1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ___ from ___ to
Commission file number 1-10841
GREYHOUND LINES, INC.
and its Subsidiaries identified in Footnote (1) below
(Exact name of registrant as specified in its charter)
DELAWARE 86-0572343
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
15110 N. DALLAS PARKWAY, SUITE 600
DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip code)
(972) 789-7000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OF COMMON STOCK OUTSTANDING AT NOVEMBER 6, 1998
--------------------- --------------------------------
$.01 PAR VALUE 60,128,175 SHARES
(1) This Form 10-Q is also being filed by the co-registrants specified under
the caption "Co-Registrants", each of which is a wholly-owned subsidiary of
Greyhound Lines, Inc. and each of which has met the conditions set forth in
General Instructions H(1)(a) and (b) of Form 10-Q for filing Form 10-Q in a
reduced disclosure format.
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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:
I.R.S. EMPLOYER
COMMISSION IDENTIFICATION STATE OF
NAME FILE NO. NO. INCORP.
- ---- ---------- --------------- --------
Atlantic Greyhound Lines of Virginia, Inc. 333-27267-01 58-0869571 Virginia
FCA Insurance Limited 333-27267-03 None Islands of
Bermuda
GLI Holding Company 333-27267-04 75-2146309 Delaware
Greyhound de Mexico S.A. de C.V. 333-27267-05 None Republic
of Mexico
Grupo Centro, Inc. 333-27267-06 75-2692522 Delaware
Los Buenos Leasing Co., Inc. 333-27267-07 85-0434715 New Mexico
Sistema Internacional de Transporte de Autobuses, 333-27267-08 75-2548617 Delaware
Inc.
Texas, New Mexico & Oklahoma Coaches, Inc. 333-27267-10 75-0605295 Texas
1313 13th Street
Lubbock, Texas 79408
(806) 763-5389
T.N.M. & O. Tours, Inc. 333-27267-11 75-1188694 Texas
(Same as Texas, New Mexico & Oklahoma
Coaches, Inc.)
Vermont Transit Co., Inc. 333-27267-12 03-0164980 Vermont
106 Main Street
Burlington, Vermont 05401
(802) 862-9671
As of September 30, 1998, Atlantic Greyhound Lines of Virginia, Inc. had 150
shares of common stock outstanding (at a par value of $50.00 per share); FCA
Insurance Limited had 120,000 shares of common stock outstanding (at a par value
of $1.00 per share); GLI Holding Company had 1,000 shares of common stock
outstanding (at a par value of $0.01 per share); Greyhound de Mexico S.A. de
C.V. had 10,000 shares of common stock outstanding (at a par value of $0.10
Mexican currency per share); Grupo Centro, Inc. had 1,000 shares of common stock
outstanding (at a par value of $0.01 per share); Los Buenos Leasing Co., Inc.
had 1,000 shares of common stock outstanding (at a par value of $1.00 per
share); Sistema Internacional de Transporte de Autobuses, Inc. had 1,000 shares
of common stock outstanding (at a par value of $0.01 per share); Texas, New
Mexico & Oklahoma Coaches, Inc. had 1,000 shares of common stock outstanding (at
a par value of $0.01 per share); T.N.M. & O. Tours, Inc. had 1,000 shares of
common stock outstanding (at a par value of $1.00 per share); and Vermont
Transit Co., Inc. had 505 shares of common stock outstanding (no par value).
Each of the above named co-registrants (1) have filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period such co-registrant was required
to file such reports), and (2) have been subject to such filing requirements for
the past 90 days.
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GREYHOUND LINES, INC. AND SUBSIDIARIES
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Interim Consolidated Statements of Financial Position as of
September 30, 1998 (Unaudited) and December 31, 1997......................... 5
Interim Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited).......... 6
Condensed Interim Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 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...................................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 24
Item 6. Exhibits and Reports on Form 8-K........................................................ 25
SIGNATURES ........................................................................................ 26
3
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
4
5
GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------- ---------
(UNAUDITED)
Current Assets
Cash and cash equivalents ................................................. $ 2,927 $ 2,052
Accounts receivable, less allowance for doubtful accounts
of $223 and $268 ....................................................... 47,638 35,364
Inventories ............................................................... 5,238 4,658
Prepaid expenses .......................................................... 6,161 4,949
Assets held for sale ...................................................... 3,734 3,889
Buses held for sale and leaseback ......................................... 40,976 --
Current portion of deferred tax asset ..................................... 17,435 --
Other current assets ...................................................... 10,473 9,694
--------- ---------
Total current assets ................................................... 134,582 60,606
Prepaid Pension Plans ......................................................... 25,378 25,378
Property, Plant and Equipment, net of accumulated depreciation
of $144,426 and $124,374 .................................................. 338,541 341,292
Investments in Unconsolidated Affiliates ...................................... 5,716 6,076
Deferred Tax Asset ............................................................ 10,509 --
Insurance and Security Deposits ............................................... 73,115 72,693
Goodwill, net of accumulated amortization of $1,641 and $499 .................. 40,467 30,215
Intangible Assets, net of accumulated amortization of $26,029 and $22,188 ..... 30,713 30,333
--------- ---------
Total assets ........................................................... $ 659,021 $ 566,593
========= =========
Current Liabilities
Accounts payable .......................................................... $ 25,577 $ 32,731
Accrued liabilities ....................................................... 62,498 62,237
Unredeemed tickets ........................................................ 8,635 10,325
Current portion of reserve for injuries and damages ....................... 21,374 21,374
Current maturities of long-term debt ...................................... 5,891 4,469
--------- ---------
Total current liabilities .............................................. 123,975 131,136
Reserve for Injuries and Damages .............................................. 40,651 36,591
Long-Term Debt ................................................................ 257,157 207,953
Other Liabilities ............................................................. 23,796 11,314
--------- ---------
Total liabilities ...................................................... 445,579 386,994
Commitments and Contingencies (Note 6)
Stockholders' Equity
Preferred stock (10,000,000 shares authorized; par value $.01) 8 1/2%
Convertible Exchangeable Preferred Stock (2,760,000 shares
authorized and 2,400,000 shares issued as of September 30, 1998 and
December 31, 1997; aggregate liquidation preference $60,000) ....... 60,000 60,000
Series A junior preferred stock (1,500,000 shares authorized as of
September 30, 1998 and December 31, 1997; none issued) ............. -- --
Common stock (100,000,000 shares authorized; par value $.01; 60,246,842
and 59,437,514 shares issued as of September 30, 1998 and December 31,
1997 respectively) ..................................................... 603 594
Capital in excess of par value ............................................ 235,949 229,365
Retained deficit .......................................................... (74,559) (101,809)
Less: Unfunded accumulated pension obligation ............................ (7,513) (7,513)
Less: Treasury stock, at cost (109,192 shares) ............................ (1,038) (1,038)
--------- ---------
Total stockholders' equity ............................................. 213,442 179,599
--------- ---------
Total liabilities and stockholders' equity ......................... $ 659,021 $ 566,593
========= =========
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GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
OPERATING REVENUES
Transportation Services
Passenger services ....................................... $ 213,214 $ 196,737 $ 547,484 $ 488,138
Package express .......................................... 8,702 11,412 25,491 26,895
Food services and related .................................... 8,921 8,370 23,747 22,292
Other operating revenues ..................................... 13,297 12,005 39,379 33,877
--------- --------- --------- ---------
Total operating revenues ............................. 244,134 228,524 636,101 571,202
--------- --------- --------- ---------
OPERATING EXPENSES
Maintenance .................................................. 21,849 20,175 62,384 57,994
Transportation ............................................... 53,914 50,577 151,339 140,059
Agents' commissions and station costs ........................ 41,813 38,832 115,366 104,672
Marketing, advertising and traffic ........................... 6,277 6,684 20,182 20,202
Insurance and safety ......................................... 13,147 12,327 37,589 32,566
General and administrative ................................... 26,633 24,766 77,594 68,520
Depreciation and amortization ................................ 8,888 7,941 26,730 22,908
Operating taxes and licenses ................................. 15,022 13,673 42,688 38,922
Operating rents .............................................. 16,988 15,950 48,886 43,735
Cost of goods sold - food services and related ............... 5,637 5,382 15,543 14,637
Other operating expenses ..................................... 1,316 728 2,605 2,237
--------- --------- --------- ---------
Total operating expense .............................. 211,484 197,035 600,906 546,452
--------- --------- --------- ---------
OPERATING INCOME ................................................ 32,650 31,489 35,195 24,750
Interest Expense ................................................ 7,263 6,618 21,222 20,730
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ...................................... 25,387 24,871 13,973 4,020
Income Tax Provision (Benefit) .................................. (16,250) 83 (17,167) 248
--------- --------- --------- ---------
NET INCOME BEFORE EXTRAORDINARY ITEM ............................ 41,637 24,788 31,140 3,772
Extraordinary Item .............................................. -- -- -- 25,323
--------- --------- --------- ---------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS BEFORE PREFERRED DIVIDENDS ........................ 41,637 24,788 31,140 (21,551)
