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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10841
GREYHOUND LINES, INC.
AND ITS SUBSIDIARIES IDENTIFIED IN FOOTNOTE (1) BELOW
(Exact name of registrant as specified in its charter)
DELAWARE 86-0572343
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
15110 N. DALLAS PARKWAY, SUITE 600
DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip code)
(972) 789-7000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OF COMMON STOCK OUTSTANDING AT JULY 31, 1997
- --------------------- ----------------------------
$.01 PAR VALUE 59,286,135 SHARES
(1) This Form 10-Q is also being filed by the co-registrants specified under
the caption "Co-Registrants", each of which is a wholly-owned subsidiary
of Greyhound Lines, Inc. and each of which has met the conditions for
filing Form 10-Q in a reduced disclosure format.
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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:
NAME COMMISSION I.R.S. EMPLOYER STATE
FILE NO. IDENTIFICATION OF
NO. INCORP
Atlantic Greyhound Lines of Virginia, Inc. 333-27267-01 58-0869571 Virginia
Eagle Bus Manufacturing, Inc. 333-27267-02 74-2472777 Delaware
FCA Insurance Limited 333-27267-03 None Bermuda
GLI Holding Company 333-27267-04 75-2146309 Delaware
Greyhound De Mexico S.A. De C.V. 333-27267-05 None Republic of
Mexico
Grupo Centro, Inc. 333-27267-06 75-2692522 Delaware
Los Buenos Leasing Co., Inc. 333-27267-07 85-0434715 New Mexico
Sistema Internacional De Transporte 333-27267-08 75-2548617 Delaware
De Autobuses, Inc.
T & V Holding Company 333-27267-09 75-2238995 Delaware
Texas, New Mexico & Oklahoma Coaches, Inc. 333-27267-10 75-0605295 Texas
1313 13th St.
Lubbock, Texas 79401
(806) 763-5389
T.N.M. & O. Tours, Inc. 333-27267-11 75-1188694 Texas
Vermont Transit Co., Inc. 333-27267-12 03-0164980 Vermont
106 Main Street
Burlington, Vermont 05401
(802) 862-9671
As of July 31, 1997, Atlantic Greyhound Lines of Virginia, Inc. had 150 shares
of common stock outstanding; Eagle Bus Manufacturing, Inc. had 1,000 shares of
common stock outstanding; FCA Insurance Limited had 120,000 shares of common
stock outstanding; GLI Holding Company had 1,000 shares of common stock
outstanding; Greyhound De Mexico S.A. De C.V. had 10,000 shares of common stock
outstanding; Grupo Centro, Inc. had 1,000 shares of common stock outstanding;
Los Buenos Leasing Co., Inc. had 1,000 shares of common stock outstanding;
Sistema Internacional De Transporte De Autobuses, Inc. had 1,000 shares of
common stock outstanding; T & V Holding Company had 3,000 shares of common stock
outstanding; Texas, New Mexico & Oklahoma Coaches, Inc. had 1,000 shares of
common stock outstanding; T.N.M. & O. Tours, Inc. had 1,000 shares of common
stock outstanding; and Vermont Transit Co. Inc. had 505 shares of common stock
outstanding. None of the above named co-registrants have been subject to the
filing requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, for ninety days or more.
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GREYHOUND LINES, INC. AND SUBSIDIARIES
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Interim Consolidated Statements of Financial Position as of
December 31, 1996 and June 30, 1997 (Unaudited) ................. 5
Interim Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1996 and 1997 (Unaudited) ... 6
Condensed Interim Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1997 (Unaudited) ............. 7
Notes to Interim Consolidated Financial Statements (Unaudited) .... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................... 21
Item 2. Changes in Securities ................................................ 22
Item 4. Submission of Matters to a Vote of Security Holders .................. 23
Item 6. Exhibits and Reports on Form 8-K ..................................... 24
SIGNATURES ..................................................................... 25
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, JUNE 30,
1996 1997
--------- ---------
(UNAUDITED)
Current Assets
Cash and cash equivalents ..................................................... $ 898 $ 1,312
Accounts receivable, less allowance for doubtful accounts
of $241 and $234 ........................................................... 32,844 37,926
Inventories ................................................................... 3,840 3,798
Prepaid expenses .............................................................. 8,179 5,896
Assets held for sale .......................................................... 4,224 3,668
Other current assets .......................................................... 11,329 11,681
--------- ---------
Total current assets ....................................................... 61,314 64,281
Prepaid Pension Plans ............................................................. 24,927 24,927
Property, Plant and Equipment, net of accumulated depreciation
of $101,901 and $112,036 ...................................................... 314,454 314,343
Investments in Unconsolidated Affiliates .......................................... 2,437 5,076
Insurance and Security Deposits ................................................... 76,180 76,083
Goodwill, net ..................................................................... --- 725
Intangible Assets, net of accumulated amortization of $19,105 and $19,337 ......... 20,970 27,844
--------- ---------
Total assets ............................................................... $ 500,282 $ 513,279
========= =========
Current Liabilities
Accounts payable .............................................................. $ 23,900 $ 19,450
Accrued liabilities ........................................................... 53,500 43,980
Unredeemed tickets ............................................................ 9,523 10,321
Current portion of reserve for injuries and damages ........................... 19,864 19,864
Current maturities of long-term debt .......................................... 11,662 4,460
--------- ---------
Total current liabilities .................................................. 118,449 98,075
Reserve for Injuries and Damages .................................................. 40,099 37,665
Long-Term Debt .................................................................... 192,581 215,756
Deferred Gains .................................................................... 562 383
Other Liabilities ................................................................. 7,710 7,991
--------- ---------
Total liabilities .......................................................... 359,401 359,870
--------- ---------
Commitments and Contingencies (Note 3)
Stockholders' Equity
Preferred stock (10,000,000 shares authorized; par value $.01) 8 1/2%
Convertible Exchangeable Preferred Stock (2,400,000 shares issued
as of June 30, 1997; aggregate liquidation preference $60,000) ......... --- 60,000
Series A junior preferred stock (500,000 and 1,500,000 shares authorized
as of December 31, 1996 and June 30, 1997, respectively;
par value $.01; none issued)............................................ --- ---
Common stock (100,000,000 shares authorized; 58,469,469 and 59,220,280
shares issued as of December 31, 1996 and June 30, 1997 respectively;
par value $.01) ............................................................ 585 592
Capital in excess of par value ................................................ 229,104 227,964
Retained deficit .............................................................. (81,237) (127,576)
Less: Unfunded accumulated pension obligation ................................ (6,533) (6,533)
Less: Treasury stock, at cost (109,192 shares) ................................ (1,038) (1,038)
--------- ---------
Total stockholders' equity ................................................. 140,881 153,409
--------- ---------
Total liabilities and stockholders' equity ............................. $ 500,282 $ 513,279
========= =========
The accompanying notes are an integral part of these statements.
