10-Q 1 d89622e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2001 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 JUNE 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number 1-10841 GREYHOUND LINES, INC. and its Subsidiaries identified in Footnote (1) below (Exact name of registrant as specified in its charter) DELAWARE 86-0572343 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 15110 N. DALLAS PARKWAY, SUITE 600 DALLAS, TEXAS 75248 (Address of principal executive offices) (Zip code) (972) 789-7000 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- As of August 10, 2001, the registrant had 587 shares of Common Stock, $0.01 par value, outstanding all of which are held by the registrant's parent company. (1) This Form 10-Q is also being filed by the co-registrants specified under the caption "Co-Registrants", each of which is a wholly-owned subsidiary of Greyhound Lines, Inc. and each of which has met the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q for filing Form 10-Q in a reduced disclosure format. (2) The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. 2 CO-REGISTRANTS This Form 10-Q is also being filed by the following entities. Except as set forth below, each entity has the same principal executive offices, zip code and telephone number as that set forth for Greyhound Lines, Inc. on the cover of this report:

As of June 30, 2001, Atlantic Greyhound Lines of Virginia, Inc. had 150 shares of common stock outstanding (at a par value of $50.00 per share); GLI Holding Company had 1,000 shares of common stock outstanding (at a par value of $0.01 per share); Greyhound de Mexico, S.A. de C.V. had 10,000 shares of common stock outstanding (at a par value of $0.10 Mexican currency per share); Sistema Internacional de Transporte de Autobuses, Inc. had 1,000 shares of common stock outstanding (at a par value of $0.01 per share); Texas, New Mexico & Oklahoma Coaches, Inc. had 1,000 shares of common stock outstanding (at a par value of $0.01 per share); T.N.M. & O. Tours, Inc. had 1,000 shares of common stock outstanding (at a par value of $1.00 per share); and Vermont Transit Co., Inc. had 505 shares of common stock outstanding (no par value). Each of the above named co-registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period such co-registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. 2 3 GREYHOUND LINES, INC. AND SUBSIDIARIES

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 SHARE AMOUNTS)

The accompanying notes are an integral part of these statements. 5 6 GREYHOUND LINES, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)

The accompanying notes are an integral part of these statements. 6 7 GREYHOUND LINES, INC. AND SUBSIDIARIES CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