Preferred Dividends ............................................. 1,296 1,275 3,888 2,338
--------- --------- --------- ---------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS ................................................... $ 40,341 $ 23,513 $ 27,252 $ (23,889)
========= ========= ========= =========
Net Income (Loss) Per Share of Common Stock:
Basic
Net Income Attributable to Common Stock-
holders Before Extraordinary Item .................... $ 0.67 $ 0.40 $ 0.46 $ 0.02
Extraordinary Item ....................................... -- -- -- (0.43)
--------- --------- --------- ---------
Net Income (Loss) Attributable to Common
Stockholders ......................................... $ 0.67 $ 0.40 $ 0.46 $ (0.41)
========= ========= ========= =========
Diluted
Net Income Attributable to Common Stock-
holders Before Extraordinary Item .................... $ 0.55 $ 0.34 $ 0.42 $ 0.02
Extraordinary Item ....................................... -- -- -- (0.43)
--------- --------- --------- ---------
Net Income (Loss) Attributable to Common
Stockholders ......................................... $ 0.55 $ 0.34 $ 0.42 $ (0.41)
========= ========= ========= =========
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GREYHOUND LINES, INC. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
--------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................................ $ 31,140 $ (21,551)
Extraordinary Items .............................................................. -- 25,323
Non-cash expenses and gains included in net loss ................................. 2,338 24,456
Net change in certain operating assets and liabilities ........................... (16,165) (18,095)
--------- ---------
Net cash provided by operating activities .................................... 17,313 10,133
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ............................................................. (17,627) (31,540)
Buses purchased for sale and leaseback ........................................... (40,976) (10,759)
Proceeds from assets sold ........................................................ 1,133 5,693
Payments for business acquisitions, net of cash acquired ......................... (2,523) (40,070)
Other investing activities ....................................................... 357 (1,654)
--------- ---------
Net cash used for investing activities ....................................... (59,636) (78,330)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt and capital lease obligations ................................... (4,330) (16,319)
Proceeds from issuance of 11 1/2% Senior Notes and
8 1/2% Convertible Exchangeable Preferred Stock ................................ -- 203,205
Redemption of 10% Senior Notes ................................................... -- (161,022)
Proceeds from exercise of options ................................................ 2,595 839
Payment of quarterly preferred dividends ......................................... (3,888) (1,488)
Retirement of interest rate swap ................................................. -- (3,010)
Net change in revolving credit facility .......................................... 48,821 46,946
--------- ---------
Net cash provided by financing activities .................................... 43,198 69,151
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................................... 875 954
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................................... 2,052 898
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................ $ 2,927 $ 1,852
========= =========
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GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited Interim Consolidated Financial
Statements of Greyhound Lines, Inc. and Subsidiaries (the "Company") include all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the Company's financial position as of September 30, 1998, the
results of its operations for the three and nine months ended September 30, 1998
and 1997 and cash flows for the nine months ended September 30, 1998 and 1997.
Due to the seasonality of the Company's operations, the results of its
operations for the interim period ended September 30, 1998 may not be indicative
of total results for the full year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations promulgated by the Securities and Exchange Commission. The
unaudited Interim Consolidated Financial Statements should be read in
conjunction with the audited Consolidated Financial Statements of Greyhound
Lines, Inc. and Subsidiaries and accompanying notes for the year ended December
31, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
Certain Reclassifications
Certain reclassifications have been made to the prior period statements to
conform them to the September 30, 1998 and December 31, 1997 classifications.
Earnings/Loss Per Share
Basic earnings (loss) per common share is calculated by dividing net income
(loss) attributable to common stockholders by the weighted average shares of
common stock of the Company ("Common Stock"). The calculation of diluted
earnings (loss) per share of Common Stock considers the effect of Common Stock
equivalents outstanding during the period, the conversion of the Company's 8
1/2% Convertible Subordinated Debentures due 2007 (the "Convertible Debentures")
and 8 1/2% Convertible Exchangeable Preferred Stock (the "Preferred Stock").
Common Stock equivalents represent the dilutive effect of the assumed exercise
of certain outstanding stock options. For the three months ended September 30,
1998, and September 30, 1997, the assumed exercise of outstanding in-the-money
stock options and conversion of Convertible Debentures and Preferred Stock is
dilutive and thus included in the final determination for the weighted average
shares outstanding. For the nine months ended September 30, 1998, the assumed
exercise of outstanding in-the-money stock options and conversion of Preferred
Stock are dilutive and thus are included in the final determination for the
weighted average shares outstanding. For the nine months ended September 30,
1997, the assumed exercise of outstanding in-the-money stock options and
conversion of Convertible Debentures and Preferred Stock have an anti-dilutive
effect and thus are excluded from the final determination of the weighted
average shares outstanding.
The earnings per share calculation reflects earnings (loss) attributable to
common stockholders after payment of preferred dividends. The following tables
detail the components utilized to calculate earnings per share for the three and
nine months ended September 30, 1998 and 1997.
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THREE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------
PER-SHARE
NET INCOME SHARES AMOUNT
---------- ------ ---------
BASIC EARNINGS PER SHARE
Net Income attributable to common
stockholders ............................ $ 40,341,000 60,124,416 $ 0.67
============ ========== ============
Common Stock Equivalents (Options) .......... -- 2,456,870
8 1/2% Convertible Debentures ............... 208,000 792,242
8 1/2% Convertible Exchangeable
Preferred Stock .......... 1,296,000 12,307,692
DILUTED EARNINGS PER SHARE
Net Income attributable to common
stockholders ............................ $ 41,845,000 75,681,220 $ 0.55
============ ========== ============
NINE MONTHS ENDED SEPTEMBER 30, 1998
------------------------------------
PER-SHARE
NET INCOME SHARES AMOUNT
---------- ------ ---------
BASIC EARNINGS PER SHARE
Net Income attributable to common
stockholders ............................ $ 27,252,000 59,822,905 $ 0.46
============ ========== ============
Common Stock Equivalents (Options) .......... -- 2,610,993
8 1/2% Convertible Debentures ............... -- --
8 1/2% Convertible Exchangeable
Preferred Stock .......... 3,888,000 12,307,692
DILUTED EARNINGS PER SHARE
Net Income attributable to common
stockholders ............................ $ 31,140,000 74,741,590 $ 0.42
============ ========== ============
THREE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------
PER-SHARE
NET INCOME SHARES AMOUNT
---------- ------ ---------
BASIC EARNINGS PER SHARE
Net Income (Loss) attributable to
common stockholders ..................... $ 23,513,000 59,268,776 $ 0.40
============ ========== ============
Common Stock Equivalents (Options) .......... -- 1,592,765
8 1/2% Convertible Debentures ............... 208,000 792,242
8 1/2% Convertible Exchangeable
Preferred Stock .......... 1,275,000 12,307,692
DILUTED EARNINGS PER SHARE
Net Income (Loss) attributable to
common stockholders ..................... $ 24,996,000 73,961,475 $ 0.34
============ ========== ============
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------
PER-SHARE
NET LOSS SHARES AMOUNT
---------- ------ ---------
BASIC EARNINGS PER SHARE
Net Income (Loss) attributable to
common stockholders ..................... $(23,889,000) 58,844,971 $ (0.41)
============ ========== ============
Common Stock Equivalents (Options) .......... -- --
8 1/2% Convertible Debentures ............... -- --
8 1/2% Convertible Exchangeable
Preferred Stock .......... -- --
DILUTED EARNINGS PER SHARE
Net Income (Loss) attributable to
common stockholders ..................... $(23,889,000) 58,844,971 $ (0.41)
============ ========== ============
Accounting Changes
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
No. 130"), "Reporting Comprehensive Income", effective for the Company's fiscal
year beginning January 1, 1998. SFAS No. 130 established standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income is defined as the
total of net income and all other non-owner changes in equity. For the nine
months ended September 30, 1998, the Company had no non-owner changes in equity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities," to establish accounting plan and
reporting standards for derivatives. This new standard is effective for fiscal
years beginning after June 15, 1999 (January 1, 2000 for the Company) and
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are to be recorded
each period in current earnings or other comprehensive income, depending upon
the intended use of the derivative. Due to the Company's minimal use of
derivatives, the new standard is expected to have no material impact on its
financial position or results of operations.
3. ACQUISITION
On February 9, 1998, the Company completed its acquisition of a 51% interest in
Gonzalez, Inc., d/b/a Golden State Transportation ("Golden State"), a Southern
California bus carrier. This purchase was accounted for using the purchase
method of accounting. Accordingly, the acquired company's results of operations
are included in the consolidated financial statements from the date of
acquisition. The amount of the purchase price in excess of net assets has been
recorded as goodwill and is being amortized over a 20-year period.