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GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
OPERATING REVENUES
Transportation Services
Passenger services ....................... $ 146,157 $ 154,068 $ 264,900 $ 291,401
Package express .......................... 8,479 8,146 16,661 15,483
Food services ................................ 5,334 5,305 9,985 10,311
Other operating revenues ..................... 12,286 14,011 22,353 25,483
--------- --------- --------- ---------
Total operating revenues ............. 172,256 181,530 313,899 342,678
--------- --------- --------- ---------
OPERATING EXPENSES
Maintenance .................................. 18,212 18,919 36,314 37,819
Transportation ............................... 43,298 47,316 80,719 89,482
Agents' commissions and station costs ........ 32,674 34,160 61,685 65,840
Marketing, advertising and traffic ........... 6,641 6,483 11,828 13,518
Insurance and safety ......................... 11,041 10,478 21,951 20,239
General and administrative ................... 21,556 21,624 41,422 43,475
Depreciation and amortization ................ 7,386 7,425 14,928 14,967
Operating taxes and licenses ................. 12,286 12,792 24,026 25,251
Operating rents .............................. 12,763 13,899 24,537 27,785
Cost of goods sold - food services ........... 3,391 3,282 6,487 6,486
Other operating expenses ..................... 1,856 2,388 3,706 4,555
--------- --------- --------- ---------
Total operating expense .............. 171,104 178,766 327,603 349,417
--------- --------- --------- ---------
OPERATING INCOME (LOSS) ......................... 1,152 2,764 (13,704) (6,739)
Interest Expense ................................ 6,637 6,526 13,263 14,112
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES ........................ (5,485) (3,762) (26,967) (20,851)
Income Tax Provision ............................ 48 86 111 165
--------- --------- --------- ---------
NET LOSS BEFORE EXTRAORDINARY ITEM .............. (5,533) (3,848) (27,078) (21,016)
Extraordinary Item .............................. --- 25,323 --- 25,323
--------- --------- --------- ---------
NET LOSS ........................................ (5,533) (29,171) (27,078) (46,339)
Preferred Dividends ............................. --- 1,063 --- 1,063
--------- --------- --------- ---------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS .... $ (5,533) $ (30,234) $ (27,078) $ (47,402)
========= ========= ========= =========
Loss Per Share of Common Stock:
Primary
Net Loss Attributable to Common Stock-
holders Before Extraordinary Item .... $ (0.10) $ (0.08) $ (0.47) $ (0.38)
Extraordinary Item ....................... -- (0.43) -- (.043)
--------- --------- --------- ---------
Net Loss Attributable to Common
Stockholders ......................... $ (0.10) $ (0.51) $ (0.47) $ (0.81)
========= ========= ========= =========
Fully Diluted
Net Loss Attributable to Common Stock-
holders Before Extraordinary Item .... $ (0.10) $ (0.08) $ (0.47) $ (0.38)
Extraordinary Item ....................... -- (0.43) -- (.043)
--------- --------- --------- ---------
Net Loss Attributable to Common
Stockholders ......................... $ (0.10) $ (0.51) $ (0.47) $ (0.81)
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
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GREYHOUND LINES, INC. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
1996 1997
--------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................. (27,078) (46,339)
Extraordinary Items ...................................... --- 25,323
Non-cash expenses and gains included in net loss ......... 15,888 16,374
Net change in certain operating assets and liabilities ... (10,170) (25,158)
--------- ---------
Net cash used for operating activities ............... (21,360) (29,800)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ..................................... (11,434) (13,879)
Proceeds from assets sold ................................ 12,765 1,414
Other investing activities ............................... (1,850) (2,283)
--------- ---------
Net cash used for investing activities ............... (519) (14,748)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt and capital lease obligations ........... (2,164) (15,402)
Proceeds from 11.5% Senior Notes and Convertible
Exchangeable Preferred Stock Issuance .................... --- 203,399
Redemption of 10% Senior Notes ........................... --- (161,022)
Retirement of Interest Rate Swap ......................... --- (3,010)
Proceeds from issuance of Common Stock ................... 113 1,067
Net change in revolving credit facility .................. 21,327 19,930
--------- ---------
Net cash provided by financing activities ............ 19,276 44,962
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........ (2,603) 414
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .............. 3,494 898
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................... $ 891 $ 1,312
========= =========
The accompanying notes are an integral part of these statements.
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GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited Interim Consolidated Financial
Statements of Greyhound Lines, Inc. and Subsidiaries (the "Company") include
all adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the Company's financial position as of June 30, 1997, and the
results of its operations for the three and six months ended June 30, 1996 and
1997 and cash flows for the six months ended June 30, 1996 and 1997. Due to the
seasonality of the Company's operations, the results of its operations for the
interim period ended June 30, 1997 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, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
LOSS PER SHARE OF COMMON STOCK
Primary loss per common share is calculated by dividing net loss attributable
to common stockholders by the weighted average shares of common stock of the
Company ("Common Stock") and Common Stock equivalents outstanding during the
period. Common Stock equivalents represent the dilutive effect of the assumed
exercise of certain outstanding stock options. The calculation of fully diluted
loss per share of Common Stock considers the effect of conversion of the
Company's 8.5% Convertible Subordinated Debentures due 2007 (the "Convertible
Debentures") and 8.5% Convertible Exchangeable Preferred Stock (the "Preferred
Stock"). For the three and six months ended June 30, 1996 and 1997, however,
the assumed exercise of outstanding in-the-money stock options and conversion
of Convertible Debentures and Preferred Stock have an antidilutive effect. As a
result, these shares are excluded from the final determination of the weighted
average shares outstanding at June 30, 1996 and 1997. The weighted average
shares outstanding used in the calculation of primary and fully diluted loss
per share of Common Stock for the three and six months ended June 30, 1996 and
1997 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
Primary ............ 58,234,926 58,815,097 58,204,186 58,629,786
Fully diluted ...... 58,234,926 58,815,097 58,204,186 58,629,786
The Company intends to adopt SFAS No. 128 "Earnings Per Share" (SFAS No. 128)
effective December 15, 1997. This statement requires the replacement of primary
earnings per share with basic earnings per share and fully diluted earnings per
share with diluted earnings per share. The pro forma effect of this adoption
will be disclosed in the next applicable quarter in which the Company reports a
net income for the period. The calculation of earnings per share under SFAS 128
will have a favorable impact on earnings per share as it excludes potentially
dilutive options from the calculation of basic earnings per share.
Additionally, the calculation of diluted earnings per share uses the average
share price for the period rather than the more dilutive greater of average
share price or end of the period price required by Opinion 15. During the
second quarter, the earnings per share calculation reflects the pro rata impact
of dividends which will accrue to the holders of the Preferred Stock over the
period outstanding.
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3. SECURITIES OFFERINGS
On April 16, 1997, the Company completed the sale of two private offerings of
its securities. The Company issued $150.0 million aggregate principal amount of
11.5% Senior Notes due 2007 (Senior Notes) and 8.5% Convertible Exchangeable
Preferred Stock (Preferred Stock ) with a liquidation preference of $60.0
million. The net proceeds to the Company from the aforementioned Senior Note
and Preferred Stock offerings were approximately $203.4 million. In connection
with the offerings, the Company retired the 10% Senior Notes due 2001 (the "Old
Senior Notes"). As a result of the retirement of the Old Senior Notes and
renegotiation of the Revolving Credit Facility (defined herein), the Company
recorded an extraordinary loss of $25.3 million. The loss includes $21.3 million
to reflect the acceleration of the discount and prepayment premiums on the Old
Senior Notes, the acceleration of payments, net of amounts accrued, under the
interest rate swap agreements of $2.5 million and the write off of $1.5 million
of debt issuance costs related to the prior revolving credit facility.
Senior Notes
The Company's Senior Notes bear interest at the rate of 11.5% per annum,
payable each April 15 and October 15 commencing on October 15, 1997. The 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
interest. Not withstanding the foregoing, on or prior to April 15, 2000, the
Company may redeem up to 35% of the aggregate principal amount of Senior Notes
originally issued at a redemption price of 111.5% plus interest with the net
cash proceeds of certain equity offerings, provided that at least $97.5 million
aggregate principal amount of Senior Notes remains outstanding following each
redemption. Upon the change of control of the Company, as defined in the
indenture, the Company will be required to make an offer to repurchase all or
any part of each holder's Senior Notes at a price equal to 101% of the principal
amount thereof plus interest. The Senior Note indenture contains certain
covenants that, among other things, will 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.
