UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---- ----
Commission file number 1-10841
GREYHOUND LINES, INC.
and its Subsidiaries identified in Footnote (1) below
(Exact name of registrant as specified in its charter)
DELAWARE 86-0572343
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
15110 N. DALLAS PARKWAY, SUITE 600
DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip code)
(972) 789-7000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
----- -----
As of May 3, 2002, the registrant had 587 shares of Common Stock, $0.01
par value, outstanding all of which are held by the registrant's parent
company.
(1) This Form 10-Q is also being filed by the co-registrants specified under
the caption "Co-Registrants", each of which is a wholly-owned subsidiary of
Greyhound Lines, Inc. and each of which has met the conditions set forth in
General Instructions H(1)(a) and (b) of Form 10-Q for filing Form 10-Q in a
reduced disclosure format.
CO-REGISTRANTS
This Form 10-Q is also being filed by the following entities. Except as set
forth below, each entity has the same principal executive offices, zip code and
telephone number as that set forth for Greyhound Lines, Inc. on the cover of
this report:
<Table>
<Caption>
I.R.S. EMPLOYER JURISDICTION
COMMISSION IDENTIFICATION OF
NAME FILE NO. NO. INCORP.
- ---- ---------- --------------- ------------
Atlantic Greyhound Lines of Virginia, Inc. 333-27267-01 58-0869571 Virginia
GLI Holding Company 333-27267-04 75-2146309 Delaware
Greyhound de Mexico, S.A. de C.V. 333-27267-05 None Republic of
Mexico
Sistema Internacional de Transporte de Autobuses, Inc. 333-27267-08 75-2548617 Delaware
802 Commerce Street, 3rd Floor
Dallas, Texas 75201
(214) 849-8616
Texas, New Mexico & Oklahoma Coaches, Inc. 333-27267-10 75-0605295 Delaware
1313 13th Street
Lubbock, Texas 79408
(806) 763-5389
T.N.M. & O. Tours, Inc. 333-27267-11 75-1188694 Texas
(Same as Texas, New Mexico & Oklahoma Coaches, Inc.)
Vermont Transit Co., Inc. 333-27267-12 03-0164980 Vermont
345 Pine Street
Burlington, Vermont 05401
(802) 862-9671
</Table>
As of March 31, 2002, Atlantic Greyhound Lines of Virginia, Inc. had 150 shares
of common stock outstanding (at a par value of $50.00 per share); GLI Holding
Company had 1,000 shares of common stock outstanding (at a par value of $0.01
per share); Greyhound de Mexico, S.A. de C.V. had 10,000 shares of common stock
outstanding (at a par value of $0.10 Mexican currency per share); Sistema
Internacional de Transporte de Autobuses, Inc. had 1,000 shares of common stock
outstanding (at a par value of $0.01 per share); Texas, New Mexico & Oklahoma
Coaches, Inc. had 1,000 shares of common stock outstanding (at a par value of
$0.01 per share); T.N.M. & O. Tours, Inc. had 1,000 shares of common stock
outstanding (at a par value of $1.00 per share); and Vermont Transit Co., Inc.
had 505 shares of common stock outstanding (no par value). Each of the above
named co-registrants (1) have filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period such co-registrant was required to file such
reports), and (2) have been subject to such filing requirements for the past 90
days.