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4. INCOME TAXES
Income Tax Provision
The income tax provision (benefit) consisted of the following (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1998 1997 1998 1997
-------- -------- -------- --------
Current
Federal ..................................................... $ 6,218 $ -- $ 6,218 --
State ....................................................... 323 83 562 248
-------- -------- -------- --------
Total Current ............................................ 6,541 83 6,780 248
Deferred
Federal ..................................................... (21,244) -- (21,832) --
State ....................................................... (1,547) -- (2,115) --
-------- -------- -------- --------
Total Deferred ........................................... (22,791) -- (23,947) --
-------- -------- -------- --------
Income Tax provision (benefit) ........................... $(16,250) $ 83 $(17,167) $248
======== ======== ======== ========
Effective Tax Rate
The differences, expressed as a percentage of income before taxes, between the
statutory and effective federal income tax rates for the years ended December
31, 1998 and 1997 are as follows (1998 amounts are projected):
YEARS ENDED
DECEMBER 31,
------------
1998 1997
------ ------
Statutory tax rate.................................. 35.0% 34.0%
State income taxes.................................. (6.9) 6.1
Recognition of previously unrecognized deferred
tax assets......................................... (119.9) (31.0)
Other............................................... 5.7 2.0
------ ------
Effective tax rate (86.1)% 11.1%
====== ======
For the three months ended September 30, 1998, the Company recorded a net income
tax benefit of $16.3 million. During the third quarter, the Company recognized
deferred tax assets primarily related to net operating losses from prior years
expected to be realized in future years. These tax assets had been previously
reserved; however, as a result of the Company's continued trend of earnings
improvement and current and future expected positive earnings, as well as, the
successful negotiation of the new union agreement, the reserve was reduced by
$27.7 million. This reduction resulted in a deferred tax benefit related to
future periods of $24.5 million and a $3.2 million increase in capital in excess
of par value for amounts related to tax assets generated prior to the fresh
start date of October 31, 1991. The deferred tax benefit related to future
periods was offset by $1.7 million of deferred tax expense related to tax assets
realized in the third quarter. This includes a $0.8 million increase in capital
in excess of par value for amounts related to tax assets generated prior to the
fresh start date of October 31, 1991. The Company reported current tax expense
of $6.5 million in the third quarter of 1998. This amount consists of
approximately $6.0 million for identified tax exposures, $0.2 million for
federal alternative minimum tax and $0.3 million for state income tax.
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5. PROPOSED MERGER
On October 16, 1998, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Laidlaw Inc. ("Laidlaw") and Laidlaw Transit
Acquisition Corp., a wholly owned subsidiary of Laidlaw ("Laidlaw Transit"),
pursuant to which Laidlaw Transit will merge with and into the Company (the
"Merger"), with the Company as the surviving corporation. On November 5, 1998,
the Company, Laidlaw and Laidlaw Transit entered into an agreement modifying the
Merger Agreement (the "Restated Merger Agreement").
In the Merger, each outstanding share of the Company's Common Stock will be
converted into the right to receive $6.50 (the "Merger Consideration"). The
Merger Consideration will be payable in cash, provided that Laidlaw has the
option to satisfy up to $4.00 of the Merger Consideration with shares of Laidlaw
common shares valued as the weighted average market price for Laidlaw common
shares for the five trading days immediately preceding the fifth trading day
prior to the date of the Company's special stockholders meeting to be held to
consider the Merger. Laidlaw is required to exercise its option at least five
trading days before the Company's stockholder meeting.
The Restated Merger Agreement provides that the shares of the Company's
Preferred Stock will remain outstanding after the Merger. Under the terms of the
Preferred Stock, after the Merger, the Preferred Stock will be convertible into
the same Merger Consideration that is paid to holders of Common Stock in the
Merger (i.e., cash or a combination of cash and Laidlaw common shares)
multiplied by the conversion ratio set forth in the terms of the Preferred
Stock. Each Preferred Stock is currently convertible into approximately 5.128
shares of the Company's Common Stock.
Laidlaw will not issue its common shares to any former stockholder of the
Company if such holder would receive less than 100 Laidlaw common shares as a
result of the Merger. In lieu of receiving Laidlaw common shares, these holders
would receive an amount in cash based upon the price received for such shares,
which shall be sold as promptly as practicable following the Merger.
The obligations of the parties to consummate the Merger are conditioned upon,
among other things, approval of the Restated Merger Agreement by the holders of
a majority of the outstanding Common Stock and Preferred Stock (voting together
as one class) and other customary closing conditions.
The Company has obtained copies of two complaints filed in Delaware Chancery
Court purportedly filed by certain individual stockholders of the Company on
behalf of themselves and all other stockholders of the Company. The Company and
its directors were served with one of these complaints on October 28, 1998. The
complaints name the Company, each of its directors and Laidlaw as defendants. In
the complaints, the plaintiffs allege, among other things, that (i) the
provisions of the Merger Agreement permitting Laidlaw to make the election to
pay a portion of the Merger Consideration in Laidlaw common shares five trading
days prior to the special meeting violates Delaware law, (ii) the defendant
directors breached their fiduciary duties in approving the Merger, and (iii)
Laidlaw aided and abetted the Company's directors' breach of their fiduciary
duties. The plaintiffs purport to seek orders enjoining the consummation of the
Merger (or the recission of the transaction if the Merger is completed),
damages, costs, including attorneys' and experts' fees, and other relief. The
absence of an injunction, among other things, is a condition to the Company's
and Laidlaw's obligation to complete the Merger. The Company intends to defend
these suits vigorously.
6. 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 10% Senior Notes retired in May 1997 ("10% Senior Notes") against the
Company and certain of its former officers and directors. The suits sought
unspecified damages for securities laws violations as a result of statements
made in public reports and press releases and to securities analysts during 1993
and 1994 that were alleged to have been false and misleading.
All the purported class action cases referred to above (with the exception of
one suit that was dismissed before being served on any defendants) were
transferred to the United States District Court for the Northern District of
Texas, the Court in which the first purported class action suit was filed, and
were pending under a case styled In re Greyhound
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Securities Litigation, Civil Action 3-94-CV-1793-G (the "Federal Court Action").
A joint pretrial order was entered in the litigation which consolidated for
pretrial and discovery purposes all of the stockholder actions and, separately,
all of the debtholder actions. The joint pretrial order required plaintiffs to
file consolidated amended complaints and excused answers to the original
complaints. In July 1995, the plaintiffs filed their consolidated amended
complaints, naming the Company, Frank J. Schmieder, J. Michael Doyle, Phillip W.
Taff, Robert R. Duty, Don T. Seaquist, Charles J. Lee, Charles A. Lynch and
Smith Barney Incorporated as defendants. Messrs. Lee, Lynch and Taff were
subsequently dismissed from the case by the plaintiffs. In September 1995, the
various defendants filed motions to dismiss plaintiffs' complaints. In October
1995, plaintiffs filed a motion seeking to certify the class of plaintiffs.
On October 3, 1996, the Court ruled in favor of the Company and all other
defendants, granting defendants' motions to dismiss. Pursuant to the Court's
order, the complaints were dismissed, with leave granted to the plaintiffs to
refile amended complaints within 20 days thereafter. On October 23, 1996, an
amended complaint was tendered to the Court. All seven class representatives
involved in the prior complaints were dropped from the case. A new purported
class plaintiff, John Clarkson, was named. A motion was filed seeking leave to
permit Mr. Clarkson to intervene as the new class representative. The amended
complaint alleged a class period of May 4, 1993 to October 26, 1993 and was
brought only on behalf of holders of Common Stock. The amended complaint named
the same defendants involved in the dismissed cases (the Company, Messrs.
Schmieder, Doyle, Duty and Seaquist and Smith Barney Incorporated); no new
defendants were added and none were dropped. The Court advised the parties that
no responsive pleading needed to be filed to the amended complaint until such
time as the Court ruled on the motion for intervention filed by Mr. Clarkson. In
December 1996, the defendants filed responses to plaintiff's motion for
intervention. In January 1997, the plaintiff filed a reply brief.
On August 15, 1997, the Court denied Mr. Clarkson leave to intervene and
dismissed the litigation, noting that all claims asserted had been adjudicated.
On September 12, 1997, a notice of appeal was filed by counsel for the original
seven plaintiffs, seeking a review of the Court's ruling of October 3, 1996. On
February 9, 1998, plaintiffs dismissed their appeal, without prejudice, with a
right to re-file the appeal within six months.
In November 1994, a shareholder derivative lawsuit was filed by Harvey R. Rice,
a purported owner of the Company's Common Stock, against present directors and
former officers and directors of the Company and the Company as a nominal
defendant. The suit seeks to recover monies obtained by certain defendants by
allegedly 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 (the "Delaware Action"). Pursuant to a stipulation, the time
for all defendants to answer, move or otherwise plead with respect to the
complaint in the Delaware Action 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 Federal Court Action was pending. In September 1995,
the defendants' motion was granted, and the matter was transferred and was
consolidated into the Federal Court Action.
On October 29, 1996, a purported class action lawsuit was brought by a purported
holder of Common Stock against the Company, certain of its former officers and
directors and Smith Barney and Morgan Stanley & Company, Inc. The suit seeks
unspecified damages for alleged federal and Texas state securities laws
violations in connection with a Common Stock offering made by the Company in May
1993. The suit, filed in the 44th Judicial District Court of Dallas County,
Texas, is styled John Clarkson v. Greyhound Lines, Inc., Frank Schmieder, J.