Preferred Stock
The Preferred Stock carries a liquidation preference of $25.00 per share plus
accumulated and unpaid dividends. Dividends accrue at a rate per annum equal to
8.5% 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 of each year
commencing August 1, 1997. The Preferred Stock is convertible at any time after
July 15, 1997, at the option of the holder thereof, into common stock of the
Company at a conversion price of $4.875 per share. 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. Upon the change of control of the Company,
the Company will be required to make an offer to repurchase all or any part of
each holder's Preferred Stock at a price equal to 100% of the liquidation
preference plus accumulated and unpaid dividends. Subject to certain
conditions, the Company may at its option exchange all, but not less than all,
of the then outstanding shares of Preferred Stock into 8.5% Convertible
Subordinated Debentures due 2009 (the "Exchange Debentures") on any dividend
payment date on or after April 16, 1999. Interest on the Exchange Debentures
will be payable semi-annually in arrears on May 1 and November 1. The
conversion and redemption terms of the Exchange Debentures are similar to the
Preferred Stock.
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4. LONG TERM DEBT
During the quarter, the Company renegotiated the terms of its Revolving Credit
Facility. The amended facility increased the borrowing availability to $125.0
million and provided a LIBOR-based interest rate option. The Revolving Credit
Facility permits the Company to borrow (i) up to $2.5 million based on a formula
of eligible accounts receivable, plus (ii) up to $92.5 million based on the
value of bus collateral plus (iii) up to $30.0 million (subject to reduction)
based on the value of real estate collateral. Borrowings under the Revolving
Credit Facility bear interest at a rate equal to the prime rate (8.50% as of
July 31) plus .5%, or LIBOR plus 2%. The Credit Facility limits letters of
credit and letters of credit guarantees to $35.0 million. Borrowings under the
Revolving Credit Facility mature on May 21, 2002. The Revolving Credit Facility
is secured by liens on substantially all of the assets of the Company. The
Revolving Credit Facility is subject to certain operating and financial
covenants, including maintenance of a minimum net worth and ratios of cash flow
to interest expense and Debt to EBITDA. In addition, non-bus capital
expenditures are limited to $30.0 million annually with no spending limitations
on bus purchases. As of June 30, 1997, the Company was in compliance with all
such covenants.
5. COMMITMENTS AND CONTINGENCIES
SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION.
Between August and December 1994, seven purported class action lawsuits were
filed by purported owners of the Company's Common Stock, Convertible Debentures
and Old Senior Notes against the Company and certain of its former officers and
directors. The suits sought unspecified damages for securities laws violations
as a result of statements made in public reports and press releases and to
securities analysts during 1993 and 1994 that were alleged to have been false
and misleading.
All the purported class action cases referred to above (with the exception of
one suit that was dismissed before being served on any defendants) were
transferred to the United States District Court for the Northern District of
Texas, the Court in which the first purported class action suit was filed, and
were pending under a case styled In re Greyhound Securities Litigation, Civil
Action 3-94-CV-1793-G. A joint pretrial order was entered in the litigation
which consolidated for pretrial and discovery purposes all of the stockholder
actions and, separately, all of the debtholder actions. The joint pretrial
order required plaintiffs to file consolidated amended complaints and excused
answers to the original complaints. In July 1995, the plaintiffs filed their
consolidated amended complaints, naming the Company, Frank J. Schmieder, J.
Michael Doyle, Phillip W. Taff, Robert R. Duty, Don T. Seaquist, Charles J.
Lee, Charles A. Lynch and Smith Barney Incorporated as defendants. Messrs. Lee,
Lynch and Taff were subsequently dismissed from the case by the plaintiffs. In
September 1995, the various defendants filed motions to dismiss plaintiffs'
complaints. In October 1995, plaintiffs filed a motion seeking to certify the
class of plaintiffs.
On October 3, 1996, the Court ruled in favor of the Company and all other
defendants, granting defendants' motions to dismiss. Pursuant to the Court's
order, the complaints were dismissed, with leave granted to the plaintiffs to
refile amended complaints within 20 days thereafter. On October 23, 1996, an
amended complaint was tendered to the Court. All seven class representatives
involved in the prior complaints were dropped from the case. A new purported
class plaintiff, John Clarkson, was named and a motion was filed seeking leave
to permit Mr. Clarkson to intervene as the new class representative. The
amended complaint alleges a class period of May 4, 1993 to October 26, 1993 and
has been brought only on behalf of holders of Common Stock. The amended
complaint names the same defendants involved in the dismissed cases (the
Company, Messrs. Schmieder, Doyle, Duty and Seaquist and Smith Barney
Incorporated); no new defendants were added and none were dropped. In December
1996, the defendants filed responses to plaintiff's motion for intervention. In
January 1997, the plaintiff filed a reply brief. Therefore, all briefing
regarding the intervention has been completed and the matter is awaiting a
ruling by the Court. The Court has advised the parties that no responsive
pleading need be filed to the amended complaint until such time as the Court
rules on the motion for intervention filed by Mr. Clarkson.
In November 1994, a shareholder derivative lawsuit was filed by Harvey R. Rice,
a purported owner of the Company's Common Stock, against present directors and
former officers and directors of the Company and the Company as a nominal
defendant. The suit seeks to recover monies obtained by certain defendants by
allegedly
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trading in the Company's securities on the basis of nonpublic information and
to recover monies for certain defendants' alleged fraudulent dissemination of
false and misleading information concerning the Company's financial condition
and future business prospects. The suit, filed in the Delaware Court of
Chancery, New Castle County, is styled Harvey R. Rice v. Frank J. Schmieder, J.
Michael Doyle, Charles A. Lynch, Richard J. Caley, Thomas F. Meagher, Thomas G.
Plaskett, Kenneth R. Norton, Robert B. Gill, Alfred E. Osborne, Jr., J. Patrick
Foley, Charles J. Lee and Greyhound Lines, Inc., Civil Action No. 13854.
Pursuant to a stipulation, the time for all defendants to answer, move or
otherwise plead with respect to the derivative complaint is not yet due.
In May 1995, a lawsuit was filed on behalf of two individuals, purported owners
of the Company's Common Stock, against the Company and certain of its former
officers and directors. The suit sought unspecified damages for securities laws
violations as a result of statements made in public reports and press releases
and to securities analysts during 1993 and 1994 that are alleged to have been
misleading. The suit, filed in the United States District Court for the
Northern District of Ohio, was styled James Illius and Theodore J. Krawec v.
Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil
Action No. 1-95-CV-1140. The defendants filed a motion to transfer venue
seeking to have the case transferred to the United States District Court for
the Northern District of Texas where the class action litigation described
above was pending. In September 1995, the defendants' motion was granted, and
the matter was transferred and was consolidated into the class action
litigation described above.
On October 29, 1996, a purported class action lawsuit was brought by a
purported holder of Common Stock against the Company, certain of its former
officers and directors and Smith Barney and Morgan Stanley & Company, Inc. The
suit seeks unspecified damages for alleged federal and Texas state securities
laws violations in connection with a Common Stock offering made by the Company
in May 1993. The suit, filed in the 44th Judicial District Court of Dallas
County, Texas, is styled John Clarkson v. Greyhound Lines, Inc., Frank
Schmieder, J. Michael Doyle, Robert R. Duty, Don T. Seaquist, Smith Barney,
Inc. and Morgan Stanley & Company, Inc., Case No. 96-11329-B. Plaintiff, John
Clarkson, is the same individual who seeks to intervene in the Federal Court
class action litigation described above, and the same law firms have appeared
for the plaintiff in both cases. On December 20, 1996, the defendants filed
their answers to the lawsuit and pleas in abatement asking the Court to stay
all proceedings pending resolution of the intervention motion and Federal Court
class action lawsuit. On February 28, 1997, the suit was transferred to a
different judge in the 68th Judicial District Court in Dallas. On March 28,
1997, the Court denied the defendants' pleas in abatement requesting the stay.