2
GREYHOUND LINES, INC. AND SUBSIDIARIES
<Table>
<Caption>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Interim Consolidated Statements of Financial Position as of
March 31, 2002 (Unaudited) and December 31, 2001 ............................ 5
Interim Consolidated Statements of Operations for the
Three Months Ended March 31, 2002 and 2001 (Unaudited) ...................... 6
Condensed Interim Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2002 and 2001 (Unaudited) ...................... 7
Notes to Interim Consolidated Financial Statements (Unaudited) ................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............................... 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ......................................................... 16
SIGNATURES ......................................................................................... 17
</Table>
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
4
GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
(UNAUDITED)
Current Assets
Cash and cash equivalents ....................................................... $ 11,735 $ 20,913
Accounts receivable, less allowance for doubtful accounts of $973 and $915 ...... 54,933 59,977
Inventories, less allowance for shrinkage of $237 and $177 ...................... 8,209 8,409
Prepaid expenses ................................................................ 7,703 7,158
Current portion of deferred tax assets .......................................... 12,238 12,238
Other current assets ............................................................ 2,965 2,154
------------ ------------
Total Current Assets ....................................................... 97,783 110,849
Property, plant and equipment, net of accumulated depreciation of
$230,685 and $229,502 ........................................................... 408,399 412,027
Investments in unconsolidated affiliates ............................................ 16,137 15,896
Deferred income taxes ............................................................... 57,547 48,609
Insurance and security deposits ..................................................... 29,303 29,142
Goodwill ............................................................................ 43,087 43,087
Intangible assets, net of accumulated amortization of $36,033 and $34,487 ........... 28,799 28,847
------------ ------------
Total Assets ............................................................... $ 681,055 $ 688,457
============ ============
Current Liabilities
Accounts payable ................................................................ $ 26,606 $ 24,638
Accrued liabilities ............................................................. 69,216 66,961
Rents payable ................................................................... 12,700 11,839
Unredeemed tickets .............................................................. 10,012 12,001
Current portion of claims liability ............................................. 8,183 2,935
Current maturities of long-term debt ............................................ 11,863 7,975
------------ ------------
Total Current Liabilities .................................................. 138,580 126,349
Pension obligation .................................................................. 47,554 46,432
Claims liability .................................................................... 21,198 18,615
Long-term debt, net ................................................................. 256,712 272,591
Minority interests .................................................................. 5,239 6,166
Other liabilities ................................................................... 28,926 30,385
------------ ------------
Total Liabilities .......................................................... 498,209 500,538
------------ ------------
Stockholders' Equity
Common stock (1,000 shares authorized; par value $.01;587 shares issued) ........ -- --
Capital in excess of par value .................................................. 320,391 320,391
Retained deficit ................................................................ (84,228) (79,003)
Accumulated other comprehensive loss, net of tax benefit of
$28,708 and $28,791 ........................................................... (53,317) (53,469)
------------ ------------
Total Stockholders' Equity ................................................. 182,846 187,919
------------ ------------
Total Liabilities and Stockholders' Equity ................................. $ 681,055 $ 688,457
============ ============
</Table>
The accompanying notes are an integral part of these statements.
5
GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
2002 2001
------------ ------------
(UNAUDITED)
OPERATING REVENUES
Passenger services .............................. $ 183,945 $ 191,623
Package express ................................. 9,468 9,921
Food services ................................... 9,818 9,976
Other operating revenues ........................ 19,103 17,177
------------ ------------
Total Operating Revenues .................... 222,334 228,697
------------ ------------
OPERATING EXPENSES
Maintenance ..................................... 24,439 24,573
Transportation .................................. 55,974 62,559
Agents' commissions and station costs ........... 43,308 45,091
Marketing, advertising and traffic .............. 4,881 8,698
Insurance and safety ............................ 16,221 12,177
General and administrative ...................... 32,633 31,811
Depreciation and amortization ................... 12,376 11,330
Operating taxes and licenses .................... 14,719 15,293
Operating rents ................................. 19,615 20,527
Cost of goods sold - food services .............. 6,547 6,951
Other operating expenses ........................ 611 1,699
------------ ------------
Total Operating Expenses .................... 231,324 240,709
------------ ------------
Operating Loss ........................................ (8,990) (12,012)
Interest Expense ...................................... 6,809 7,312
------------ ------------
Loss Before Income Taxes .............................. (15,799) (19,324)
Income Tax Benefit .................................... (9,480) (8,440)
Minority Interests .................................... (1,094) (128)
------------ ------------
Net Loss .............................................. $ (5,225) $ (10,756)
============ ============
</Table>
The accompanying notes are an integral part of these statements.
