrant's Quarterly Report on Form
10-K for the quarter ended June 30, 1999.
(17) Filed herewith.
(18) Filed only in EDGAR format with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1999.
(b) REPORTS ON FORM 8-K
The Company was not required to file any current reports on Form 8-K during
the quarter ended December 31, 1999.
47
<PAGE> 48
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 29, 1999.
GREYHOUND LINES, INC.
By: /s/ CRAIG R. LENTZSCH
----------------------------------------
Craig R. Lentzsch
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JOHN R. GRAINGER Director March 29, 2000
- ------------------------------------------
John R. Grainger
/s/ CRAIG R. LENTZSCH President and Chief March 29, 2000
- ------------------------------------------ Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial Officer)
/s/ CHERYL W. FARMER Vice President and Controller March 29, 2000
- ------------------------------------------ (Principal Accounting Officer)
Cheryl W. Farmer
</TABLE>
48
<PAGE> 49
CO-REGISTRANTS
<TABLE>
<S> <C> <C>
ATLANTIC GREYHOUND LINES OF
VIRGINIA, INC.
By:
/s/ CRAIG R. LENTZSCH Director, Chairman of the Board, March 29, 2000
- ------------------------------------------ President and Chief Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ J. FLOYD HOLLAND Director March 29, 2000
- ------------------------------------------
J. Floyd Holland
/s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and
Accounting Officer)
GLI HOLDING COMPANY
By:
/s/ CRAIG R. LENTZSCH Director, President and March 29, 2000
- ------------------------------------------ Chief Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JACK W. HAUGSLAND Director March 29, 2000
- ------------------------------------------
Jack W. Haugsland
/s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and
Accounting Officer)
GREYHOUND de MEXICO S.A. de C.V.
By:
/s/ CRAIG R. LENTZSCH Director, President and March 29, 2000
- ------------------------------------------ Chief Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JACK W. HAUGSLAND Director March 29, 2000
- ------------------------------------------
Jack W. Haugsland
/s/ JEFFREY W. SANDERS Director March 29, 2000
- ------------------------------------------
Jeffrey W. Sanders
/s/ CHERYL W. FARMER Examiner March 29, 2000
- ------------------------------------------ (Principal Financial and
Cheryl W. Farmer Accounting Officer)
</TABLE>
49
<PAGE> 50
<TABLE>
<S> <C> <C>
LOS BUENOS LEASING CO., INC.
By:
/s/ ALFONSO PENEDO Director, President, Chief March 29, 2000
- ------------------------------------------ Executive Officer and General
Alfonso Penedo Manager
(Principal Executive Officer)
/s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and
Accounting Officer)
SISTEMA INTERNACIONAL de
TRANSPORTE de AUTOBUSES, INC.
By:
/s/ CRAIG R. LENTZSCH Director, President, and March 29, 2000
- ------------------------------------------ Chief Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JACK W. HAUGSLAND Director March 29, 2000
- ------------------------------------------
Jack W. Haugsland
/s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and
Accounting Officer)
</TABLE>
50
<PAGE> 51
<TABLE>
<S> <C> <C>
TEXAS, NEW MEXICO & OKLAHOMA
COACHES, INC.
By:
/s/ CRAIG R. LENTZSCH Director and Chief March 29, 2000
- ------------------------------------------ Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JACK W. HAUGSLAND Director March 29, 2000
- ------------------------------------------
Jack W. Haugsland
/s/ J. FLOYD HOLLAND Director March 29, 2000
- ------------------------------------------
J. Floyd Holland
/s/ ROBERT D. GREENHILL Director March 29, 2000
- ------------------------------------------
Robert D. Greenhill
/s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and
Accounting Officer)
T.N.M. & O. TOURS, INC.
By:
/s/ CRAIG R. LENTZSCH Director and Chief March 29, 2000
- ------------------------------------------ Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JACK W. HAUGSLAND Director March 29, 2000
- ------------------------------------------
Jack W. Haugsland
/s/ J. FLOYD HOLLAND Director March 29, 2000
- ------------------------------------------
J. Floyd Holland
/s/ ROBERT D. GREENHILL Director March 29, 2000
- ------------------------------------------
Robert D. Greenhill
/s/ RICHARD M. PORTWOOD Director March 29, 2000
- ------------------------------------------
Richard M. Portwood
/s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and
Accounting Officer)
</TABLE>
51
<PAGE> 52
<TABLE>
<S> <C> <C>
VERMONT TRANSIT CO., INC.