The parties are currently engaged in the discovery process. The court has made
an initial trial setting for this case of October 14, 1997. It is unlikely that
the parties will complete the pre-trial process by this date and thus the trial
date is expected to be continued.
Based on a review of the litigation, a limited investigation of the underlying
facts and discussions with legal and outside counsel, the Company does not
believe that the outcome of this litigation would have a material adverse
effect on its business, financial condition, results of operations and
liquidity. The Company intends to defend against the actions vigorously. To the
extent permitted by Delaware law, the Company is obligated to indemnify and
bear the cost of defense with respect to lawsuits brought against its officers
and directors. The Company maintains directors' and officers' liability
insurance that provides certain coverage for itself and its officers and
directors against claims of the type asserted in the subject litigation. The
Company has notified its insurance carriers of the asserted claims.
In January 1995, the Company received notice that the Securities and Exchange
Commission is conducting a formal, non-public investigation into possible
securities laws violations allegedly involving the Company and certain of its
former officers, directors and employees and other persons. The Commission's
Order of Investigation (the "Order of Investigation") states that the
Commission is exploring possible insider trading activities, as well as
possible violations of the federal securities laws relating to the adequacy of
the Company's public disclosures with respect to problems with its passenger
reservation system implemented in 1993 and lower-than-expected earnings for
1993. In addition, the Commission has stated that it will investigate the
adequacy of the Company's record 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 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 no 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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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, 48 locations have
been identified as sites requiring potential clean-up and/or remediation as of
June 30, 1997. The Company has estimated the clean-up and/or remediation costs
of these sites to be $3.7 million, of which approximately $0.7 million is
indemnifiable by the predecessor owner of Greyhound's domestic bus operations
now known as Viad Corp. The Company has no reason to believe that Viad Corp
will not fulfill its indemnification obligations to the Company. However, if
Viad Corp does not fulfill such obligations, the Company could have liability
with respect to those matters. Additionally, the Company has a potential
liability with respect to two locations which the EPA has designated Superfund
sites. The Company as well as other parties designated by the EPA as
potentially responsible parties face exposure for costs related to the clean-up
of those sites. Based on the EPA's enforcement activities to date, the Company
believes its liability at these sites will not be material because its
involvement was as a de minimis generator of wastes disposed of at the sites.
In light of its minimal involvement, the Company has been negotiating to be
released from liability in return for the payment of immaterial settlement
amounts. The Company has recorded a total environmental reserve of $3.0 million
at June 30, 1997, a portion of which has also been recorded as a receivable
from Viad Corp for indemnification. The environmental reserve relates to sites
identified for potential clean-up and/or remediation and represents the present
value of estimated cash flows discounted at 8.0%. As of the date of this
filing, the Company is not aware of any additional sites to be identified, and
management believes that adequate accruals have been made related to all known
environmental matters.
OTHER LEGAL PROCEEDINGS
In addition to the litigation discussed above, the Company is a defendant in
various lawsuits arising in the ordinary course of business, primarily cases
involving personal injury and property damage claims and employment-related
claims. Although these lawsuits involve a variety of different facts and
theories of recovery, the majority arise from traffic accidents involving buses
operated by the Company. The vast majority of these claims are covered by
insurance for amounts in excess of the self-retention or deductible portion of
the policies. Therefore, based on the Company's assessment of known claims and
its historical claims payout pattern and discussion with legal and outside
counsel and risk management personnel, management believes that there is no
proceeding either threatened or pending against the Company relating to such
personal injury and/or property damage claims arising out of the ordinary
course of business that, if resolved against the Company, would materially
exceed the amounts recorded.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Greyhound is the only nationwide provider of 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 84.9%, 4.5% and 2.9%, respectively, of
the Company's total operating revenues for the three months ended June 30, 1997
and 85.1%, 4.5% and 3.0%, respectively for the six months ended June 30, 1997.
The Company's operations include a nationwide network of terminal and
maintenance facilities, a fleet of approximately 2,100 buses and approximately
1,500 sales outlets.
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations as a
percentage of total operating revenues for the three and six months ended June
30, 1996 and 1997:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1996 1997 1996 1997
------ ------ ------ ------
Operating Revenues
Transportation services
Passenger services ...................... 84.9% 84.9% 84.4% 85.1%
Package express ......................... 4.9 4.5 5.3 4.5
Food services ................................ 3.1 2.9 3.2 3.0
Other operating revenues ..................... 7.1 7.7 7.1 7.4
------ ------ ------ ------
Total operating revenues ............ 100.0 100.0 100.0 100.0
Operating Expenses
Maintenance .................................. 10.6 10.4 11.5 11.1
Transportation ............................... 25.1 26.1 25.7 26.1
Agents' commissions and station costs ........ 18.9 18.8 19.6 19.2
Marketing, advertising and traffic ........... 3.9 3.6 3.8 3.9
Insurance and safety ......................... 6.4 5.8 7.0 5.9
General and administrative ................... 12.5 11.9 13.2 12.7
Depreciation and amortization ................ 4.3 4.1 4.8 4.4
Operating taxes and licenses ................. 7.1 7.0 7.7 7.4
Operating rents .............................. 7.4 7.7 7.8 8.1
Cost of good sold - food services ............ 2.0 1.8 2.1 1.9
Other operating expenses ..................... 1.1 1.3 1.2 1.3
------ ------ ------ ------
Total operating expenses ............ 99.3 98.5 104.4 102.0
------ ------ ------ ------
Operating Income (Loss) ........................ 0.7 1.5 (4.4) (2.0)
Interest Expense ............................... 3.9 3.6 4.2 4.1
------ ------ ------ ------
Net Loss Before Extraordinary Item ............. (3.2) (2.1) (8.6) (6.1)
Extraordinary Item ............................. 0.0 14.0 0.0 7.4
------ ------ ------ ------
Net Loss........................................ (3.2) (16.1) (8.6) (13.5)
Preferred Dividends ............................ 0.0 0.6 0.0 0.3
------ ------ ------ ------
Net Loss Attributable to Common Stockholders ... (3.2) (16.7) (8.6) (13.8)
====== ====== ====== ======
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The following table sets forth certain operating data for the Company for the
three and six months ended June 30, 1996 and 1997. Certain statistics have been
adjusted and restated from that previously published to provide consistent
comparisons.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, PERCENTAGE JUNE 30, PERCENTAGE
1996 1997 CHANGE 1996 1997 CHANGE
---------- ---------- --------- ---------- ---------- --------
Regular Service Miles (000's) 63,413 68,076 7.4 120,958 130,799 8.1
Total Bus Miles (000's) 65,521 70,179 7.1 123,989 134,159 8.2
Passenger Miles (000's) 1,504,231 1,643,309 9.2 2,756,228 3,134,274 13.7
Passengers Carried (000's) 4,407 4,720 7.1 8,310 9,183 10.5
Average Trip Length (passenger 341 348 2.1 332 341 2.7
miles/ passengers carried)
Load (avg. number of passengers per 23.7 24.1 1.7 22.8 24.0 5.3
regular service mile)
Load Factor (% of available seats 51.6 52.5 1.7 49.5 52.1 5.3
filled)
Yield (regular route $ 0.0972 $ 0.0938 (3.5) $ 0.0961 $ 0.0930 (3.2)
revenue/passenger miles)
Total Revenue Per Total Bus Mile 2.63 2.59 (1.5) 2.53 2.55 0.8
Operating Income (Loss) Per Total 0.02 0.04 100.0 (0.11) (0.05) 54.5
Bus Mile
Cost Per Total Bus Mile:
Maintenance $ 0.278 $ 0.270 (2.9) $ 0.293 $ 0.282 (3.8)
Transportation 0.661 0.674 2.0 0.651 0.667 2.5
SECOND QUARTER 1997 AND 1996 RESULTS OF OPERATIONS
Operating Revenues. Total operating revenues increased $9.3 million (or 5.4%)
and $28.8 million (or 9.2%) for the three and six months ended June 30, 1997,
compared to the same periods in 1996. Transportation service revenues
increased $7.6 million (or 4.9%) and $25.3 million (or 9.0%) for the second
quarter and first half of 1997 compared to the same periods in 1996. The
increased revenues are primarily due to a $7.9 million (or 5.4%) and $26.5
million (or 10.0%) increase in regular route revenues for the three and six
months ended June 30, 1997. This increase is offset in part by a $0.3 million
(or 3.9%) and $1.2 million (or 7.1%) decrease in package express revenues for
the three and six months ended June 30, 1997, compared to the same periods in
1996. The 5.4% and 10.0% increases in regular route revenues for the three and
six months ended June 30, 1997, compared to the same periods in 1996 reflect a
7.1% and 10.5% increase in the number of passengers carried for the second
quarter and first half of 1997 compared to the same periods in 1996. The growth
in passengers is driven by core growth in all trip lengths as well as
incremental growth from promotional fares and increased advertising. Passengers
carried increased despite readily available discount airfares through the
summer and the inclusion of most of the Fourth of July holiday travel in the
second quarter of 1996. The 3.5% and 3.2% decrease in yield for the three and
six months ended June 30, 1997, compared to the same periods in 1996 reflects
the impact of both the longer average trip lengths and more extensive
promotional fare offerings in 1997.