6
GREYHOUND LINES, INC. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
2002 2001
------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................... $ (5,225) $ (10,756)
Non-cash expenses and gains included in net loss ........... 4,566 3,457
Net change in certain operating assets and liabilities ..... 11,363 5,034
------------ ------------
Net Cash Provided by (Used for) Operating Activities ... 10,704 (2,265)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ....................................... (8,088) (6,432)
Proceeds from assets sold .................................. 285 234
Other investing activities ................................. 161 (1,458)
------------ ------------
Net Cash Used for Investing Activities ................. (7,642) (7,656)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt and capital lease obligations ............. (3,095) (2,256)
Redemption of preferred stock .............................. -- (118)
Proceeds from equipment borrowing .......................... -- 5,000
Net change in revolving credit facility .................... (9,128) 6,478
Other financing activities ................................. (17) (71)
------------ ------------
Net Cash Provided by (Used for) Financing Activities ... (12,240) 9,033
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................ (9,178) (888)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................... 20,913 10,206
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................... $ 11,735 $ 9,318
============ ============
</Table>
The accompanying notes are an integral part of these statements.
7
GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited Interim Consolidated Financial
Statements of Greyhound Lines, Inc. and Subsidiaries ("Greyhound" or the
"Company") include all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the Company's financial position as of
March 31, 2002, the results of its operations for the three months ended March
31, 2002 and 2001 and cash flows for the three months ended March 31, 2002 and
2001. Due to the seasonality of the Company's operations, the results of its
operations for the interim period ended March 31, 2002 may not be indicative of
total results for the full year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations promulgated by the Securities and Exchange Commission. The
unaudited Interim Consolidated Financial Statements should be read in
conjunction with the audited Consolidated Financial Statements of Greyhound
Lines, Inc. and Subsidiaries and accompanying notes for the year ended December
31, 2001. Certain reclassifications have been made to the prior period
statements to conform them to the current year presentation. For the three
months ended March 31, 2002 and 2001, the Company's comprehensive loss
approximated its net loss.
On March 16, 1999, the Company's stockholders approved the Agreement and Plan of
Merger with Laidlaw Inc. ("Laidlaw") pursuant to which the Company became a
wholly owned subsidiary of Laidlaw (the "Merger). The consolidated financial
statements of the Company do not reflect any purchase accounting adjustments
relating to the Merger.
On June 28, 2001, as part of a financial restructuring, Laidlaw USA, Inc.,
Laidlaw Inc., Laidlaw International Finance Corporation, Laidlaw Investments
Ltd., Laidlaw One, Inc. and Laidlaw Transportation, Inc. filed voluntary
petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the
United States Bankruptcy Court for the Western District of New York, under a
jointly administered case captioned, In re: Laidlaw USA, Inc., et al, Case No.
01-14099. On that date, Laidlaw Inc. and Laidlaw Investments Ltd. also filed
cases under the Canada Companies' Creditors Arrangement Act in the Ontario
Superior Court of Justice in Toronto, Canada, court file no. 01-CL-4178.
Laidlaw is the ultimate parent company of Greyhound. Neither Greyhound nor any
of its subsidiaries were included in, or made party to, these reorganization
filings and proceedings.
The reorganization filings and proceedings do not cause a cross default with any
of the Company's debt which would place the Company's debt in default with its
financial institutions and, as of the date of this report, the Company is in
compliance with all covenants in its various debt agreements. Although the
outcome of the foregoing matters is uncertain, management believes that the
likely outcome will have no material impact on the Company's financial position,
cash flows or results of operations.
2. GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Accounting for Goodwill and Other Intangible
Assets" and, as a result, the Company ceased to amortize goodwill. In lieu of
amortization, the Company is required to perform an initial impairment review of
goodwill during the first six months of 2002 and then on a periodic basis
thereafter. The Company will complete the impairment analysis for goodwill
during the second quarter of 2002 and will record an impairment adjustment at
that time if necessary.
8
2. GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
In connection with adopting SFAS 142 the Company reassessed the useful lives and
classification of its identifiable intangible assets and, with the exception of
the useful life of our trademarks, determined that the useful lives and
classifications continue to be appropriate. Trademarks, which had previously
been amortized over a fifteen year life, are now considered to have an
indefinite life and are no longer amortized. During the first quarter of 2002
the Company completed an impairment test on its trademarks as required by SFAS
142 which did not result in an impairment charge. The trademarks will be
subjected to an impairment test in the future at least annually.