By:
/s/ CRAIG R. LENTZSCH Director, President and March 29, 2000
- ------------------------------------------ Chief Executive Officer
Craig R. Lentzsch (Principal Executive Officer)
/s/ JACK W. HAUGSLAND Director March 29, 2000
- ------------------------------------------
Jack W. Haugsland
/s/ J. FLOYD HOLLAND Director March 29, 2000
- ------------------------------------------
J. Floyd Holland
/s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000
- ------------------------------------------ Chief Financial Officer
Jeffrey W. Sanders (Principal Financial and
Accounting Officer)
</TABLE>
52
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.8 Affiliated Companies Demand Loan Agreement dated March 16,
1999, between the Registrant and Laidlaw Transportation Inc.
10.9 Tax Allocation Agreement dated June 1, 1982, between the
Registrant and Laidlaw Transportation Inc.
10.10 Loss Portfolio Transfer Agreement dated December 31, 1999,
between the Registrant and Laidlaw Transportation Inc.
10.40 First Amendment to the Second Amended Executive Employment
Agreement dated December 31, 1999, between the Registrant and
Jack Warner Haugsland.
16.1 Arthur Andersen Letter dated March 29, 2000
21 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.8
AFFILIATED COMPANIES DEMAND LOAN AGREEMENT
THIS AFFILIATED COMPANIES DEMAND LOAN AGREEMENT made as of March 16,
1999, by and among Laidlaw Transportation, Inc. and Greyhound Lines, Inc. and
its present and any future affiliated companies (as hereinafter defined), which
affiliated companies, including Greyhound Lines, Inc. are hereinafter
collectively referred to as the "Affiliates" or individually referred to as an
"Affiliate".
WHEREAS, the Affiliates which are parties to this Agreement wish to
provide for the payment of loans and interest charges on any and all
intercompany indebtedness by or among any of the Affiliates.
NOW, THEREFORE, in consideration of the mutual covenants herein set out
and intending to be legally bound, the Affiliates which are parties to this
Agreement agree each with the others as follows:
1. Definitions:
For the purposes of this Agreement:
(a) A company is an "affiliate" of, or a company is "affiliated"
with another specified company if it, directly or indirectly,
through one or more intermediaries, controls, is controlled by
or is under common control with the other specified company;
(b) "Control" means (i) the possession, direct or indirect, of the
power to direct or cause the direction of the management and
policies of a company, or (ii) the ownership, directly or
indirectly, of shares possessing more than 80% of the voting
power of all of the shares of a company.
2. Intercompany Loans.
Any intercompany loan or indebtedness which is shown on the books and
records of any Affiliate and which has been received or advanced from
another Affiliate shall hereby be deemed to be an intercompany loan
made between such Affiliates which shall be due and payable in full,
together with interest thereon as set out below, upon demand made by
the Affiliate advancing the intercompany loan.
3. Interest Charges.
An Affiliate which receives an intercompany loan from any of the other
Affiliates shall pay interest on such intercompany loan calculated
quarterly at the prime rate of interest in effect at the First National
Bank of Chicago plus a percentage thereon, not to exceed two percent
(2%), as may be determined by Laidlaw Transportation, Inc. from time to
time.
<PAGE> 2
4. Interest Payments.
The interest charges set out in Section 3 above shall be payable by the
Affiliate which received an intercompany loan to the Affiliate which
makes such intercompany loan annually on the anniversary date of the
intercompany loan.
5. Further Actions.
The Affiliates shall take such further actions and shall execute such
further documents or instruments as may be reasonably necessary to
fulfill or give force and effect to this Agreement.
6. Successors and Assigns.
This Agreement shall be binding upon and ensure to the benefit of the
Affiliates which are parties hereto and their respective successors and
assigns.
7. Additional Parties and Withdrawal.
An Affiliate may join in this Agreement at any time, by duly adopted
resolution of its Board of Directors and by giving notice thereof to
Laidlaw Transportation, Inc., and shall thereafter be bound by the
terms hereof together with all other Affiliates then parties hereto.
Any Affiliate may withdraw from this Agreement by giving 30 days'
written notice of its withdrawal to the other Affiliates then party to
this Agreement, which giving of notice may be effected by the delivery
thereof to Laidlaw Transportation, Inc.
8. Governing Law.
This Agreement shall be governed by and interpreted in accordance with
the laws in force in the State of Delaware, and the Affiliates hereby
attorn to the jurisdiction of the courts of that State.
9. Effective Date.
This Agreement shall commence as of March 16, 1999 and shall continue
in force and effect for all taxable years thereafter until terminated.