Michael Doyle, Robert R. Duty, Don T. Seaquist, Smith Barney, Inc. and Morgan
Stanley & Company, Inc., Case No. 96-11329-B. Plaintiff, John Clarkson, is the
same individual who sought to intervene in the Federal Court Action and the same
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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 Action. On February 28, 1997, the suit was transferred to a
different judge in the 68th Judicial District Court in Dallas. On March 28,
1997, the Court denied the defendants' pleas in abatement requesting the stay.
On September 12, 1997, plaintiff filed a motion seeking to certify the class of
plaintiffs.
On June 22, 1998, the parties to the State Court Action entered into a
Stipulation and Agreement of Compromise and Settlement (the "Stipulation").
Pursuant to the Stipulation, persons who purchased Common Stock on or in
connection with a stock offering made by the Company on May 4, 1993 and who
continued to hold the Common Stock through September 22, 1993, will be entitled
to share, on a claims-made basis, in a settlement fund of up to $3.0 million
plus interest, less attorneys' fees and costs. On June 22, 1998, the Court
preliminarily approved the Stipulation, conditionally certified the plaintiff
class for purposes of settlement and directed plaintiffs' counsel to provide
notice to the class of the terms of the settlement. On November 2, 1998, the
Court approved the Stipulation but continued, until January 25, 1999, final
approval of the plaintiff attorneys' fees.
Effective June 22, 1998, the parties to the Delaware Action entered into a
settlement stipulation whereby the derivative claims would be dismissed in
return for the payment of $50,000 in attorneys' fees for the plaintiff. To
facilitate a global settlement of the Federal Court Action, the State Court
Action and the Delaware Action, on May 20, 1998, plaintiff re-filed the
derivative action in the same court in which the State Court Action is pending.
This case is captioned 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 and
Charles J. Lee, Civil Action No. DV 98-03990-C (the "Texas Derivative Action").
On August 6, 1998, the Court preliminarily approved the settlement and directed
plaintiffs' counsel to notify shareholders of the terms of the settlement. On
November 2, 1998 the Court gave its final approval of this settlement. To be
consummated, all of the foregoing litigation must be resolved or dismissed and
the settlements must become final.
If consummated, the foregoing settlements would be funded entirely by the
Company's directors' and officers' liability insurance carrier and, thus, would
not have a material adverse effect on the Company's business, financial
condition, results of operations and liquidity. Should the settlements not be
consummated, based on a review of the litigation, a limited investigation of the
underlying facts and discussions with internal and outside legal counsel, the
Company does not believe that the ultimate outcome of the above described
lawsuits would have a material adverse effect on its business, financial
condition, results of operations and liquidity. If the settlements are not
completed and the litigation were to continue, the Company would defend against
the actions vigorously. To the extent permitted by Delaware law, the Company is
obligated to indemnify and bear the cost of defense with respect to lawsuits
brought against its officers and directors. The Company maintains directors' and
officers' liability insurance that provides certain coverage for itself and its
officers and directors against claims of the type asserted in the subject
litigation. The Company has notified its insurance carriers of the asserted
claims.
In January 1995, the Company received notice that the Securities and Exchange
Commission is conducting a formal, non-public investigation into possible
securities laws violations allegedly involving the Company and certain of its
former officers, directors and employees and other persons. The Commission's
Order of Investigation (the "Order of Investigation") states that the Commission
is exploring possible insider trading activities, as well as possible violations
of the federal securities laws relating to the adequacy of the Company's public
disclosures with respect to problems with its passenger reservation system
implemented in 1993 and lower-than-expected earnings for 1993. In addition, the
Commission has stated that it will investigate the adequacy of the Company's
record keeping with respect to the passenger reservation system and its internal
auditing controls. Although the Commission has not announced the targets of the
investigation, it does not appear from the Order of Investigation that the
Company is a target of the insider trading portion of the investigation. In
September 1995, the Commission served a document subpoena on the Company
requiring the production of documents, most of which the Company had voluntarily
produced to the Commission in late 1994. The Company has fully cooperated with
the Commission's investigation of these matters. The Company has had limited
contact with the Commission in connection with the investigation since January
1996. The probable outcome of this investigation cannot be predicted at this
stage in the proceeding.
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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, 49 locations have
been identified as remaining sites requiring potential clean-up and/or
remediation as of September 30, 1998. The Company has estimated the clean-up
and/or remediation costs of these sites to be $3.8 million, of which
approximately $0.4 million is indemnifiable by Viad Corp ("Viad"). As a result
the Company has recorded a total environmental reserve of $3.1 million at
September 30, 1998, a portion of which has also been recorded as a receivable
from Viad for indemnification. The environmental reserve relates to sites
identified for potential clean-up and/or remediation and represents the present
value of estimated cash flows discounted at 8.0%.
The Company has potential liability with respect to two locations which the
Environmental Protection Agency ("EPA") has designated Superfund sites. The
Company, as well as other parties designated by the EPA as potentially
responsible parties, face exposure for costs related to the clean-up of those
sites. Based on the EPA's enforcement activities to date, the Company believes
its liability at these sites will not be material because its involvement was as
a de minimis generator of wastes disposed of at the sites. In light of its
minimal involvement, the Company has been negotiating to be released from
liability in return for the payment of immaterial settlement amounts.
Additionally, there are 12 Superfund sites that Viad had initially assumed
responsibility and liability for addressing under the indemnity provisions of
the 1987 acquisition agreement, as amended in 1991. All of these locations
involve alleged disposal of hazardous wastes occurring years prior to the
Company's corporate existence. In late 1997, Viad notified the Company, and
asserted that the Company was responsible for any liabilities at such sites. The
Company is contesting Viad's assertions and believes that the acquisition
agreement, as amended, requires Viad to bear these liabilities. Viad had
previously acknowledged in writing to the Company its responsibility for certain
of the sites; in some cases, Viad has been managing the liability since
mid-1991. Since mid-1998, Viad has notified the Company of two additional sites
at which Viad believes the Company is responsible for the liabilities. Viad has
advised the Company that, to date, it has incurred approximately $0.2 million in
clean-up costs at these sites. Based on a preliminary assessment by the Company,
the on-going or future potential liabilities at these 14 sites could range from
$1.5 to $2.5 million. 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 internal and outside
legal counsel and risk management personnel, management believes that there is
no proceeding either threatened or pending against the Company relating to such
personal injury and/or property damage claims arising out of the ordinary course
of business that, if resolved against the Company, would materially exceed the
amounts recorded.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Greyhound is the only nationwide provider of scheduled intercity bus
transportation services in the United States. The Company's primary business
consists of scheduled passenger service, package express service and food
services at certain terminals, which accounted for 87.3%, 3.6% and 3.7%,
respectively, of the Company's total operating revenues for the three months
ended September 30, 1998 and 86.1%, 4.0% and 3.7%, respectively, for the nine
months ended September 30, 1998. The Company's operations include a nationwide
network of terminal and maintenance facilities, a fleet of approximately 2,500
buses and approximately 1,650 sales outlets.