The following table provides information relating to the Company's amortized and
unamortized intangible assets as of March 31, 2002 and December 31, 2001 (in
thousands):
<Table>
<Caption>
MARCH 31, 2002 DECEMBER 31, 2001
--------------------------- ---------------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
----------- ------------ ----------- ------------
Amortized intangible assets:
Software $ 47,551 $ 28,033 $ 46,070 $ 27,154
Debt issuance costs 9,775 5,335 9,758 4,825
Deferred lease costs 3,847 2,494 3,847 2,357
Other 346 171 346 151
----------- ----------- ----------- -----------
Total $ 61,519 $ 36,033 $ 60,021 $ 34,487
=========== =========== =========== ===========
Unamortized intangible assets:
Trademark $ 3,313 $ 3,313
</Table>
Amortization expense for intangible assets during the three months ended March
31, 2002 was $1.6 million. Estimated amortization expense, excluding the effect
of costs that may be capitalized in future periods, for the year ended December
31, 2002 and the four succeeding years are as follows: $7.1 million (2002); $6.3
million (2003); $4.7 million (2004); $4.2 million (2005) and $3.2 million
(2006).
Actual results of operations for the three months ended March 31, 2002 and
proforma results of operations for the three months ended March 31, 2001 had the
Company applied the provisions of SFAS 142 in that period is as follows (in
thousands):
<Table>
<Caption>
MARCH 31,
--------------------------
2002 2001
---------- ----------
Reported Net Loss $ (5,225) $ (10,756)
Add: goodwill and trademark amortization,
net of tax -- 520
---------- ----------
Adjusted Net Loss $ (5,225) $ (10,236)
========== ==========
</Table>
3. MATERIAL CONTINGENCIES
GOLDEN STATE INDICTMENT
In December 2001, Gonzalez, Inc. d/b/a Golden State Transportation ("Golden
State") and 22 current and former employees and agents of Golden State were
indicted as part of a 42-count federal criminal proceeding. The case, filed
before the United States District Court for the District of Arizona, is styled
U.S. v. Gonzalez, Inc, et al., Case No. CR 01-1696-TUC-RCC. The indictment
alleges that the defendants were engaged in a conspiracy, spanning over a
two-year period, to transport and harbor illegal aliens within the United
States. As part of the indictment, the U.S. Government has sought a forfeiture
of substantially all of Golden State's assets and obtained a restraining order
restricting access to bank accounts and restraining certain other real property
and vehicles. The restraining order allows Golden State to continue to operate
its business in the ordinary course and the order has been modified to permit
the payment of certain normal course expenses.
9
3. MATERIAL CONTINGENCIES (CONTINUED)
Golden State and the individuals have pleaded not guilty to the charges. Golden
State intends to vigorously defend the matter. No trial date has been set for
this case. Golden State is currently in the process of obtaining and assessing
the significant volume of evidence amassed by the Government. At this early
stage in the proceeding, the probable outcome of this case cannot be predicted.
Additionally, management is unable to make a reasonable estimate of the
liability that may result from the final resolution of the indictment.
Accordingly, no liability relating to this matter has been recorded in the
Company's Consolidated Financial Statements.
Greyhound has a 51.4% ownership interest in Golden State and, at March 31, 2002,
the Company's investment in Golden State totaled $7.4 million. In addition, the
Company leases to, or guarantees the leases of, 67 of Golden State's buses. As
of the date of this report these buses are subject to $12.3 million of
third-party liens, which is comparable to management's estimate of the fair
market value of the buses.
POTENTIAL PENSION PLAN FUNDING REQUIREMENTS
The Company maintains nine defined benefit pension plans, the most significant
of which (the "ATU Plan") covers approximately 14,500 current and former
employees, fewer than 1,200 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.
For funding purposes, legislation passed by the United States Congress 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. Based upon the application of the actuarial mortality table, discount
rates and funding calculations prescribed by current regulations, and further
assuming a continuation of the freeze of wage and service accruals and that the
ATU Plan assets can obtain annual investment returns of 7.5%, estimated Company
contributions to the ATU Plan total $51 million over the next five years.