Package express revenues have been declining, most recently due to the effects
of decreases in regular service miles operated during 1992 and 1993, a
reduction in the number of pickup and delivery agents and the reduction in 1994
of the number of hours that the Company's terminals were open. The impact of
these reductions was a substantial reduction in convenience for many customers
who used the Company's package express service which resulted in a loss of
customers that have not been regained. In 1996, the Company increased its focus
on the package express business in an effort to reverse the decline in package
express service revenues. In addition to the increased schedule offerings added
in 1995 and 1996, the Company has implemented increased hours of service,
improved billing and added more convenient schedules. In addition, in select
markets, the Company has implemented a centralized telephone customer service
department dedicated to package express service. The Company is also pursuing
alliances with courier service networks which would enhance its existing pickup
and delivery relationships and leverage the Company's low incremental costs of
providing point to point service with the customer convenience of increased
pickup and delivery service. As a result, the year over year decline reflected
in the three months ended June 30, 1997 is substantially reduced from declines
experienced during the previous four years.
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Food Service revenues remained relatively flat at $5.3 million during the
second quarter of 1997 versus 1996, despite increased passenger counts, due to
the conversion of many locations to a convenience store concept which resulted
in increases in sales of retail products (including food products that replaced
the source of food service revenues) which is reported as other operating
revenues. For the six months ended June 30, 1997, Food Service revenues
increased $0.3 million (or 3.3%) due primarily to the general increase in
passenger activity.
Other operating revenues, consisting primarily of revenue from charter and
in-terminal sales and services, increased $1.7 million (or 14.0%) and $3.1
million (or 14.0%) for the three and six months ended June 30, 1997, compared
to the same periods in 1996 due primarily to an increase in charter service
revenues as well as an increase in revenues from other in-terminal services,
such as calling card sales, prepaid ticket orders and increased sales of other
retail products (including "convenience store" type food products mentioned
above).
Operating Expenses. Total operating expenses increased $7.7 million (or 4.5%)
and $21.8 million (or 6.7%) for the three and six months ended June 30, 1997,
compared to the same periods in 1996. The increase is due primarily to an
increase in bus miles operated (7.1% and 8.2%, respectively), an increase in
driver related expenditures primarily due to higher driver wages and training,
an increase in station expenses primarily due to higher terminal salaries and
ticket commissions paid and increased operating and casual bus rentals. Despite
these increases, total operating expenses as a percent of total operating
revenues declined by approximately 1.0% and 2.0% for the second quarter and
first half of 1997 compared to the same periods in 1996.
Maintenance costs increased $0.7 million (or 3.9%) and $1.5 million (or 4.1%)
for the three and six months ended June 30, 1997, compared to the same periods
in 1996 due to an increase in bus miles (7.1% and 8.2%, respectively) which was
partially offset by a (2.9% and 3.8%, respectively) decrease in maintenance
costs per bus mile. As a percentage of total operating revenues, maintenance
costs decreased to 10.4% and 11.1%, respectively for the second quarter and
first half of 1997 from 10.6% and 11.5% for the same periods in 1996. The
Company intends to continue to manage the average age of its fleet in order to
increase the reliability of its service while reducing overall costs.
Transportation expenses, which consist primarily of driver wages and fuel
costs, increased $4.0 million (or 9.3%) and $8.8 million (or 10.9%) for the
three months and six months ended June 30, 1997, compared to the same periods
in 1996 due to the increase in bus miles (7.1% and 8.2 %, respectively) and an
increase in transportation expenses per bus mile (2.0% and 2.5%, respectively).
Transportation expenses per mile increased primarily due to an annual
contractual pay increase for drivers and an increase in other driver related
expenses related to increased miles. As a percentage of total operating
revenue, transportation expenses increased to 26.1% for the three and six
months ended June 30, 1997 from 25.1% and 25.7% for the same periods in 1996
primarily due to reflecting the impact of contractual wage increases which were
only partially offset by lower fuel prices.
Agents' commissions and station costs increased $1.5 million (or 4.5%) and $4.2
million (or 6.7%) for the three and six months ended June 30, 1997, compared to
the same periods in 1996 primarily due to commissions associated with increased
ticket sales and the addition of and pay increases for terminal staff since the
first quarter of 1996. Increased costs associated with higher customer fare and
schedule call volumes (up 23.0% and 27.2%, respectively) were entirely offset
by lower long distance telephone rates and cost savings from the conversion of
calls handled by a third-party provider of telephone customer services into
company operated facilities. As a percentage of total operating revenue,
agents' commissions and station costs decreased to 18.8% and 19.2% for the
three and six months ended June 30, 1997 from 18.9% and 19.6% for the same
periods in 1996.
Marketing, advertising and traffic expenses decreased $0.2 million (or 2.4%)
and increased $1.7 million (or 14.3%) for the three and six months ended June
30, 1997, compared to the same periods in 1996. As part of the Company's growth
strategy, the Company expects to maintain its advertising campaign throughout
the year, thereby resulting in increased advertising expenditures in 1997 when
compared to the prior year. As a percentage of total operating revenue,
marketing, advertising and traffic costs increased to 3.6% and 3.9% for the
three and six months ended June 30, 1997 from 3.9% and 3.8% for the same
periods in 1996.
Insurance and safety costs decreased $0.6 million (or 5.1%) and $1.7 million
(or 7.8%) for the three and six months ended June 30, 1997, compared to the
same periods in 1996 due to the continued favorable claims experience as a
result of the Company's increased focus on claims management and risk reduction
programs which was partially
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offset by increased exposure relating to the increase in bus miles (7.1% and
8.2%, respectively). As a percentage of total operating revenue, insurance and
safety costs decreased to 5.8% and 5.9% for the three and six months ended June
30, 1997 from 6.4% and 7.0% for the same periods in 1996.
General and administrative expenses remained relatively flat during the second
quarter and increased $2.1 million (or 5.0%) for the six months ended June 30,
1997 compared to the same periods in 1996 due to additions to administrative
personnel during late 1996 and increased benefit costs Company-wide. These
increases were partially offset by a decrease in legal expenses because of a
reduction in pending lawsuits when compared to the prior year. As a percentage
of total operating revenues, general and administrative expenses decreased to
11.9% and 12.7% for the three and six months ended June 30, 1997 from 12.5% and
13.2% for the same periods in 1996.