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations as a
percentage of total operating revenue for the three and nine months ended
September 30, 1998 and 1997:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----- ----- ----- -----
Operating Revenues
Transportation services
Passenger services..................... 87.3% 86.1% 86.1% 85.5%
Package express........................ 3.6 5.0 4.0 4.7
Food services and related................... 3.7 3.7 3.7 3.9
Other operating revenues.................... 5.4 5.2 6.2 5.9
----- ----- ----- -----
Total operating revenues........... 100.0 100.0 100.0 100.0
Operating Expenses
Maintenance................................. 8.9 8.8 9.8 10.2
Transportation.............................. 22.1 22.1 23.8 24.5
Agents' commissions and station costs....... 17.1 17.0 18.1 18.3
Marketing, advertising and traffic.......... 2.6 2.9 3.2 3.5
Insurance and safety........................ 5.4 5.4 5.9 5.7
General and administrative.................. 10.9 10.8 12.2 12.0
Depreciation and amortization............... 3.6 3.5 4.2 4.0
Operating taxes and licenses................ 6.2 6.0 6.7 6.8
Operating rents............................. 7.0 7.0 7.7 7.7
Cost of goods sold - food services and related 2.3 2.4 2.4 2.6
Other operating expenses.................... 0.5 0.3 0.5 0.4
----- ----- ----- -----
Total operating expenses........... 86.6 86.2 94.5 95.7
----- ----- ----- -----
Operating Income.............................. 13.4 13.8 5.5 4.3
Interest Expense.............................. 3.0 2.9 3.3 3.6
----- ----- ----- -----
Income Before Income Taxes.................... 10.4 10.9 2.2 0.7
Income Tax Provision (Benefit) ............... (6.7) 0.0 (2.7) 0.0
----- ----- ----- -----
Net Income Before Extraordinary Item.......... 17.1 10.9 4.9 0.7
Extraordinary Item............................ 0.0 0.0 0.0 4.4
----- ----- ----- -----
Net Income (Loss) Attributable to Common
Stockholders Before Preferred Dividends....... 17.1 10.9 4.9 (3.8)
Preferred Dividends........................... 0.6 0.6 0.6 0.4
----- ----- ----- -----
Net Income (Loss) Attributable to Common
Stockholders.................................. 16.5% 10.3% 4.3% (4.2)%
===== ===== ===== =====
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The following table sets forth certain consolidated operating data for the
Company for the three and nine months ended September 30, 1998 and 1997. Certain
statistics have been adjusted and restated from that previously published to
provide consistent comparisons.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, PERCENTAGE SEPTEMBER 30, PERCENTAGE
1998 1997 CHANGE 1998 1997 CHANGE
---- ---- ------ ---- ---- ------
Regular Service Miles (000's)....... 90,075 81,511 10.5 237,311 212,270 11.8
Total Bus Miles (000's)............. 91,282 82,529 10.6 243,030 216,648 12.2
Passenger Miles (000's)............. 2,338,434 2,105,662 11.1 5,947,375 5,251,821 13.2
Passengers Carried (000's).......... 6,531 5,873 11.2 16,922 14,614 15.8
Average Trip Length (passenger
miles/ passengers carried)....... 358 359 (0.3) 351 359 (2.2)
Load (avg. number of passengers per
regular service mile)............ 26.0 25.8 0.8 25.1 24.7 1.6
Load Factor (% of available seats
filled).......................... 54.7 55.2 (0.9) 53.1 52.8 0.6
Yield (regular route
revenue/passenger miles)........ $0.0912 $0.0934 (2.4) $0.0921 $0.0929 (0.9)
Total Revenue Per Total Bus Mile... 2.67 2.77 (3.6) 2.62 2.64 (0.8)
Operating Income Per Total Bus Mile 0.36 0.38 (5.3) 0.14 0.11 27.3
Cost Per Total Bus Mile:
Maintenance..................... $ 0.239 $0.244 (2.0) $0.257 $0.268 (4.1)
Transportation.................. 0.591 0.613 (3.6) 0.623 0.646 (3.6)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 RESULTS OF OPERATIONS
The Company's results of operations include the operating results of Carolina
Coach Company, and affiliates ("Carolina"), Valley Transit, Inc. and affiliates
("Valley") and Golden State (collectively the "acquisitions"). The purchases of
Carolina and Valley both occurred during the third quarter of 1997 and the
purchase of Golden State was completed in February 1998. The results for the
acquisitions are included as of their respective purchase dates.
Operating Revenues. Total operating revenues increased $15.6 million, up 6.8%,
for the quarter and $64.9 million, up 11.4%, for the nine months ended September
30, 1998, compared to the same period in 1997. Increases in all operating
revenue categories, except package express, were achieved for both the quarter
and year to date periods.
Transportation services revenues increased $13.8 million, or 6.6%, and $57.9
million, or 11.3%, for the three and nine months ended September 30, 1998
compared to 1997. The increased revenues are primarily due to a $16.5 million,
or 8.4%, and $59.3 million, or 12.2%, increase in regular route revenues for the
three and nine months ended September 30, 1998. Included in the regular route
revenue increase for the three months ended September 30, 1998, is $5.4 million
related to the acquisition of Golden State and Valley Transit and $26.8 million
related to the acquisitions for the nine month period. Package express revenues
were down $2.7 million and $1.4 million for the three months and nine months
ended September 30, 1998 primarily due to the 1997 UPS strike that generated
approximately $3.1 million in additional package express revenues during the
third quarter of 1997. Excluding the impact of the UPS strike, the Company
estimates that package express revenues increased $0.4 million and $1.7 million
for the three and nine months ended September 30, 1998 compared to 1997. The
increases in regular route revenues reflect the consolidated impact of an 11.2%
and 15.8% increase in the number of passengers carried, for the three and nine
months, partially offset by a 2.4% and 0.9% decrease in yield and a 0.3% and
2.2% decrease in average trip length for the three and nine months ended
September 30, 1998. The decrease in average trip length in the Company's
consolidated operating statistics, as compared to the prior year, reflect the
impact of the acquisitions which carry passengers traveling on much shorter trip
lengths.
Excluding the impact of the acquisitions, the Company realized a 6.0% and a 8.1%
increase in regular route revenues and an 8.7% and 9.8% increase in passenger
miles for the three and nine months ended September 30, 1998. This growth
reflected a 6.8% and a 6.4% increase in passengers carried and a 1.7% and 3.0%
increase in average trip length per passenger, slightly offset by decreases in
yield of 2.5% and 1.6% for the three and nine months ended September 30, 1998.
The longer trip lengths and slightly lower yield reflects significant growth in
long-haul traffic (passengers traveling more than 450 miles) as the Company
promoted and priced this product for growth.
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Food services and related revenues increased $0.6 million, up 6.6%, and $1.5
million, up 6.5%, for the three and nine months ended September 30, 1998
compared to 1997. Food services and related revenues have been reclassified to
include sales of retail products. Previously, sales of retail products were
included in other operating revenues. Food services and related revenues, as
reclassified, increased over the prior year due primarily to the increase in
passenger traffic discussed above.
Other operating revenues, consisting primarily of revenue from charter and other
in-terminal sales and services, increased $1.3 million, up 10.8%, and $5.5
million, up 16.2%, for the three months and nine months ended September 30,
1998, compared to the same periods in 1997. The increase was primarily
attributable to a $1.1 million, up 48.7%, and $3.8 million, up 52.0%, increase
in charter service revenue for the three and nine months ended September 30,
1998, as well as increases in revenues from other in-terminal services,
reflecting the increase in passenger volume.
Operating Expenses. Total operating expenses increased $14.4 million, up 7.3%,
and $54.5 million, up 10.0%, for the three and nine months ended September 30,
1998, compared to the same periods in 1997. The increase is due primarily to an
increase in bus miles operated (10.6% and 12.2% for the three and nine months
ended September 30, 1998 compared to the 1997 periods), higher driver wages and
training costs, increased terminal salaries, increased ticket and express
commissions due to higher sales, and an increase in the number of buses operated
under operating leases. Also, expenses attributable to the operations of the
acquisitions were $5.2 million and $23.8 million for the three and nine months
ended September 30, 1998.
Maintenance costs increased $1.7 million, up 8.3%, and $4.4 million, up 7.6%,
for the three and nine months ended September 30, 1998, compared to the same
periods in 1997 due to increased bus miles and passenger traffic and the
inclusion of the acquisitions. Despite these increases, maintenance costs
decreased on a cost per bus mile basis.
Transportation expenses increased $3.3 million, up 6.6%, and $11.3 million, up
8.1%, for the three and nine months ended September 30, 1998, compared to the
same periods in 1997 due to increased bus miles operated, a contractual driver
wage increase, training of additional drivers to prepare for anticipated growth
and the inclusion of the acquisitions. The increased expenses were partially
offset by a decrease in the cost per gallon of diesel fuel for the three and
nine months ended September 30, 1998 as compared to the same periods in 1997.
The average cost per gallon of fuel decreased to $0.50 and $0.54 per gallon for
the three and nine months ended September 30, 1998 compared to $0.63 and $0.67
per gallon during the 1997 periods. The lower fuel prices resulted in a
reduction in fuel costs of $2.0 million and $5.4 million for the three and nine
months ended September 30, 1998 compared to the 1997 periods. On a cost per bus
mile basis, transportation expenses decreased due primarily to the impact of the
lower fuel prices partially offset by driver wage increases and higher training
costs.
Agents' commissions and station costs increased $3.0 million, up 7.7%, and $10.7
million, up 10.2%, for the three and nine months ended September 30, 1998,
compared to the same periods in 1997 primarily due to commissions associated
with increased ticket sales, pay increases for terminal staff and the inclusion
of the acquisitions.
Marketing, advertising and traffic expenses decreased $0.4 million, down 6.1%,
for the three months ended September 30, 1998 due primarily to less advertising
in the third quarter this year compared to prior year. Year to date expenses are
comparable to the prior year.
Insurance and safety costs increased $0.8 million, up 6.7%, and $5.0 million, up
15.4%, for the three and nine months ended September 30, 1998, compared to the
same periods in 1997 due primarily to increased bus miles and the inclusion of
the acquisitions. Additionally, an increase in auto and general liability
insurance reserves related to recent claims settlement trends and accident
trends contributed to the increase but was partially offset by lower workers
compensation claims.
General and administrative expenses increased $1.9 million, up 7.5%, and $9.1
million, up 13.2%, for the three and nine months ended September 30, 1998
compared to the same periods in 1997 due primarily to increased salaries and
higher health and welfare expenses associated with the increase in drivers and
terminal employee head-counts and the inclusion of the acquisitions.
Depreciation and amortization increased by $0.9 million, up 11.9%, and $3.8
million, up 16.7%, for the three and nine months ended September 30, 1998,
compared to the same periods in 1997 due primarily to depreciation and
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goodwill amortization attributable to the acquisitions and increased
depreciation related to increased capital expenditures in prior periods.
Operating taxes and licenses expense increased $1.3 million, up 9.9%, and $3.8
million, up 9.7%, for the three and nine months ended September 30, 1998,
compared to the same periods in 1997. This increase results from higher payroll
taxes due to increased salaries, wages and head-counts related to higher
business volume, as well as increased fuel and oil taxes resulting from an
increase in total bus miles.