Lowering the assumed investment return on ATU plan assets to 5% results in
estimated contributions over the next five years of $84 million, while a 10%
return results in estimated contributions over the next five years of $26
million. However, no contributions are projected during the next two years under
either of the three scenarios discussed above. Nevertheless, there is no
assurance that the ATU Plan will be able to earn the assumed rate of return,
that new regulations may result in changes in the prescribed actuarial mortality
table and discount rates, or that there will be market driven changes in the
discount rates, which would result in the Company being required to make
contributions in the future that differ significantly from the estimates above.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Greyhound is the only nationwide provider of scheduled intercity bus
transportation services in the United States. The Company's primary business
consists of scheduled passenger service, package express service, travel
services and food services at certain terminals. The Company's consolidated
operations include a nationwide network of terminal and maintenance facilities,
a fleet of approximately 2,900 buses and approximately 1,800 sales outlets.
The Company's business is seasonal in nature and generally follows the pattern
of the travel industry as a whole, with peaks during the summer months and the
Thanksgiving and Christmas holiday periods. As a result, the Company's operating
cash flows are also seasonal with a disproportionate amount of the Company's
annual operating cash flows being generated during the peak travel periods. The
day of the week on which certain holidays occur, the length of certain holiday
periods, and the date on which certain holidays occur within the fiscal quarter,
may also affect the Company's quarterly results of operations.
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations as a
percentage of total operating revenue for the quarters ended March 31, 2002 and
2001:
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
2002 2001
---------- ----------
OPERATING REVENUES
Passenger services ........................... 82.7% 83.8%
Package express .............................. 4.3 4.3
Food services ................................ 4.4 4.4
Other operating revenues ..................... 8.6 7.5
---------- ----------
Total Operating Revenues ................. 100.0 100.0
---------- ----------
OPERATING EXPENSES
Maintenance .................................. 11.0 10.7
Transportation ............................... 25.2 27.4
Agents' commissions and station costs ........ 19.5 19.7
Marketing, advertising and traffic ........... 2.2 3.8
Insurance and safety ......................... 7.3 5.3
General and administrative ................... 14.7 13.9
Depreciation and amortization ................ 5.5 5.0
Operating taxes and licenses ................. 6.6 6.7
Operating rents .............................. 8.8 9.0
Cost of goods sold - food services ........... 2.9 3.0
Other operating expenses ..................... 0.3 0.8
---------- ----------
Total Operating Expenses ................. 104.0 105.3
---------- ----------
Operating Loss ................................... (4.0) (5.3)
Interest Expense ................................. 3.1 3.2
---------- ----------
Loss Before Income Taxes ......................... (7.1) (8.5)
Income Tax Benefit ............................... (4.3) (3.7)
Minority Interests ............................... (0.5) (0.1)
---------- ----------
Net Loss ......................................... (2.3) (4.7)
========== ==========
</Table>
11
The following table sets forth certain operating data for the Company for the
quarters ended March 31, 2002 and 2001. Certain statistics have been adjusted
and restated from that previously published to provide consistent comparisons.
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31, PERCENTAGE
2002 2001 CHANGE
------------ ------------ ------------
Regular Service Miles (000's) .................................... 78,130 79,937 (2.3%)
Total Bus Miles (000's) .......................................... 80,412 82,263 (2.3%)
Passenger Miles (000's) .......................................... 1,968,362 1,993,051 (1.2%)
Passengers Carried (000's) ....................................... 5,363 5,733 (6.5%)
Average Trip Length (passenger miles/passengers carried) ......... 367 348 5.5%
Load (avg. number of passengers per regular service mile) ........ 25.2 24.9 1.2%
Load Factor (% of available seats filled) ........................ 50.0% 50.0% 0.0%
Yield (regular route revenue/passenger miles) .................... $ 0.0935 $ 0.0961 (2.7%)
Average Ticket Price ............................................. $ 34.30 $ 33.43 2.6%
Total Revenue Per Total Bus Mile ................................. $ 2.765 $ 2.780 (0.5%)
Operating Loss Per Total Bus Mile ................................ $ (0.112) $ (0.146) 23.3%
Cost Per Total Bus Mile:
Maintenance ................................................ $ 0.304 $ 0.299 1.7%
Transportation ............................................. $ 0.696 $ 0.760 (8.4%)
</Table>
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THE SAME PERIOD IN 2001
Operating Revenues. Total operating revenues decreased $6.4 million, down 2.8%,
for the three months ended March 31, 2002, compared to the same period in 2001.