Operating taxes and license costs increased $0.5 million, (or 4.1%) and $1.2
million (or 5.1%) for the three and six months ended June 30, 1997, compared to
the same periods in 1996 primarily due to increased fuel and oil taxes
resulting from an increase in total bus miles (7.1% and 8.2%, respectively) and
an increase in payroll taxes related to increased business volume. As a
percentage of total operating revenue, operating taxes and license costs
decreased to 7.0% and 7.4% for the three and six months ended June 30, 1997
from 7.1% and 7.7% for the same periods in 1996.
Operating rents increased $1.1 million (or 8.9%) and $3.2 million (or 13.2%)
for the three and six months ended June 30, 1997, compared to the same periods
in 1996 primarily due to an increase in the number of buses leased under
operating leases in 1997 and an increase in casual bus rentals related to the
strong 1996 Christmas travel which caused increased rentals in early 1997
compared to 1996. A portion of the increase in bus operating lease expense is
due to the sale-leaseback of 51 buses under operating leases in April 1996. The
increase is primarily offset by a reduction in depreciation and interest
expense. As a percentage of total operating revenue, operating rents increased
to 7.7% and 8.1% for the three and six months ended June 30, 1997 from 7.4% and
7.8% for the same periods in 1996.
Other operating expenses increased $0.5 million (or 28.7%) and $0.8 million (or
22.9%) for the three and six months ended June 30, 1997, compared to the same
periods in 1996 due, in part, to an increase in food service costs related to
higher retail sales (reflected in other operating revenues). As a percentage
of total operating revenue, other operating expenses increased to 1.3% for the
three and six months ended June 30, 1997 from 1.1% and 1.2% for the same
periods in 1996.
Interest expense decreased $0.1 million (or 1.7%) and increased $0.8 million
(or 6.4%) for the three and six months ended June 30, 1997, compared to the
same periods in 1996 as a result of the renegotiation of lower interest rates
under the Revolving Credit Facility, termination of the interest rate swap
agreements and payment of bus obligations partially offset by increased
interest resulting from three capital leases for 77 buses initiated in December
1996. Year to date, however, increased borrowings on the revolver more than
offset the reduced interest expense resulting from the second quarter
refinancing transactions described above. As a percentage of total operating
revenue, interest expense decreased to 3.6% and 4.1% for the three and six
months ended June 30, 1997 from 3.9% and 4.2% for the same periods in 1996.
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 principal and interest on
borrowings under the Revolving Credit Facility and interest on the Senior Notes
and to pay quarterly dividends on the Preferred Stock. The Company's principal
sources of liquidity are expected to be cash flow from operations and borrowings
under the Revolving Credit Facility. The Company believes that its cash flow
from operations, together with borrowings under the Revolving Credit Facility,
will be sufficient to meet its liquidity needs for the foreseeable future.
Net cash used for operating activities increased $8.4 million, or 39.5% to
$29.8 million in 1997 from $21.4 million in 1996. The increase in cash used for
operating activities is primarily due to a reduction of payments in process and
the payment of accrued interest related to the Old Senior Notes. Net cash used
for investing activities increased $14.2 million, or 2741.6% to $14.7 million
in 1997 from
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$0.5 million in 1996, principally due to a $2.4 million increase in capital
expenditures and $11.8 million in other transactions including additional
proceeds from assets sold in 1996 offset by investments in 1997 related to a
less than wholly owned subsidiary. Net cash provided by financing activities
increased $25.7 million, or 133.3% to $45.0 million in 1997 from $19.3 million
in 1996. This increase can be attributed to proceeds from the securities
offerings, offset by the redemption of the Old Senior Notes and the payment of
bus financing obligations.
As part of its operating strategy, the Company anticipates that it will
continue to make significant capital investments in order to maintain and,
where appropriate, make improvements and upgrades to its infrastructure,
including its bus fleet, terminals and computer systems. The Company's
experience indicates that as the age of its bus fleet increases (at June 30,
1997, the average age of the Company's bus fleet was 6.3 years), 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, which the Company believes has
contributed significantly to its improved operating results in 1995, 1996 and
the first six months of 1997. The Company estimates that capital expenditures
for 1997 will total approximately $21.6 million, excluding the acquisitions of
five bus terminals the Company intends to purchase (see further discussion in
the Securities Offerings section), and excluding bus acquisitions. The Company
currently maintains a fleet of approximately 2,100 buses comprised of
approximately 1300 leased and 800 owned buses. The Company has placed an order
for 147 new buses having an estimated aggregate purchase price of $38.2 million
during the remainder of 1997, a majority of which are expected to be financed
through capital or operating leases.
The Company generally uses lease financing with purchase options as the
principal source of bus financing in order to achieve the lowest net cost of
bus financing. Depending on the specific terms of a lease, such a lease may be
accounted for as either an operating or capital lease. The Company also
acquires buses outright and at times purchases buses and subsequently engages
in sale-leaseback transactions with respect to such buses.
The Company requires significant cash flows to meet its debt service and other
continuing obligations. As of June 30, 1997, the Company had $215.8 million of
long-term indebtedness outstanding, including $30.6 million of borrowings under
the Revolving Credit Facility (but excluding $21.1 million of issued and
undrawn standby letters of credit). In addition, as of June 30, 1997, the
Company had total availability of $59.1 million under the Revolving Credit
Facility.
During the quarter, the Company renegotiated the terms of its Revolving Credit
Facility. The amended facility increased the borrowing availability to $125.0
million and provided a LIBOR-based interest rate option which is expected to
reduce annual interest expense by approximately $.5 million. The Revolving
Credit Facility permits the Company to borrow (i) up to $2.5 million based on a
formula of eligible accounts receivable, plus (ii) up to $92.5 million based on
the value of bus collateral plus (iii) up to $30.0 million (subject to
reduction) based on the value of real estate collateral. Borrowings under the
Revolving Credit Facility bear interest at a rate equal to the prime rate (8.50%
as of July 31) plus .5%, or LIBOR plus 2%. The Credit Facility limits letters of
credit and letters of credit guarantees to $35.0 million. Borrowings under the
Revolving Credit Facility mature on May 21, 2002. The Revolving Credit Facility
is secured by liens on substantially all of the assets of the Company. The
Revolving Credit Facility is subject to certain operating and financial
covenants, including maintenance of a minimum net worth and ratios of cash flow
to interest expense and Debt to EBITDA. In addition, non-bus capital
expenditures are limited to $30.0 million annually with no spending limitations
on bus purchases. As of June 30, 1997, the Company was in compliance with all
such covenants.
As of June 30, 1997, the Company had not entered into any new hedging
agreements regarding interest rate risk. From the proceeds of the Securities
Offerings detailed in the next paragraph, the Company has retired its two
existing interest rate swap agreements effective April 30, 1997, for $3.0
million. Management does not presently plan to enter into any additional
interest rate hedging instruments in the future.
The Company has entered into two advance purchase commitments for fuel. Under
these agreements the Company agrees to take delivery of fuel at a specific
location at a fixed price at a specific date in the future. The agreements have
been entered into with two suppliers for approximately 35% of 1997 projected
bulk fuel needs at an average price per gallon of $0.6523. Management believes
that this strategy is a conservative method to hedge against fuel price
fluctuations.