This Agreement shall terminate and supersede any and all prior
intercompany loan agreements between Greyhound Lines, Inc. and its
affiliates.
IN WITNESS WHEREOF this Agreement has been duly adopted by the Boards
of Directors of each of the Affiliates which are parties hereto.
2
<PAGE> 3
LAIDLAW TRANSPORTATION, INC.
By: /s/ Ivan R. Cairns
---------------------------------------------
IVAN R. CAIRNS
Senior Vice President
GREYHOUND LINES, INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
President and Chief Executive Officer
ASI ASSOCIATES, INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chief Executive Officer
ATLANTIC GREYHOUND LINES OF
VIRGINIA, INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chairman of the Board and President
and Chief Executive Officer
CAROLINA ASSOCIATES, INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chief Executive Officer
CAROLINA COACH COMPANY
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chief Executive Officer
GLI HOLDING COMPANY
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
President and Chief Executive Officer
GREYHOUND DE MEXICO, S.A. DE C.V.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
President
GRUPO CENTRO, INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
President
LOS BUENOS LEASING CO., INC.
By: /s/ Alfonso Penedo
---------------------------------------------
ALFONSO PENEDO
President and Chief Executive Officer
and General Manager
LSX DELIVERY, L.L.C.
By: : /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chairman of the Board
ON TIME DELIVERY SERVICE, INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chairman of the Board
3
<PAGE> 4
PRB ACQUISITION, LLC
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chief Executive Officer and President
RED BUS SYSTEMS, INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chief Executive Officer
SEASHORE TRANSPORTATION COMPANY
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chief Executive Officer
SET ACQUISITION CORP.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
President
SISTEMA INTERNACIONAL DE
TRANSPORTE DE AUTOBUSES, INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
President and Chief Executive Officer
TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chief Executive Officer
T.N.M. & O. TOURS, INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chief Executive Officer
VALLEY GARAGE COMPANY
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chief Executive Officer
VALLEY TRANSIT CO., INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
Chief Executive Officer
VERMONT TRANSIT CO., INC.
By: /s/ Craig R. Lentzsch
---------------------------------------------
CRAIG R. LENTZSCH
President and Chief Executive Officer
4
<PAGE> 1
EXHIBIT 10.9
SCHEDULE A
TAX ALLOCATION AGREEMENT
TAX ALLOCATION AGREEMENT, made this 1st day of June, 1982, by and among
Laidlaw Transportation, Inc. ("Parent") and the subsidiaries of Parent that are
includible in the consolidated federal income tax return of the Parent
affiliated group for the taxable year beginning on September 1, 1981 or for any
subsequent taxable year with respect to which Parent files a consolidated
federal income tax return as the common parent corporation of an affiliated
group (the "Subsidiaries").
Parent and the Subsidiaries (the "Affiliated Group") wish to provide
for payment of the consolidated federal income tax liability of the Affiliated
Group by Parent; for the contribution to such payment by the various members of
the Affiliated Group, including Parent to which such liability is attributable
in whole or in part; and for the reimbursement by members of the Affiliated
Group that benefit from any losses or credits of members of the Affiliated Group
in an amount which is agreed upon in writing annually by affected members.
In consideration of the foregoing, and of the mutual covenants and
promises herein contained, Parent and the Subsidiaries agree as follows:
1. Tax Liability of Group. The tax liability of the Affiliated Group for
the taxable year in question shall be the consolidated tax liability as
determined in Form 1120 (Corporate Income Tax Return) filed by the
members of the Group. In years in which a consolidated tax liability
exists, each member (including Parent, as the case may be) shall make
payment to the Parent of an amount no less than its pro-rata share of
such liability. This amount shall be derived by a formula in which the
aggregate of all separate tax return liabilities is the denominator and
each member's separate tax liability is the numerator. The separate
return liabilities shall be determined by applying consolidated return
limitations on all appropriate items such as capital gains, investment
tax credits and charitable contributions.
2. Tax Benefits of Group. The tax benefits enjoyed by the Affiliated Group
for the taxable year in question as a result of losses, deductions or
credits of any member or members of the Affiliated Group shall be
ascertained by comparing the consolidated tax return liability to the
sum of the separate tax return liabilities of all members with such
liabilities. The tax benefits will then be allocated to each of those
members who actually contributed such benefits. Each such member who
contributed benefits will be compensated by those members who realized
the benefits in an amount determined annually as negotiated between the
members. Such amount of negotiated payment represents the "Tax Benefit
Liability".