Passenger services revenues decreased $7.7 million, or 4.0%, for the three
months ended March 31, 2002, compared to the same period in 2001. Subsequent to
the events of September 11, 2001, and continuing during the first quarter of
2002, the Company has experienced significant declines in its short haul markets
(450 miles and less), while long haul travel (over 450 miles) has increased.
Although long haul passenger traffic grew and passenger counts benefited from
the placement of Easter (which occurred in the first quarter of 2002 as compared
to the second quarter of 2001), the declines in short haul passengers have more
than offset these factors resulting in a 1.2% decline in passenger miles during
the first quarter of 2002. Additionally, the change in passenger mix resulted in
an increase in average trip length during the first quarter of 2002 of 5.5% and,
because longer trips produce lower revenue per passenger mile, also produced a
2.7% decline in yield.
Package express revenues decreased $0.5 million, or 4.6%, for the three months
ended March 31, 2002, compared to the same period in 2001. The Company continues
to experience reduced standard product deliveries (the traditional, low value,
terminal to terminal market segment) which has more than offset growth in the
Company's same day delivery product and freight forwarding services.
Food services revenues decreased $0.2 million, or 1.6%, for the three months
ended March 31, 2002, compared to the same period in 2001 primarily due to the
decrease in passenger traffic, offset somewhat by product price increases.
Other operating revenues increased $1.9 million, or 11.2%, for the three months
ended March 31, 2002, compared to the same period in 2001. The increase is
principally due to increased charter services and government provided route
subsidies.
12
Operating Expenses. Total operating expenses decreased $9.4 million, or 3.9%,
for the three months ended March 31, 2002, compared to the same period in 2001.
The decrease is attributable to a 2.3% decrease in bus miles operated, decreased
fuel cost and driver hiring and training costs, decreased ticket and express
commissions due to lower sales, decreased Port Authority of New York license
fees and loss on sale of assets in the first quarter of 2001.
Maintenance costs decreased $0.1 million, or 0.5%, for the three months ended
March 31, 2002, compared to the same period in 2001 principally due to the
reduction in miles operated. On a per-mile basis, maintenance cost increased by
1.7% compared to 2001.
Transportation expenses which consist primarily of fuel costs and driver
salaries, decreased $6.6 million, or 10.5%, for the three months ended March 31,
2002, compared to the same period in 2001, due primarily to decreased fuel
prices and driver hiring and training costs. During the first quarter of 2002
the average cost per gallon of fuel was $0.64 per gallon, compared to $0.93 per
gallon during the same period in 2001, resulting in reduced costs of $3.9
million. Additionally, driver hiring and training costs were $2.7 million lower
during the first quarter of 2002 as the Company needed to hire fewer drivers due
to the reduction in bus miles operated. On a per-mile basis, excluding the
effects of fuel price changes and driver hiring costs, transportation expenses
increased by 2.2% during the first quarter of 2002.
Agents' commissions and station costs decreased $1.8 million, or 4.0%, for the
three months ended March 31, 2002, compared to the same period in 2001. The
decrease is primarily due to lower commissions from decreased ticket sales and
decreased communication costs, offset somewhat by increased security costs.
Marketing, advertising and traffic expenses decreased $3.8 million, or 43.9% for
the three months ended March 31, 2002, compared to the same period in 2001.
Since September 11, 2001, leisure or discretionary travel in non-peak periods
has been soft. As a result management viewed the opportunity to stimulate
discretionary travel during the traditionally slow winter travel period as being
low, and substantially reduced advertising spending during the first quarter of
2002. However, to support the heavy summer travel period, the Company will
increase spending in the second quarter of 2002 and currently expects spending
in future quarters to be at levels consistent with the prior year.
Insurance and safety costs increased $4.0 million, or 33.2% for the three months
ended March 31, 2002, compared to the same period in 2001. The increase is
primarily due to an increase in the cost of excess insurance coverage and growth
in the average cost per claim due principally to medical cost inflation.
General and administrative expenses increased $0.8 million, or 2.6%, for the
three months ended March 31, 2002, compared to the same period in 2001 due to
higher pension costs ($1.7 million) offset by decreased management fees ($0.9
million) charged by the Company's parent, Laidlaw Inc.
Depreciation and amortization increased by $1.0 million, or 9.2%, for the three
months ended March 31, 2002, compared to the same period in 2001 primarily due
to increased capital expenditures in prior periods offset by a decrease in
goodwill and trademark amortization.