Operating rents increased $1.0 million, up 6.5%, and $5.2 million, up 11.8%, for
the three and nine months ended September 30, 1998, compared to the same periods
in 1997 due to an increase in fleet size as the Company financed most of its new
buses near the end of 1997 under operating leases. The increase in bus operating
leases reflects the Company's growth strategy to add resources to accommodate
growth in the passenger business during the peak periods and generate additional
charter revenues during the off-peak periods utilizing those added resources
when available.
Food services and related cost of goods sold increased $0.3 million, up 4.7%,
and $0.9 million, up 6.2%, for the three and nine months ended September 30,
1998, compared to the same periods in 1997, primarily due to the 6.6% and 6.5%
increase in Food services and related revenues for the same period. Food
services and related cost of goods sold have been reclassified to include the
costs associated with sales of retail products. Previously those costs were
recorded in other operating expenses.
Interest expense increased $0.6 million, up 9.7%, and $0.5 million, up 2.4%, for
the three and nine months ended September 30, 1998, compared to the same periods
in 1997. The increase during the quarter reflects a higher average balance
outstanding on the Revolving Credit Facility related primarily to the Company's
purchase of buses for sale-leaseback and the acquisitions which were funded
during the last half of 1997, partially offset by the lower interest rates
negotiated under the Revolving Credit Facility. For the nine months ended
September 30, 1998 the increase reflects a higher average balance outstanding on
the Revolving Credit Facility offset by lower interest rates on the Revolving
Credit Facility, the lower effective interest rates associated with the 11 1/2%
Senior Notes issued in April 1997 ("11 1/2% Senior Notes") compared to the 10%
Senior Notes retired in May 1997, and the termination of the interest rate swap
agreements.
For the three months ended September 30, 1998, the Company recorded a net income
tax benefit of $16.3 million. During the third quarter, the Company recognized
deferred tax assets primarily related to net operating losses from prior years
expected to be realized in future years. These tax assets had been previously
reserved; however, as a result of the Company's continued trend of earnings
improvement and current and future expected positive earnings, as well as, the
successful negotiation of the new union agreement, the reserve was reduced by
$27.7 million. This reduction resulted in a deferred tax benefit related to
future periods of $24.5 million and a $3.2 million increase in capital in excess
of par value for amounts related to tax assets generated prior to the fresh
start date of October 31, 1991. The deferred tax benefit related to future
periods was offset by $1.7 million of deferred tax expense related to tax assets
realized in the third quarter. This includes a $0.8 million increase in capital
in excess of par value for amounts related to tax assets generated prior to the
fresh start date of October 31, 1991. The Company reported current tax expense
of $6.5 million in the third quarter of 1998. This amount consists of
approximately $6.0 million for identified tax exposures, $0.2 million for
federal alternative minimum tax and $0.3 million for state income tax.
Since the Company has currently recognized the benefit of its deferred tax
assets, the effective tax rate beginning in the first quarter of 1999 will not
include a reduction for net operating loss carryforwards and other previously
unrecognized deferred tax assets. The Company's 1998 combined federal and state
effective tax rate without this reduction would have been an estimated 44.0%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are working capital, capital
expenditures, including bus acquisitions, debt service requirements, including
the payment of principal and interest on borrowings under the Revolving Credit
Facility and interest on the 11 1/2% Senior Notes, and 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.
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Net cash provided by operating activities increased $7.2 million, or 70.9%, to
$17.3 million for the nine months ended September 30, 1998 from $10.1 million in
1997. The increase in cash provided by operating activities is primarily due to
the increased net income, adjusted for the prior year extraordinary item. Net
cash used for investing activities decreased $18.7 million, to $59.6 million in
1998 from $78.3 million in 1997, principally due to a $37.5 million decrease in
payments for business acquisitions combined with a $13.9 million decrease in
capital expenditures offset by a $30.2 million increase in buses purchased for
sale and leaseback. Net cash provided by financing activities decreased $26.0
million, or 37.5%, to $43.2 million in 1998 from $69.2 million in 1997. This
decrease can primarily be attributed to the proceeds received in 1997 from the
issuance of the 11 1/2% Senior Notes and the 8 1/2% Convertible Exchangeable
Preferred Stock offset by the redemption of the 10% Senior Notes, the net effect
of which was a decrease in cash provided of $42.2 million. Additionally,
payments on debt and capital lease obligations decreased $12.0 million.
As a part of its operating strategy, the Company anticipates continuing to make
significant capital expenditures in connection with improvements to its
infrastructure, including acquiring buses, making improvements to its terminals
and upgrading its computer systems. The Company believes that acquiring new
buses and improving the Company's terminals and computer systems will permit the
Company to continue to improve customer service, which the Company believes has
contributed significantly to its improved operating results over the last three
years. The Company accepted delivery of 89 new buses during the first quarter,
79 new buses in the second quarter and 28 buses in the third quarter and expects
deliveries of 37 additional new buses in the fourth quarter. The first, second
and third quarter deliveries were, and future deliveries will be, temporarily
financed by the vendor or one of its affiliates and/or through borrowings under
the Revolving Credit Facility. As of November 6, 1998, the Company has
completed operating leases for 64 of these buses and the Company intends to
seek permanent operating lease financing for a substantial portion of the
remaining buses during the fourth quarter of 1998.
The Company generally uses lease financing with purchase options as the
principal source of bus financing in order to achieve the lowest net cost of bus
financing. Depending on the specific terms of a lease, such lease may be
accounted for as either an operating or capital lease. The Company may also
acquire buses outright and may purchase buses and subsequently engage in
sale-leaseback transactions with respect to such buses.
The Company requires significant cash flows to meet its debt service and other
continuing obligations. As of September 30, 1998, the Company had $263.0 million
of long-term indebtedness outstanding (including current portions), including
$74.6 million of borrowings under the Revolving Credit Facility and $150.0
million of 11 1/2% Senior Notes. As of September 30, 1998, the Company had total
availability of $56.9 million under the Revolving Credit Facility.
The Company is a party to a Revolving Credit Facility which was amended on April
20, 1998. The amended facility increased the borrowing availability from $125.0
million to $150.0 million. The amended Revolving Credit Facility consists of (i)
a revolving facility providing for advances of up to $117.5 million based on the
liquidation value of certain bus collateral, (ii) a revolving facility providing
for advances of up to $2.5 million based on a formula of eligible accounts
receivable and (iii) a real estate facility providing for borrowings of up to
$35.0 million based on fair market value of certain core real property
collateral (the "Real Estate Facility") with a maximum combined borrowing base
of $150.0 million. The Revolving Credit Facility has two interest rate options,
prime and LIBOR. As of November 6, 1998, the Company had borrowings under the
Revolving Credit Facility bearing interest at LIBOR plus 2.00% and prime plus
0.25% (weighted average of 7.5738%). Borrowings under the Revolving Credit
Facility mature on May 21, 2002, although availability under the Real Estate
Facility will be subject to yearly reductions commencing in November 1999. The
Revolving Credit Facility is secured by liens on substantially all of the assets
of the Company. The Revolving Credit Facility is subject to certain operating
and financial covenants, including maintenance of a minimum consolidated net
worth, ratio of total indebtedness to cash flow and ratio of cash flow to
interest expense. In addition, non-bus capital expenditures are limited to $30.0
million annually with no spending limitations on bus purchases. As of September
30, 1998, the Company was in compliance with all such covenants.
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 22% of projected fuel
needs through October 1999, at an average price per gallon of $0.53. Management
believes that this strategy is a conservative methodology of mitigating the
impact of fuel price fluctuations.
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PROPOSED MERGER
On October 16, 1998, the Company entered into an Agreement and Plan of Merger
with Laidlaw Inc. and Laidlaw Transit Acquisition Corp., a wholly owned
subsidiary of Laidlaw. See Note 5 to the Interim Consolidated Financial
Statements for the period ended September 30, 1998, included elsewhere in this
filing.
NEW UNION AGREEMENT
The Amalgamated Transit Union (the "ATU") represents certain of the Company's
employees, including drivers, telephone information agents in the Omaha
location, terminal workers in certain locations and about one-half of the
Company's mechanics. The Company's largest ATU agreement, which covers
approximately 4,500 drivers and 350 of its mechanics, was to expire on January
31, 1999. In January 1998, the Company and the executive board of the National
Local 1700 of the ATU recorded a tentative agreement for a new labor contract.
The agreement was submitted to the ATU membership for ratification and on March
14, 1998, the ATU membership rejected this agreement. On July 22, 1998, the
Company and the ATU's executive board reached a new tentative agreement for a
labor contract. The agreement was submitted to the ATU membership for
ratification and on September 1, 1998, the agreement was ratified. As a result,
this contract became effective October 1, 1998, and will continue until January
31, 2004. This contract provides the drivers annual raises of 3.5% for the
first, second and fourth year of the contract and 4.0% raises in the third and
fifth years. Additionally, the contract provided certain work rule changes and
increased the Company's contribution to the ATU's 401(k) retirement plan.