-1-
<PAGE> 2
3. Payment for Tax Benefits of Group. The Tax Benefit Liability shall be
paid to the respective Members within a reasonable time period after
the annual filing of the consolidated tax return. All computations of
tax benefit amounts shall be substantiated by specific records
maintained by the Affiliated Group.
4. Adjustments. Any adjustment of income, deduction or credit that results
after the taxable year in question by reason of any carryback, amended
return, claim for refund, or audit shall be given effect by
redetermining amounts payable and reimbursable for such taxable year
hereunder as if such adjustment had been part of the original
determination hereunder. The amount of any adjustment shall reflect any
interest actually due to the United States or to the Affiliated Group
as a result thereof. Any penalties imposed with respect to any
consolidated return filed on behalf of the Affiliated Group shall be
the sole responsibility of Parent. Cessation of membership in the
Affiliated Group shall not deprive a corporation of its Tax Benefit
Liability amounts, or of any payment otherwise due to it, hereunder.
5. Payments. The Parent may request from any member of the Affiliated
Group a contribution towards estimated tax payments in an amount equal
to the expected pro-rata portion of the consolidated tax liability of
each such member. Such requested payments shall be offset against the
final liability of each such member and appropriate refunds or requests
for additional payments shall be made whenever the consolidated tax
liability for the year becomes reasonably ascertainable.
6. Effective Date. The Agreement shall be effective for the taxable year
of the Affiliated Group ended August 31, 1982 and for all taxable years
thereafter.
7. Governing Law. This Agreement shall be governed by the laws applicable
to contracts entered into and to be fully performed within the State of
Illinois by residents thereof.
8. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of, the parties hereto and their respective
successors and assigns.
-2-
<PAGE> 1
EXHIBIT 10.10
LOSS PORTFOLIO TRANSFER AGREEMENT
This Loss Portfolio Transfer Agreement (the "Agreement") is made as of 12/31/99
between Greyhound Lines, Inc. ("Greyhound") and Laidlaw Transportation, Inc.
("Parent").
WHEREAS, Greyhound desires to end uncertainty about its ultimate liability for
all pre 3/16/99 insurance deductible liabilities associated with all insurance
policies ("Policies") and insurance programs ("Program Agreements") of
Greyhound, including, without limitation, Automobile, Comprehensive Liability,
General and Property Liability and Workers' Compensation coverages ("Insurance
Liabilities"); and
WHEREAS, Greyhound desires to eliminate the future administration associated
with the Policies and the Program Agreements for all such Insurance Liabilities
pre 3/16/99 liabilities; and
ACCORDINGLY, for the purposes and consideration stated in this Agreement,
Greyhound and Parent have agreed and do hereby as follows:
1. Greyhound agrees to pay Parent the sum of $23,994,229, which sum includes a
Paid Loss Deposit Fund totaling $1,861,266 previously deposited with
insurance companies, as the agreed upon final amount payable for all
Insurance Liabilities under the Policies and the Program Agreements, and as
consideration for Parent's assumption of additional liability under the
pre-acquisition insurance liabilities. This consideration is equal to the
book value of the reserves and deposits.
2. In respect of the operations of Greyhound from 3/15/87 to 3/16/99,
Greyhound entered into a number of insurance contracts, whereby they had
retained responsibility for deductibles or self insured retentions and, as
such, retained the liabilities for these "pre-aquisition" liabilities.
These liabilities include paid loss retro plans, incurred loss retro plans,
deductibles, retentions and possible future or additional assessments. This
Agreement hereby transfers the entire liability for these insurance
Liabilities amounts to Parent.
It is recognized that all the original agreements and policies are between
Greyhound and the various insurers and these remain in effect. As such,
Greyhound is primarily responsible for these liabilities and Parent hereby
agrees to pay such liabilities on Greyhound's behalf, or reimburse
Greyhound as is necessary.
3. Parent agrees to pay all amounts due for claims covered by the Policies, in
accordance with their terms and conditions. Greyhound agrees, at Parent's
request, to provide any necessary authorization for Parent to purchase
insurance or reinsurance coverage for the additional risk they assume under
this Agreement, if they so desire.
4. Greyhound agrees that Parent will assume sole control of management and
administration of all claims subject to this Agreement in accordance with
the terms and conditions of the Policies. Greyhound further agrees to honor
and abide by all the terms and conditions of the Policies and help and
assist Parent in the settlement of the claims, as is necessary.