Operating taxes and licenses expense decreased $0.6 million, or 3.8%, for the
three months ended March 31, 2002, compared to the same period in 2001 due to
decreased payroll taxes resulting from decreased wages related to lower business
volume (including decreased miles operated).
Operating rents decreased $0.9 million, or 4.4%, for the three months ended
March 31, 2002, compared to the same period in 2001. The decrease is mainly due
to lower Port Authority of New York license fees.
Food services cost of goods sold decreased $0.4 million, or 5.8%, for the three
months ended March 31, 2002, compared to the same period in 2001, primarily due
to the decrease in food services revenues related to decreased passenger counts.
Other operating expenses decreased $1.1 million for the three months ended March
31, 2002, compared to the same period in 2001 principally due to losses on
disposal of property, plant and equipment in the first quarter of 2001 compared
to a small gain recorded in the first quarter of 2002.
Interest expense decreased $0.5 million, or 6.9%, for the three months ended
March 31, 2002, compared to the same period in 2001 due to a decrease in average
debt outstanding and a decrease in interest rates.
13
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are to provide working capital,
to finance capital expenditures, including bus acquisitions and to meet debt
service requirements, including the payment of interest on the 11 1/2% Senior
Notes. The Company's principal sources of liquidity are expected to be cash flow
from operations, proceeds from operating lease or other equipment financings for
new bus purchases and borrowings under the Revolving Credit Facility. The
Company believes that its cash flow from operations, together with borrowings
under the Revolving Credit Facility, will fund its working capital and near-term
capital expenditure needs. As of March 31, 2002, the Company had outstanding
borrowings under the Revolving Credit Facility of $48.9 million, issued letters
of credit of $26.7 million and availability of $49.4 million.
Net cash provided by operating activities for the three months ended March 31,
2002 was $10.7 million, an increase of $13.0 million from the $2.3 million used
during the same period of 2001. The increase is due to the lower net loss during
the first quarter of 2002 and increases in claims liabilities relating to the
Company's insurance program. Net cash used for investing activities for the
first quarter of 2002 was $7.6 million, slightly lower than net cash used for
investing during the first quarter of 2001. Net cash used by financing
activities in the first quarter of 2002 was $12.2 million versus $9.0 million
provided by financing activities during the same period in 2001. The $21.2
million decrease is principally due to the pay down of the Revolving Credit
Facility from the increased operating cash flow and reduction of cash balances.
GOLDEN STATE INDICTMENT
In December 2001, Gonzalez, Inc. d/b/a Golden State Transportation ("Golden
State") and 22 current and former employees and agents of Golden State were
indicted as part of a 42-count federal criminal proceeding. The case, filed
before the United States District Court for the District of Arizona, is styled
U.S. v. Gonzalez, Inc, et al., Case No. CR 01-1696-TUC-RCC. The indictment
alleges that the defendants were engaged in a conspiracy, spanning over a
two-year period, to transport and harbor illegal aliens within the United
States. As part of the indictment, the U.S. Government has sought a forfeiture
of substantially all of Golden State's assets and obtained a restraining order
restricting access to bank accounts and restraining certain other real property
and vehicles. The restraining order allows Golden State to continue to operate
its business in the ordinary course and the order has been modified to permit
the payment of certain normal course expenses.
Golden State and the individuals have pleaded not guilty to the charges. Golden
State intends to vigorously defend the matter. No trial date has been set for
this case. Golden State is currently in the process of obtaining and assessing
the significant volume of evidence amassed by the Government. At this early
stage in the proceeding, the probable outcome of this case cannot be predicted.
Additionally, management is unable to make a reasonable estimate of the
liability that may result from the final resolution of the indictment.
Accordingly, no liability relating to this matter has been recorded in the
Company's Consolidated Financial Statements.
Greyhound has a 51.4% ownership interest in Golden State and, at March 31, 2002,
the Company's investment in Golden State totaled $7.4 million. In addition, the
Company leases to, or guarantees the leases of, 67 of Golden State's buses. As
of the date of this report these buses are subject to $12.3 million of
third-party liens, which is comparable to management's estimate of the fair
market value of the buses.