ACQUISITION
On February 9, 1998, the Company completed its acquisition of a 51% interest in
Golden State, a Southern California bus carrier. This purchase was accounted for
using the purchase method of accounting. Accordingly, the acquired company's
results of operations are included in the consolidated financial statements from
the date of acquisition. The amount of the purchase price in excess of net
assets has been recorded as goodwill and is being amortized over a 20-year
period.
SUBSTANTIAL LEVERAGE
The Company has consolidated indebtedness that is substantial in relation to its
stockholders' equity. As of September 30, 1998, the Company had outstanding
consolidated long-term indebtedness (including current portions) of
approximately $263.0 million and total stockholders' equity of approximately
$213.4 million. The seasonal fluctuations in the Company's cash flows can be
significant. The second quarter of each year typically represents the Company's
greatest period of leverage. Generally, the first quarter and most of the second
quarter are loss periods requiring the financing of substantial cash outflows
for operations. However, the last half of the year (primarily the third quarter)
provides substantial positive cash flows and, as a result, the Company is
typically at its least leveraged point at year end.
HISTORY OF LOSSES
The Company reported a net loss in each of its last four fiscal years. Although
the Company has implemented strategic and operational initiatives that have
increased revenues and operating income, the Company's operations generally are
subject to economic, financial, competitive, seasonal and other factors, many of
which are beyond its control.
COMPETITION
The transportation industry is highly competitive. The Company's primary sources
of competition for passengers are automobile travel, low-cost air travel from
both regional and national airlines, and in certain markets, regional bus
companies and trains.
SELF INSURANCE
Insurance coverage and risk management expense are key components of the
Company's cost structure. The DOT is currently studying whether to continue or
modify the self-insurance program available to the motor carrier industry. The
loss of self-insurance authority from the DOT or a decision by the Company's
insurers to modify the
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Company's program substantially, by either increasing cost, reducing
availability or increasing collateral, could have a material adverse effect on
the Company's liquidity, financial condition, and results of operations.
The Company maintains cash deposits that secure insurance claims, which as of
September 30, 1998 aggregated approximately $46.5 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 U.S. Department of
Transportation's ("DOT") approval of such program. Additionally, as of September
30, 1998, the Company had pledged $31.5 million in cash and $9.7 million in
letters of credit to secure its other liability insurance obligations. Depending
on the Company's future claims history and the policies with its insurance
carriers, the amount of collateral that the Company is obligated to pledge to
secure its liability insurance obligations may vary.
OTHER DEPOSITS
The Company maintains deposits that secure bus leases associated with sale
leaseback transactions. These deposits are in the form of marketable
securities. These deposits are recorded at cost plus amortization of discounts
on the underlying securities, which as of September 30, 1998 are approximately
$31.0 million. As of September 30, 1998, at market value, these deposits are
for $24.0 million pledged as collateral in connection with the sale and
leaseback of 319 buses and $8.9 million pledged as collateral in connection
with the sale and leaseback of 125 buses. Under generally accepted accounting
principles, the gain associated with the current market value is not recorded
by the Company until such time as the securities are sold and the gain is
realized.
PENSION PLAN FUNDING
The Company maintains nine defined benefit pension plans, the most significant
of which (the ATU Plan) covers approximately 15,650 current and former
employees, fewer than 1,500 of which are active employees of the Company. The
ATU Plan was closed to new participants in 1983 and, as a result, over 85% of
its participants are over the age of 50. For financial reporting and investment
planning purposes, the Company currently uses an actuarial mortality table that
closely matches the actual experience related to the existing participant
population. Based upon the application of this table and other actuarial and
investments assumptions, the Company believes that the ATU Plan is adequately
funded.
For funding purposes, legislation passed by the United States Congress in 1994,
and amended in 1997, mandates the use of a prescribed actuarial mortality table
and discount rates that differ from those used by the Company for financial
reporting and investment planning purposes. Nevertheless, based upon the
application of the actuarial mortality table, discount rates and funding
calculations prescribed by the legislation, as amended, the Company does not
anticipate that it will be required to make any contributions to the ATU Plan in
the foreseeable future. However, there is no assurance that the ATU Plan will be
able to earn the assumed rate of return or that contributions to the ATU Plan
will not be significant.
COMPUTER SYSTEMS / YEAR 2000 READINESS
Many existing computer systems, communications equipment, control devices and
software products, including several used by the Company, are coded to accept
only two-digit entries in the date code field. Beginning in the year 2000, these
date code fields will need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. As a result, the Company's date critical
functions related to the year 2000 and beyond, such as scheduling, dispatch,
sales, purchasing, planning and financial systems may be materially adversely
affected unless these systems are or become year 2000 ready.
During the past three years, the Company has been replacing or upgrading its
computer systems to improve operating efficiencies. Through some of these
efforts, year 2000 ready applications or systems have been installed. The
Company is preparing both its information technology ("IT") systems and its
non-IT, technology enabled systems for the year 2000 by implementing the year
2000 Readiness Process, comprised of five phases:
Assessment, Planning, Implementation, Testing and Clean Management.
The first phase is an assessment of the Company's systems with respect to year
2000 readiness. During the Assessment phase, the Company, with the assistance of
consultants, reviews individual applications and the hardware and network
infrastructure supporting those applications. The assessment also includes
non-"information technology" (non-IT) systems, such as fax machines, time clocks
and bus maintenance test equipment. A
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comprehensive review and inventory of non-IT technology enabled equipment and
functions will be completed in this phase. The assessment of all of the
Company's IT systems was completed during the third quarter of 1998. The
assessment of the Company's non-IT systems will be completed during the fourth
quarter of 1998. The Assessment phase also involves an assessment of the
readiness of third party vendors and suppliers. The Company has already issued
year 2000 readiness questionnaires to some vendors and will continue this
effort. However, responses to these inquiries have been limited. Nevertheless,
as a normal course of business, the Company has contingency plans in place to
deal with failures of most of the critical third-party systems. Where such
contingency plans are not in place, the Company is in the process of developing
those plans.
The purpose of the Planning phase is to develop a detailed set of plans for
bringing the Company's systems to year 2000 readiness. The Company is first
developing plans to prepare individual applications and platforms for year 2000
readiness. These individual plans are then consolidated into an overall plan for
remediation of the IT systems. Priority is given to the mission critical
functions. For those non-mission critical systems that might not be ready for
the year 2000, the overall plan will ensure that contingency plans exist to
minimize disruption to the business. Our first iteration of the overall plan for
IT systems was completed during the third quarter of 1998. The planning phase
for non-IT systems is targeted for completion in the first quarter of 1999,
following the completion of the Company's non-IT systems Assessment Phase.
In the Implementation phase, the Company will bring the IT systems to a state of
readiness as stand-alone units. Each application and its supporting
infrastructure components will be remediated, replaced or upgraded, as
appropriate. Each application will be tested to ensure the accuracy of current
functionality and to ensure the continuance of the functionality into the year
2000 and beyond. To date, a significant number of infrastructure components and
several applications have been remediated. The Company expects to complete the
Implementation phase for mission critical IT systems in the first quarter of
1999. Non-mission critical IT systems and non-IT systems are expected to be made
year 2000 ready by the end of the second quarter of 1999.
The Testing phase is the most complicated phase of the year 2000 Readiness
Process. In this phase, IT systems are tested for year 2000 readiness, meaning
that a series of tests using the same data but different dates is performed to
ensure readiness of the IT systems both prior to and after the year 2000.
Testing of individual infrastructure components and applications will continue
with the majority of testing completed by the third quarter of 1999.
Clean Management is confirming that any newly acquired components or
applications are deemed year 2000 ready before their introduction into the
Company. The Clean Management phase of the year 2000 Readiness Process is
conducted at the same time as all other phases.
The Company currently has a disaster recovery plan that has put contingency
planning in place to address problems that might occur in the ordinary course
of business. However, the Company is starting to re-evaluate its contingency
planning for critical operational areas that might be specifically affected by
the year 2000 problem if the Company or suppliers are not ready. Throughout
1999, the Company will review the extent to which contingency plans may be
required for any third parties that do not achieve year 2000 readiness, and the
Company expects to complete those necessary contingency plans by the third
quarter of 1999.
The Company's total costs related to year 2000 assessment and remediation are
based on presently available information. The total remaining costs related to
the year 2000 assessment and remediation efforts are estimated to be between
$15.0 million and $20.0 million, including internal salaries that would be
incurred without remediation efforts. The Company estimates that approximately
half of this amount will be capitalized, with the remainder being expensed as
incurred. The costs which include expenditures in fourth quarter of 1998, as
well as 1999 and 2000 exceed the previous rate of IT related expenditures,
including capitalized expenditures, by approximately $5.0 million to $10.0
million. These costs will be funded through operating cash flows or borrowings.
Since the Company has been replacing and upgrading its computer systems in the
ordinary course of business, the Company cannot estimate the costs incurred to
date related specifically to remediating year 2000 issues.