<PAGE> 2
5. Parent further agrees to release and forever discharge Greyhound, its
directors, officers, employees, agents, attorneys, representatives,
successors and assigns, from any and all claims, demands, actions, or
causes of action, known or unknown, which Parent has, might have had, or
might have in the future, arising out of or connected with, in whole or in
part, any event act, omission, or transaction, relating in any way to the
Policies or the Program Agreements, or the payment of premiums or other
amounts otherwise payable by Greyhound under the terms of the Policies or
the Program Agreements, for the pre-acquisition insurance liabilities
associated with the period prior to 3/16/99.
6. This Agreement constitutes the full and entire agreement between Greyhound
and Parent. Both parties hereby expressly represent and warrant that no
other statements or representations, oral or written, have induced them in
any way to execute this Agreement, but that the entire consideration for
same and all representations or statements bearing on or relating to this
Agreement are expressly set forth herein.
7. Greyhound and Parent both understand and represent that they have not
assigned any of their rights under the Policies or the Program Agreements,
and the signatories to this Agreement represent that they are fully
authorized to execute the agreements and releases set forth herein on
behalf of Greyhound and Parent, respectively.
8. This Agreement shall be governed by and construed in accordance with the
laws of Delaware. Greyhound and Parent agree that this Agreement can be
filed in any court adjudicating issues or claims relating to the Policies
and/or the Program Agreements.
<TABLE>
<CAPTION>
GREYHOUND LINES, INC. LAIDLAW TRANSPORTATION, INC.
<S> <C>
By: /s/ CRAIG R. LENTZSCH By: /s/ LESLIE W. HAWORTH
------------------------ -----------------------------
Name: Craig R. Lentzsch Name: Leslie W. Haworth
Title: President and CEO Title: Senior Vice President & CFO
</TABLE>
2
<PAGE> 1
EXHIBIT 10.40
FIRST AMENDMENT TO THE SECOND
AMENDED EXECUTIVE EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO THE SECOND AMENDED EXECUTIVE EMPLOYMENT
AGREEMENT, dated this 31st day of December, 1999 (the "Amendment"), is by and
among GREYHOUND LINES, INC. (together with its successors, the "Company"),
LAIDLAW INC. (together with its successors, the "Parent") and JOHN WERNER
HAUGSLAND (the "Executive").
WHEREAS, the Executive, Parent and the Company are parties to a
Seconded Amended Executive Employment Agreement dated March 16, 1999 (the
"Agreement"); and
WHEREAS, the parties desire to modify and amend the terms of the
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth in this Amendment, the Executive, Parent and the Company agree as
follows:
1. Based on an annual review and adjustment by the Company's Board of
Directors, effective as of April 1, 1999, Executive's Base Salary shall be
increased to $325,000.
2. The last sentence of Section 1(a) of the Agreement shall be modified to
read as follows:
"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 $325,000."
3. A new Section 1(e) to the Agreement shall be added as follows:
"e. ANNUAL STAY BONUS: Beginning on the Effective Time and on the
anniversary date of the Agreement thereafter for four (4) additional
years, an annual stay bonus of $50,000 will accrue for the benefit of
Executive. The stay bonus shall vest, and Executive shall be entitled
to request payment of all or any portion of the vested amount,
according to the following schedule:
<TABLE>
<CAPTION>
Date Amount Vested
---- -------------
<S> <C>
After March 30, 2002 $100,000
After March 30, 2003 $150,000
After March 15, 2004 $250,000"
</TABLE>
1
<PAGE> 2
4. The second sentence of Section 3 of the Agreement shall be deleted in
its entirety and the following provision will be substituted therefor:
"Executive's responsibilities shall include the inter-city coach, coach
charter and line haul and any other related business thereto of Parent
and its subsidiaries in the United States and Canada; provided,
however, upon any realignment of Company and its affiliates along
distinct product or business lines, Executive's responsibilities may be
altered to exclude responsibility for the courier/package express and
tour/charter businesses, and such change in responsibilities shall not
constitute grounds for resignation by Executive for "Good Reason"
pursuant to Section 2(c)(5)(a)(ii) of the Agreement."
5. The first sentence of Section 5(d) of the Agreement shall be deleted in
its entirety and the following provision will be substituted therefor:
"In the event of a Non-Renewal Without Good Cause or a Termination
Without Good Cause or a Resignation For Good Reason, the Company agrees
to continue any and all benefits as provided in the Greyhound Lines,
Inc. Medical Plan and Subsections 1(d) (2) through (8) of this
Agreement, as modified pursuant to the terms of Subsection 1(d), and
Subsection 1(e) of this Agreement for twenty four (24) months after the
effective date of termination, non-renewal or resignation."