14
POTENTIAL PENSION PLAN FUNDING REQUIREMENTS
The Company maintains nine defined benefit pension plans, the most significant
of which (the "ATU Plan") covers approximately 14,500 current and former
employees, fewer than 1,200 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.
For funding purposes, legislation passed by the United States Congress 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. Based upon the application of the actuarial mortality table, discount
rates and funding calculations prescribed by current regulations, and further
assuming a continuation of the freeze of wage and service accruals and that the
ATU Plan assets can obtain annual investment returns of 7.5%, estimated Company
contributions to the ATU Plan total $51 million over the next five years.
Lowering the assumed investment return on ATU plan assets to 5% results in
estimated contributions over the next five years of $84 million, while a 10%
return results in estimated contributions over the next five years of $26
million. However, no contributions are projected during the next two years under
either of the three scenarios discussed above. Nevertheless, there is no
assurance that the ATU Plan will be able to earn the assumed rate of return,
that new regulations may result in changes in the prescribed actuarial mortality
table and discount rates, or that there will be market driven changes in the
discount rates, which would result in the Company being required to make
contributions in the future that differ significantly from the estimates above.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q
Statements in this Form 10-Q that are not purely historical facts, including
statements regarding our beliefs, expectations, intentions, projections or
strategies for the future, may be "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. All forward-looking statements involve
risks and uncertainties that could cause actual results to differ materially
from the plans, intentions and expectations reflected in or suggested by the
forward-looking statements. Such risks and uncertainties include, among others,
the general economic condition of the United States and the future level of bus
travel demand; the impact of future terrorist incidents; operational disruptions
as a result of bad weather; the Company's future yields; increased costs for
security; the cost and availability of excess insurance coverage and the
Company's ability to retain authority to self-insure; the impact of changes in
fuel prices; the effect of future Government regulations; potential pension plan
funding requirements; limitations on financing flexibility and availability due
to changing credit markets and the uncertainty surrounding the outcome of the
Laidlaw Inc. reorganization proceedings; and other factors described from time
to time in the Company's publicly available Securities and Exchange Commission
filings. The Company undertakes no obligation to publicly update or revise any
forward-looking statements to reflect events or circumstances that may arise
after the date of this filing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the disclosures provided
in Item 7A. Quantitative and Qualitative Disclosures About Market Risk as set
forth in the Company's 2001 Form 10-K.
15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
On January 17, 2002, the Company filed a current report on Form 8-K with the
Securities and Exchange Commission reporting Other Events and to report that
Greyhound Lines, Inc. had obtained a one-year extension of its $125 million
revolving credit facility to October 24, 2003. No financial statements were
included.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 10, 2002
GREYHOUND LINES, INC.
By: /s/ Jeffrey W. Sanders
--------------------------------------------
Jeffrey W. Sanders
Senior Vice President and Chief Financial
Officer
ATLANTIC GREYHOUND LINES OF VIRGINIA, INC.
By: /s/ Jeffrey W. Sanders
--------------------------------------------
Jeffrey W. Sanders
Senior Vice President and Chief Financial
Officer
GLI HOLDING COMPANY
By: /s/ Jeffrey W. Sanders
--------------------------------------------
Jeffrey W. Sanders
Senior Vice President and Chief Financial
Officer
GREYHOUND de MEXICO, S.A. de C.V.
By: /s/ Cheryl W. Farmer
--------------------------------------------
Cheryl W. Farmer
Examiner
SISTEMA INTERNACIONAL de TRANSPORTE de
AUTOBUSES, INC.
By: /s/ Cheryl W. Farmer
--------------------------------------------
Cheryl W. Farmer
Senior Vice President and Chief Financial
Officer
TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC.
By: /s/ Jeffrey W. Sanders
--------------------------------------------
Jeffrey W. Sanders
Senior Vice President and Chief Financial
Officer
T.N.M. & O. TOURS, INC.
By: /s/ Jeffrey W. Sanders
--------------------------------------------
Jeffrey W. Sanders
Senior Vice President and Chief Financial
Officer
VERMONT TRANSIT CO., INC.
By: /s/ Jeffrey W. Sanders
--------------------------------------------
Jeffrey W. Sanders
Senior Vice President and Chief Financial
Officer
17