The costs of the Company's year 2000 readiness project and the date on which the
Company plans to complete the year 2000 modifications are based on management's
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third-party
modification plans and other factors. The year 2000 issues present a number of
risks that are beyond the Company's reasonable control, such as the failure of
utility companies to deliver electricity, the failure of telecommunications
companies to provide voice
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and data services, the failure of financial institutions to process transactions
and transfer funds, and the impact on the Company of the effects of year 2000
issues on the economy in general or on the Company's business partners and
customers. Although the Company believes that its year 2000 readiness program is
designed to appropriately identify and address those year 2000 issues that are
subject to the Company's reasonable control, the Company can make no assurance
that its efforts will be fully effective or that the year 2000 issues will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
SEASONALITY
The Company's business is seasonal in nature and generally follows the pattern
of the travel industry as a whole, with peaks during the summer months and the
Thanksgiving and Christmas holiday periods. As a result, the Company's cash
flows are also seasonal with a disproportionate amount of the Company's annual
cash flows being generated during the peak travel periods. Therefore, an event
that adversely affects ridership during any of these peak periods could have a
material adverse effect on the Company's financial condition and results of
operations for that year. The day of the week on which certain holidays occur,
the length of certain holiday periods, and the date on which certain holidays
occur within a fiscal quarter, may also affect the Company's quarterly results
of operations.
GOVERNMENT REGULATION
The Company is subject to regulation under the Americans with Disabilities Act
(the "ADA"). Under final regulations issued by DOT in September 1998, beginning
in October 2000, all new buses received by the Company for its fixed route
operations will have to be equipped with wheelchair lifts. Additionally, by
October 2006, one-half of the Company's fleet involved in fixed route operations
will be required to be lift-equipped, and by October 2012, such fleet will need
to be entirely lift-equipped. The regulations do not require the retrofitting of
existing buses with lift equipment. Nor do the regulations require the purchase
of accessible used buses. Moreover, beginning in October 2001, until the fleet
is fully equipped, the Company will be required to provide an accessible bus to
any disabled passenger who provides at least 48 hours notice. Also beginning in
October 2001, larger charter/tour operators will be required to provide an
accessible bus to any disabled passenger who provides at least 48 hours notice.
The Company currently estimates that a built-in lift device will add $20,000 to
$40,000 to the cost of a new bus and that maintenance and employee training
costs will increase. The Company does not expect such maintenance and training
costs to be materially higher than the costs currently incurred in complying
with the interim bus access regulations promulgated under the ADA. Passenger
revenues could also be impacted by the loss of seating capacity when wheelchair
passengers are on the bus, offset by potentially increased ridership by disabled
persons.
LITIGATION
The Company is a party to various lawsuits the outcome of which, if adverse to
the Company, could have a material adverse effect on the business, financial
condition, results of operations and liquidity. See Note 6 to the Interim
Consolidated Financial Statements for the period ended September 30, 1998,
included elsewhere in this filing.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION
Between August 1994 and December 1994, seven purported class action lawsuits
were filed by purported owners of the Company's Common Stock, Convertible
Debentures and Senior Notes against the Company and certain of its former
officers and directors. The suits seek unspecified damages for securities law
violations. In November 1994, a shareholder derivative lawsuit was filed against
present directors and former officers and directors of the Company and the
Company as a nominal defendant. In October 1996, a purported class action
lawsuit was filed by a purported owner of the Company's Common Stock in the
State Court of Texas. The parties have entered into settlement agreements, which
are not yet final, to resolve the foregoing litigation. 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 6
to the Interim Consolidated Financial Statements for the period ended September
30, 1998, included elsewhere in this filing.
OTHER LEGAL PROCEEDINGS
In addition to the litigation discussed above, the Company is a defendant in
various lawsuits arising in the ordinary course of business, primarily cases
involving personal injury and property damage claims and employment-related
claims. Although these lawsuits involve a variety of different facts and
theories of recovery, the majority arise from traffic accidents involving buses
operated by the Company. The vast majority of the personal injury and property
damage claims are covered by insurance for amounts in excess of the
self-retention or deductible portion of the policies. Therefore, based on the
Company's assessment of known claims and its historical claims payout pattern
and discussion with legal and outside counsel and risk management personnel,
management believes that there is no proceeding either threatened or pending
against the Company relating to such personal injury and/or property damage
claims arising in the ordinary course of business that, if resolved against the
Company, would materially exceed the amounts recorded.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
2.1 - Amended and Restated Agreement and Plan of Merger dated as of
November 5, 1998 (the "Merger Agreement") by and among Greyhound
Lines, Inc., Laidlaw Inc. and Laidlaw Transit Acquisition Corp. (In
accordance with Item 601 of the Regulation S-K, this copy of the
Merger Agreement does not include the schedules thereto, which
schedules are listed in the table of schedules to the Merger
Agreement. The Company agrees to furnish supplementary to the
Securities and Exchange Commission a copy of such schedules upon
request.)
10.1 - First Amended Executive Employment Agreement by and between the
Company and Craig R. Lentzsch, dated as of September 15, 1998.
10.2 - First Amended Executive Employment Agreement by and between the
Company and John Werner Haugsland, dated as of September 15, 1998.
10.3 - Greyhound Lines, Inc. Change in Control Severance Pay Program.
10.4 - Form of Change in Control Agreement between the Company and certain
officers of the Company.
10.5 - Memorandum of Agreement, dated September 30, 1998, between the
Registrant and the Amalgamated Transit Union National Local 1700.
10.6 - 1998 Stock Option Plan for ATU Represented Drivers and Mechanics,
dated July 22, 1998.
10.7 - 1998 Non-officer Long Term Stock Incentive Plan, dated January 21,
1998.
27 - Financial Data Schedule as of and for the three months and nine
months ended September 30, 1998.(1)
- -------------------------------------------------------------------------------
(1) Filed only in EDGAR format with the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998.
(b) REPORTS ON FORM 8-K
During the quarter ended September 30, 1998, the Company did not file any
current reports on Form 8-K with the Securities and Exchange Commission.
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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: November 12, 1998
GREYHOUND LINES, INC.
By: /s/ T. Scott Kirksey
--------------------------------
T. Scott Kirksey
Chief Accounting Officer
(Duly Authorized Officer
and Chief Accounting Officer)
ATLANTIC GREYHOUND LINES OF
VIRGINIA, INC.
By: /s/ T. Scott Kirksey
--------------------------------
T. Scott Kirksey
Chief Accounting Officer
FCA INSURANCE LIMITED
By: /s/ T. Scott Kirksey
--------------------------------
T. Scott Kirksey
Chief Accounting Officer
GLI HOLDING COMPANY
By: /s/ T. Scott Kirksey
--------------------------------
T. Scott Kirksey
Chief Accounting Officer
GREYHOUND de MEXICO S.A. de
C.V.
By: /s/ T. Scott Kirksey
--------------------------------
T. Scott Kirksey
Chief Accounting Officer
GRUPO CENTRO, INC.
By: /s/ T. Scott Kirksey
--------------------------------
T. Scott Kirksey
Chief Accounting Officer
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27
LOS BUENOS LEASING CO., INC.
By: /s/ T. Scott Kirksey
--------------------------------
T. Scott Kirksey
Chief Financial Officer and Secretary
SISTEMA INTERNACIONAL de
TRANSPORTE de AUTOBUSES, INC.
By: /s/ T. Scott Kirksey
--------------------------------
T. Scott Kirksey
Chief Accounting Officer
TEXAS, NEW MEXICO & OKLAHOMA
COACHES, INC.
By: /s/ T. Scott Kirksey
--------------------------------
T. Scott Kirksey
Chief Accounting Officer
T.N.M. & O. TOURS, INC.
By: /s/ T. Scott Kirksey
--------------------------------
T. Scott Kirksey
Chief Accounting Officer
VERMONT TRANSIT CO., INC.
By: /s/ T. Scott Kirksey
--------------------------------
T. Scott Kirksey
Chief Accounting Officer
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INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
2.1 - Amended and Restated Agreement and Plan of Merger dated as of
November 5, 1998 (the "Merger Agreement") by and among Greyhound
Lines, Inc., Laidlaw Inc. and Laidlaw Transit Acquisition Corp.
(In accordance with Item 601 of the Regulation S-K, this copy of
the Merger Agreement does not include the schedules thereto, which
schedules are listed in the table of schedules to the Merger
Agreement. The Company agrees to furnish supplementary to the
Securities and Exchange Commission a copy of such schedules upon
request.)
10.1 - First Amended Executive Employment Agreement by and between the
Company and Craig R. Lentzsch, dated as of September 15, 1998.
10.2 - First Amended Executive Employment Agreement by and between the
Company and John Werner Haugsland, dated as of September 15, 1998.
10.3 - Greyhound Lines, Inc. Change in Control Severance Pay Program.
10.4 - Form of Change in Control Agreement between the Company and certain
officers of the Company.
10.5 - Memorandum of Agreement, dated September 30, 1998, between the
Registrant and the Amalgamated Transit Union National Local 1700.
10.6 - 1998 Stock Option Plan for ATU Represented Drivers and Mechanics,
dated July 22, 1998.
10.7 - 1998 Non-officer Long Term Stock Incentive Plan, dated January 21,
1998.
27 - Financial Data Schedule as of and for the three months and nine
months ended September 30, 1998.(1)