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SECURITIES OFFERINGS
On April 16, 1997, the Company completed the sale of two private offerings of
its securities. The Company issued $150.0 million aggregate principal amount of
Senior Notes and a new class of Preferred Stock with a $60.0 million liquidation
preference. On May 16, 1997, the Company filed with the SEC a registration
statement on Form S-3, subsequently declared effective June 30, 1997, relating
to resale by certain purchasers of the Preferred Stock of their shares of
Preferred Stock acquired in the private offering. Further, on June 30, 1997, the
Company offered to exchange the series of Senior Notes issued in the private
offering (the "Series A Senior Notes") for an identical series of Senior Notes
registered with the SEC on Form S-4, (the "Series B Senior Notes"). On August 7,
1997, the Company accepted all $150 million aggregate principal amount of the
Series A Senior Notes outstanding in exchange for the issuance of a like
principal amount of the Series B Senior Notes.
The net proceeds to the Company from the aforementioned Senior Note and
Preferred Stock Offerings were approximately $203.4 million (after deducting
discounts, commissions and offering expenses). The net proceeds of both
offerings were used to (i) retire the Company's 10% Senior Notes due 2001, (ii)
fund the acquisition of Carolina Trailways for $24.5 million (including the
repayment of debt of Carolina Trailways); and (iii) retire certain interest
rate swap agreements entered into by the Company for $3.0 million. The
remaining net proceeds were used to repay borrowings under the Revolving Credit
Facility and other bus obligations. The original "use of proceeds" from these
offerings intended $6.7 million to be used to acquire four bus terminals. The
terms of the purchase have since been modified, and the Company is currently in
negotiations with Viad Corp to purchase five terminals (the aforementioned
terminals plus an additional terminal). The final agreement may result in the
purchase of all, some, or none of the terminals with renewal of lease terms as
a possible option (if the terminals are not purchased).
During the quarter, the company recorded an extraordinary loss of $25.3 million
primarily related to the redemption of the 10% Senior Notes. The loss includes
$21.3 million to reflect the acceleration of the discount for the 10% Senior
Notes and prepayment premiums related to the redemption of the 10% Senior
Notes. Another component reflects the acceleration of payments less amounts
accrued under the interest rate swap agreements for $2.5 million. Lastly, as
part of the renegotiation of the Credit Facility, the Company wrote-off $1.5
million in debt issuance costs related to the prior revolving credit facility.
On July 9, 1997, the Company completed its acquisition of Carolina Trailways, a
Mid-Atlantic bus carrier, for the purchase price of $24.5 million comprised of
$20.4 million in cash and the payment of $4.1 million of indebtedness and the
issuance of $0.75 million in Common Stock of the Company.
On May 27, 1997, the Company agreed to acquire Valley Transit, a South Texas
bus carrier, for a purchase price of $19.0 million. The Surface Transportation
Board (STB) tentatively approved this transaction on July 3, 1997. Subject to
final STB approval, this purchase is expected to be completed by the end of
August.
SUBSTANTIAL LEVERAGE
The Company has consolidated indebtedness that is substantial in relation to
its stockholders' equity. As of June 30, 1997, the Company had outstanding
consolidated long-term indebtedness (including current portions) of
approximately $220.2 million and total stockholders' equity of approximately
$153.4 million.
HISTORY OF LOSSES
The Company has had a net loss in each of its last three fiscal years. Although
the Company has implemented strategic and operational initiatives intended to
enhance revenues and operating income, the Company's operations generally are
subject to economic, financial, competitive, seasonal and other factors, many
of which are beyond its control.
COMPETITION
The transportation industry is highly competitive. The Company's primary
sources of competition for passengers
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are automobile travel, low cost air travel from both regional and national
airlines, and in certain markets, regional bus companies and trains.
SELF INSURANCE
The Company maintains cash deposits held for insurance claims and bus lease
collateral, which as of June 30, 1997 aggregated approximately $82.5 million,
including the following deposits. The Company maintains $15.0 million on
deposit in a trust fund to support its self-insurance program pursuant to the
Surface Transportation Board's approval of such program. Due to a decrease in
pending claims and the Company's recent claims history, the Company's carriers
reduced the level of cash required to be pledged by $8.5 million in April 1995,
$14.0 million in December 1995, and $3.8 million in December 1996. As of June
30, 1997, the Company had pledged $32.9 million in cash to secure its liability
insurance obligations. Depending on the Company's future claims history and the
policies of its insurance carriers, such carriers could increase or decrease
the amount of collateral that the Company is obligated to pledge to secure its
liability insurance obligations. The Company also has deposits of $32.9 million
pledged as collateral in connection with the sale and leaseback of 490 buses in
1993 and the first quarter of 1994.
As of June 30, 1997, the Company had not experienced any adverse trends
involving differences in claims experience when compared to claims estimates
for self-insured risk and had adequate self-insurance accruals for claim
amounts. These accruals are based upon actuarial estimates which are reflected
on the Company's balance sheet. Depending on the Company's future claims
history, the loss of self-insurance authority from the STB or a decision by the
Company's insurers to modify the Company's program substantially, by either
increasing cost, reducing availability or increasing collateral, could have a
materially adverse effect on the Company's financial condition.
PENSION PLAN FUNDING
The Company maintains five defined benefit pension plans, the most significant
of which (the "ATU Plan") covers approximately 16,500 current and former
employees, fewer than 1,300 of which are active employees of the Company. The
ATU Plan was closed to new participants in 1983 and, as a result, over 80% of
its participants are over the age of 50. For financial reporting and investment
planning purposes, the Company currently uses an actuarial table that closely
matches the actual experience related to the existing participant population.
As a result of legislation enacted in 1994 by the United States Congress, the
Company may be required to begin measuring its funding obligation under the ATU
Plan utilizing an actuarial table prescribed by such legislation. If so
required, the Company currently estimates, based on assumed rates of return on
the ATU Plan's investments, that it would be required to begin making
contributions to the ATU Plan beginning no earlier than 1998 in an aggregate
amount over the next five years ranging from approximately $6.0 million to
approximately $30.0 million. If the ATU Plan is unable to attain such assumed
investment rates of return, such contributions could be higher. Although the
Company is exploring whether it may be able to obtain relief from this
requirement, there is no assurance that the Company will be able to obtain such
relief, that the ATU Plan will be able to obtain the assumed rate of return or
that contributions to the ATU Plan will not be significant.
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SEASONALITY
The Company's business is seasonal in nature and generally follows the pattern
of the travel industry as a whole, with peaks during the summer months and the
Thanksgiving and Christmas holiday periods. As a result, the Company's cash
flows are seasonal in nature with a disproportionate amount of the Company's
annual cash flows being generated during the peak travel periods. Therefore, an
event that adversely affects ridership during any of these peak periods could
have a material adverse effect on the Company's financial condition and results
of operations for that year. The day of the week on which certain holidays
occur, the length of certain holiday periods, and the date on which certain
holidays occur within a fiscal quarter, may also affect the Company's quarterly
results of operations.
LITIGATION
The Company is a party to various lawsuits the outcome of which, if adverse to
the Company, could have a material adverse effect on its business, financial
condition, results of operations and liquidity.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION
Between August 1994 to December 1994, seven purported class action lawsuits were
filed by purported owners of the Company's Common Stock, Convertible Debentures
and Old Senior Notes against the Company and certain of its former officers and
directors. The suits seek unspecified damages for securities laws violations. In
November 1994, a shareholder derivative lawsuit was filed against present
directors and former officers and directors of the Company and the Company as a
nominal defendant. In October 1996, a purported class action lawsuit was filed
by a purported owner of the Company's Common Stock in the State Court of Texas.
In addition, in January 1995 the Company received notice that the Securities and
Exchange Commission is conducting a formal, non-public investigation into
possible securities laws violations allegedly involving the Company and certain
other parties. See Note 3 to the Interim Consolidated Financial Statements for
the three and six months ended June 30, 1997, included elsewhere in this filing.