6. Defined terms used herein without definition shall have the meaning as
ascribed to such term as set forth in the Agreement.
7. Except for the modifications and amendments set forth in this document,
the Agreement shall continue in full force and effect according to its original
terms.
8. This Amendment shall become effective as of the date set forth above,
except where an earlier date is specified in the Amendment.
<TABLE>
<S> <C>
JOHN WERNER HAUGSLAND GREYHOUND LINES, INC.
/s/ John W. Haugsland By: /s/ Craig R. Lentzsch
- ----------------------------- ---------------------------
Craig R. Lentzsch
President and CEO
LAIDLAW INC.
By: /s/ John R. Grainger
---------------------------
John R. Grainger
President and CEO
</TABLE>
2
<PAGE> 1
EXHIBIT 16.1
March 29, 2000
Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir/Madam:
We have read the four paragraphs of Item 9 included in the Form 10-K dated March
29, 2000 of Greyhound Lines, Inc. to be filed with the Securities and Exchange
Commission and are in agreement with the statements contained therein.
Very truly yours,
Arthur Andersen LLP
<PAGE> 1
EXHIBIT 21
Greyhound Lines, Inc.
Amarillo Trailways Bus Center Inc. (75%)
Atlantic Greyhound Lines of Virginia, Inc. (100%)
Continental Panhandle Lines, Inc. (50%)
Gateway Ticketing Systems, Inc. (25%)
GLI Holding Company (100%)
ASI Associations, Inc. (100%)
Carolina Associates, Inc. (100%)
Carolina Coach Company (100%)
Wilmington Union Bus Station Corporation (3%)
Red Bus Systems, Inc. (100%)
Seashore Transportation Company (100%)
Wilmington Union Bus Station Corporation (39.5%)
LSX Delivery, LLC (100%)
On-Time Delivery Service, Inc. (100%)
Greyhound Transit Ltd (20%)
Peoria Rockford Bus Lines LLC (99%)
Texas New Mexico & Oklahoma Coaches, Inc. (100%)
T.N.M.&O. Tours, Inc. (100%)
Vermont Transit Co. Inc. (100%)
Valley Garage Company (100%)
Valley Transit Co., Inc. (100%)
Greyhound de Mexico, S.A. de C.V. (99.9%)
Peoria Rockford Bus Lines LLC (1%)
SET Acquisition Corp. (100%)
Sistema Internacional De Transporte de Autobuses, Inc. (100%)
American Bus Sales Associates, Inc. (100%)
Americanos U.S.A., LLC (51%)
Autobus Leasing Co., LLC (51%)
Autobuses Americanos, S.A. de C. V. (49%)
Autobuses Amigos, LLC (51%)
Autobuses Amigos, S.A. de C. V. (49%)
Autobuses Crucero, S.A. de C. V. (49%)
Gonzalez, Inc. d/b/a Golden State Transportation (51%)
Grupo Centro, Inc. (100%)
Los Buenos Leasing Co., Inc. (100%)
Los Rapidos, Inc. (51%)
Omnibus Americanos, S.A. de C. V. (49%)
Transportation Reality Income Partners, L.P. (50%)
Union Bus Station of Oklahoma City, Oklahoma (40%)
Wilmington Union Bus Station Corporation (24.6%)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FOR 12-MOS 10-K
</LEGEND>
<CIK> 0000813040
<NAME> GREYHOUND LINES INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,295
<SECURITIES> 0
<RECEIVABLES> 47,232
<ALLOWANCES> 402
<INVENTORY> 7,494
<CURRENT-ASSETS> 87,573
<PP&E> 570,350
<DEPRECIATION> 173,273
<TOTAL-ASSETS> 638,797
<CURRENT-LIABILITIES> 161,851
<BONDS> 174,581
41,954
0
<COMMON> 587
<OTHER-SE> 227,319
<TOTAL-LIABILITY-AND-EQUITY> 638,797
<SALES> 0
<TOTAL-REVENUES> 923,531
<CGS> 0
<TOTAL-COSTS> 583,471
<OTHER-EXPENSES> 21,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,993
<INCOME-PRETAX> (17,757)
<INCOME-TAX> (4,612)
<INCOME-CONTINUING> (14,423)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,897
<CHANGES> 0
<NET-INCOME> (16,320)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