OTHER LEGAL PROCEEDINGS
In addition to the litigation discussed above, the Company is a defendant in
various lawsuits arising in the ordinary course of business, primarily cases
involving personal injury and property damage claims and employment-related
claims. Although these lawsuits involve a variety of different facts and
theories of recovery, the majority arise from traffic accidents involving buses
operated by the Company. The vast majority of these claims are covered by
insurance for amounts in excess of the self-retention or deductible portion of
the policies. Therefore, based on the Company's assessment of known claims and
its historical claims payout pattern and discussion with legal and outside
counsel and risk management personnel, management believes that there is no
proceeding either threatened or pending against the Company relating to such
personal injury and/or property damage claims arising out of the ordinary
course of business that, if resolved against the Company, would materially
exceed the amounts recorded.
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ITEM 2. CHANGES IN SECURITIES
On April 16, 1997, the Company completed the sale pursuant to a private offering
of $60 million aggregate liquidation value of its Preferred Stock. Such
securities were sold initially to Bear, Stearns & Co. Inc. and were subsequently
sold by Bear Stearns to persons believed by it to be qualified institutional
buyers and to a limited number of accredited investors who made certain
representations and agreed to certain restrictions on the transfer of the
securities purchased by them detailed in the Offering Memorandum for the
Preferred Stock. Bear Stearns received discounts and commissions in an amount of
$1,950,000 in connection with the offering of the Preferred Stock. The Preferred
Stock which has a liquidation preference of $25.00 per share is convertible into
common stock, par value $.01 per share, of the Company at a conversion price,
subject to adjustment, of $4.875 per share of common stock.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ELECTIONS OF DIRECTORS
On May 20, 1997, at the Company's annual stockholders' meeting, Mr. Richard J.
Caley, Ms. Linda Chavez and Mr. A.A. Meitz were each elected to serve a Class
III directors for three-year terms. In each case, the election was determined
by a plurality vote. Total stockholder votes for and withheld on the elections
of Mr. Caley were 49,952,115 and 1,118,123, respectively. Total stockholder
votes for and withheld on the election of Ms. Chavez were 49,927,425 and
1,142,813, respectively. Total stockholder votes for and withheld on the
election of Mr. Meitz were 49,954,819 and 1,115,419, respectively. Mr. Thomas
G. Plaskett, Mr. Craig R. Lentzsch and Mr. Frank L. Nageotte continue to serve
as Class I directors until their terms expire in 1998. Dr. Alfred E. Osborne,
Jr., Mr. Stephen M. Peck and Mr. Ernest P. Werlin continue to serve as Class II
directors until their terms expire in 1999.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors appointed Arthur Anderson LLP as independent public
accountants to examine the Company's financial statements for the fiscal year
ending December 31, 1997, effective upon ratification by the shareholders of
such appointment. Although shareholder ratification is not required for the
selection of Arthur Andersen LLP, since the Board of Directors has the
responsibility for the selection of the Company's independent auditors and such
ratification will not obligate the Company to continue the services of such
firm, the Board of Directors submitted the selection for ratification by Company
shareholders. On May 20, 1997, at the Company's annual stockholders' meeting,
the appointment of Arthur Andersen LLP to serve as independent public
accountants was ratified by a majority vote of the stockholders present or
represented at the meeting and entitled to vote. Total votes for, against and
abstentions were 50,740,136, 95,627 and 234,375, respectively.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4.1 - Amended and Restated Rights Agreement, dated as of April 8, 1997,
between the Registrant and Mellon Securities Trust Company, as Rights
Agent. (1)
4.2 - Indenture, dated April 16, 1997, by and among the Company, the
Guarantors and PNC Bank, N.A., as Trustee. (2)
4.3 - First Supplemental Indenture dated as of July 9,1997, between the
Registrant and PNC Bank, N.A., as Trustee. (7)
4.4 - Form of 11 1/2% Series A Senior Note due 2007. (2)
4.5 - Form of 11 1/2% Series B Senior Note due 2007. (4)
4.6 - Form of Guarantee of 11 1/2% Series A and Series B Senior Notes. (4)
4.7 - Indenture dated April 16, 1997 by and between the Company and U.S. Trust
of Texas, N.A., as Trustee. (3)
4.8 - Certificates of Designation for the 8 1/2% Convertible Exchangeable
Preferred Stock. (5)
10.1 - Third Amended and Restated Loan and Security Agreement dated as of May
21, 1997 by and between Greyhound Lines, Inc. and Foothill Capital
Corporation and BankBoston. (7)
11.1 - Computation of Registrant's earnings per share for the three and six
months ended June 30, 1996. (6)
11.2 - Computation of Registrant's earnings per share for the three and six
months ended June 30, 1997. (7)
27 - Financial Data Schedule as of and for the six months ended June 30,
1997. (7)
- -------------------------------------------------------------------------------
(1) Incorporated by reference from the Registrant's Report on Form 8-K
regarding the Rights Agreement dated April 8, 1997.
(2) 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
(3) 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.
(4) Incorporated by reference from Amendment 1 to Form S-4 filed on June 27,
1997.
(5) Incorporated by reference from Amendment 1 to Form S-3 filed on June 27,
1997.
(6) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.
(7) Filed herewith.
(b) REPORTS ON FORM 8-K
During the quarter ended June 30, 1997, the Company filed current reports
on Form 8-K with the Securities and Exchange Commission. The Company filed
a Form 8-K on April 8, 1997, in order to report the amendment of the
Rights Agreement, dated as of March 22, 1994 between the Company and
Mellon Securities Trust Company. The Company also filed a Form 8-K on
April 28, 1997 containing final pro forma financial statements giving
effect to the Company's concurrent offerings of $150 million aggregate
principal amount of its Senior Notes and of its Preferred Stock with a
$60 million liquidation preference.
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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: August 13, 1997
GREYHOUND LINES, INC.
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer
and Principal Financial
and Accounting Officer)
ATLANTIC GREYHOUND LINES OF
VIRGINIA, INC.
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Executive Vice President and
Chief Financial Officer
EAGLE BUS MANUFACTURING, INC.
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Executive Vice President and
Chief Financial Officer and Treasurer
FCA INSURANCE LIMITED
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Treasurer
GLI HOLDING COMPANY
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Executive Vice President and
Chief Financial Officer and Treasurer
GREYHOUND DE MEXICO S.A. DE C.V.
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Treasurer
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26
GRUPO CENTRO, INC.
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Executive Vice President and
Chief Financial Officer and Treasurer
LOS BUENOS LEASING CO., INC.
By: /s/ RALPH J. BORLAND
------------------------------------
Ralph J. Borland
President and
Chief Executive Officer and
General Manager
SISTEMA INTERNACIONAL DE
TRANSPORTE DE AUTOBUSES, INC.
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Executive Vice President and
Chief Financial Officer and Treasurer
T & V HOLDING COMPANY
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Executive Vice President and
Chief Financial Officer and Treasurer
TEXAS, NEW MEXICO & OKLAHOMA
COACHES, INC.
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Executive Vice President and
Chief Financial Officer
T.N.M. & O. TOURS, INC.
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Executive Vice President and
Chief Financial Officer
VERMONT TRANSIT CO., INC.
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Executive Vice President and
Chief Financial Officer
26
27
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.3 - First Supplemental Indenture dated as of July 9,1997, between the
Registrant and PNC Bank, N.A., as Trustee.
10.1 - Third Amended and Restated Loan and Security Agreement dated as of May
21, 1997 by and between Greyhound Lines, Inc. and Foothill Capital
Corporation and BankBoston.
11.2 - Computation of Registrant's earnings per share for the three and six
months ended June 30, 1997.
27 - Financial Data Schedule as of and for the six months ended June 30,
1997.