The accompanying notes are an integral part of these statements. 7 8 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, the unaudited Interim Consolidated Financial Statements of Greyhound Lines, Inc. and Subsidiaries ("Greyhound" or the "Company") include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the Company's financial position as of June 30, 2001, the results of its operations for the three and six months ended June 30, 2001 and 2000 and cash flows for the six months ended June 30, 2001 and 2000. Due to the seasonality of the Company's operations, the results of its operations for the interim period ended June 30, 2001 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, 2000. Certain reclassifications have been made to the prior period statements to conform them to the current year presentation. For the three and six months ended June 30, 2001 and 2000, the Company's comprehensive income (loss) approximated its net income (loss). 2. LAIDLAW BANKRUPTCY On June 28, 2001, as part of a financial restructuring, Laidlaw USA, Inc., Laidlaw Inc., Laidlaw International Finance Corporation, Laidlaw Investments Ltd., Laidlaw One, Inc. and Laidlaw Transporation, Inc. filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Western District of New York, under a jointly administered case captioned, In re: Laidlaw USA, Inc., etal, Case No. 01-14099. On that date, Laidlaw Inc. and Laidlaw Investments Ltd. also filed cases under the Canada Companies' Creditors Arrangement Act in the Ontario Superior Court of Justice in Toronto, Canada, court file no. 01-CL-4178. Laidlaw Inc. ("Laidlaw") is the ultimate parent company of Greyhound. Neither Greyhound, nor any of its subsidiaries were included in, or made party to, these reorganization filings and proceedings. In August 2000, Laidlaw requested and authorized Greyhound to seek funding from outside sources to satisfy the Company's seasonal cash requirements and capital expenditure programs. On October 24, 2000, the Company entered into a two-year $125 million revolving credit facility to fund its working capital and near-term capital expenditure needs. With the closure of this agreement Greyhound became independent of Laidlaw for financing purposes. The reorganization filings and proceedings do not cause a cross default with any of the Company's debt which would place the Company's debt in default with its financial institutions and, as of the date of this report, the Company is in compliance with all covenants in its various debt agreements. Although the outcome of the foregoing matters is uncertain, management believes that the likely outcome will have no material impact on the Company's financial position, cash flows or results of operations. 8 9 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 (UNAUDITED) 3. REDEEMABLE PREFERRED STOCK On March 30, 2001, the Company issued a redemption notice to the holders of the outstanding shares of Redeemable Preferred Stock whereby any shares which had not been validly tendered for conversion by April 27, 2001 were redeemed by the Company at a price per share of $26.74625. During the notice period 98,700 shares, representing an aggregate conversion value of $3.3 million, were validly tendered for conversion and the remaining 3,800 shares, representing an aggregate redemption value of $0.1 million, were redeemed by the Company on April 30, 2001. In May 2001 the Company's Restated Certificate of Incorporation was amended to eliminate the authorization of preferred stock. 4. COMMON STOCK In May 2001 the Company effectuated a reverse stock split whereby one share of common stock was exchanged for every 100,000 shares outstanding. As a result the number of common shares outstanding was reduced from 58,743,069 to 587. Additionally, the Company's Restated Certificate of Incorporation was amended such that the authorized number of shares of common stock, par value $.01, was reduced from 100,000,000 shares to 1,000 shares. All of the historical shares have been restated to reflect this reverse stock split. 5. NEW YORK PORT AUTHORITY The Company operated out of its largest sales location, the Port Authority Bus Terminal of New York (the "Port Authority"), on a month-to-month basis pursuant to a license agreement which expired in 1994. The Company's fee was based upon a fixed charge for dedicated space, a fixed charge for each departing bus and a percentage of certain ticket sales. Because the majority of the other bus operators utilizing the Port Authority are principally commuter or local transit operators which are exempt from paying license fees on their sales, the Company had paid a disproportionate share of the total fees received from bus operators that use the Port Authority relative to the Company's share of bus departures, passengers, bus gates or square footage utilized. The Company had been negotiating with the Port Authority for several years to structure a market-based fee for the renewal of the license agreement and, beginning in June 1999, without Port Authority concurrence, began paying a lower fixed fee in lieu of a percentage of sales. The lower fee payment was based on the Company's research of the local real estate market in Midtown Manhattan and transportation facilities nationwide, both of which demonstrated that this fee reflected fair market value. Nevertheless, because the Company did not yet have Port Authority concurrence for the new fee structure, the Company continued to accrue for the license fee based upon the 1994 agreement. In May 2001, the Port Authority and the Company reached an agreement in principle related to fees for the periods June 1999 through March 31, 2001 (the "arrearage"), as well as on the form of the ongoing license fees. The agreement on the arrearage calls for payment to the Port Authority of $12 million over a 10-year period, interest free. The terms of the agreement require an initial lump sum payment of $1 million and equal monthly installments of $91,667 thereafter. The Company has recorded a reduction in operating rents of approximately $7.5 million which represents the accrued rent outstanding to the Port Authority at March 31, 2001 less the present value, using a discount rate of 11%, of the $12 million payback agreement. The present value of the payback agreement, less the current portion, is classified as part of other liabilities while the current portion is classified as part of accounts payable on the Interim Consolidated Statements of Financial Position. Additionally, effective April 1, 2001, with Port Authority concurrence, the Company began paying the monthly license fee based upon a flat fee per gate utilized and bus departure. During the three months ended June 30, 2001, the license fee expense recorded by the Company utilizing this new methodology was approximately $1.4 million lower than the fee as calculated under the expired agreement. The Company and the Port Authority are currently negotiating the final details of the payback agreement and license agreement. 9 10 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 (UNAUDITED) 6. ACQUISITIONS In May 2001, the Company acquired for $1.3 million, the remaining 50% interest it had not already owned in a regional line-haul carrier operating in west Texas. This acquisition has been included in the Company's results of operations and financial condition since the date of acquisition. 7. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), "Accounting for Goodwill and Other Intangible Assets", was issued. This statement establishes new accounting rules for goodwill and intangible assets and is effective for fiscal years beginning after December 15, 2001. Under SFAS No. 142, goodwill is not amortized, but is subject to specific impairment testing at least on an annual basis. The Company is currently evaluating the effect of this statement and has not yet determined the effect on its results of operations and financial position. 10 11 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS GENERAL Greyhound is the only nationwide provider of scheduled intercity bus transportation services in the United States. The Company's primary business consists of scheduled passenger service, package express service and food services at certain terminals. The Company's consolidated operations include a nationwide network of terminal and maintenance facilities, a fleet of approximately 2,900 buses and approximately 1,800 sales outlets. The Company's business is seasonal in nature and generally follows the pattern of the travel industry as a whole, with peaks during the summer months and the Thanksgiving and Christmas holiday periods. As a result, the Company's operating cash flows are also seasonal with a disproportionate amount of the Company's annual operating cash flows being generated during the peak travel periods. The day of the week on which certain holidays occur, the length of certain holiday periods, and the date on which certain holidays occur within the fiscal quarter, may also affect the Company's quarterly results of operations. RESULTS OF OPERATIONS The following table sets forth the Company's results of operations as a percentage of total operating revenue for the three and six months ended June 30, 2001 and 2000:

11 12 The following table sets forth certain operating data for the Company for the three and six months ended June 30, 2001 and 2000. Certain statistics have been adjusted and restated from that previously published to provide consistent comparisons.

THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 RESULTS OF OPERATIONS Operating Revenues. Total operating revenues increased $7.2 million, up 2.8%, and $21.8 million, up 4.6% for the three and six months ended June 30, 2001, compared to the same periods in 2000. Passenger services revenues increased $6.7 million, up 3.1%, and $18.9 million, up 4.8%, for the three and six months ended June 30, 2001, compared to the same period in 2000. The increases in regular route revenues reflect the impact of the increase in yield offset somewhat by the decrease in passenger miles. In response to rising fuel costs, the Company was able to implement broad-based ticket price increases during the first quarter of 2000. While the Company has been able to sustain, and in some cases further raise ticket prices, management believes these increases have resulted in the decline in average trip length and passenger miles. Package express revenues decreased $0.5 million, down 4.4%, and $0.9 million, down 4.3%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. The Company has continued to experience reduced standard product deliveries (the traditional, low value, terminal to terminal market segment) as a result of continued competition, as well as expanded and improved product offerings, from larger package delivery companies. Food services revenues increased $0.1 million, up 0.9%, and $0.6 million, up 2.8%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. Food services revenues increased over the prior year due primarily to product price increases and increased locations, offset somewhat by volume declines as a result of the decline in passenger miles. Other operating revenues, consisting primarily of revenue from charter, travel services and in-terminal sales and services, increased $0.9 million, up 4.6%, and increased $3.2 million, up 9.5%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. The increase is primarily attributable to the Company's expansion during 2001 into "meet and greet" service provided to cruise lines. 12 13 Operating Expenses. Total operating expenses increased $9.1 million, up 3.8%, and $26.2 million, up 5.6%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. The increase is attributable to a slight increase in bus miles during the three months ended June 30, 2001 and a 1.3% increases in bus miles operated for the six months ended June 30, 2001. In addition, the Company experienced increases in fuel cost, wages, driver training and hiring costs, pension costs, ticket and express commissions due to higher sales and in health and welfare and management fees when compared with the same periods in 2000. Maintenance costs increased $1.5 million, up 6.4%, and $3.8 million, up 8.3%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. On a per mile basis, maintenance cost increased 6.5% and 7.1%, for the three and six months ended June 30, 2001, due to fewer buses under warranty, increased material and labor related to body repairs and brake jobs, and higher utility costs. Transportation expenses, which consist primarily of fuel costs and driver salaries, increased $2.8 million, up 4.4%, and $7.0 million, up 5.8%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. Transportation expenses increased on a per-mile basis by 4.3% and 4.5%, for the three and six months ended June 30, 2001, due largely to higher fuel prices, driver wage increases and, during the six months ended June 30, 2001, higher driver training and hiring costs of $1.3 million. For the three and six months ended June 30, 2001, the average cost per gallon of fuel increased to $0.912 and $0.924 per gallon, compared to $0.842 and $0.861 per gallon during the same periods in 2000, resulting in increased fuel cost of $0.7 million and $1.4 million. Agents' commissions and station costs increased $1.7 million, up 3.8%, and $4.6 million, up 5.3%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. The increase is primarily due to commissions from increased ticket sales, terminal salary raises and increased utility costs. Marketing, advertising and traffic expenses increased $1.4 million, up 17.2%, and $2.6 million, up 16.8%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. The increase is due to production costs related to new television advertisements and the timing of media advertising. Insurance and safety costs increased $0.3 million, up 2.4%, and $0.9 million, up 3.7%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. The increase is principally due to the increase in revenues. General and administrative expenses increased $8.7 million, up 29.8%, and $11.6 million, up 19.9%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. During the six months ended June 30, 2001, the increase is due to higher health and welfare costs ($1.6 million) as a result of a higher cost per participant, higher incentive plan costs ($4.2 million) and management fee charges ($2.5 million) from the Company's parent, Laidlaw. In addition, the Company has recorded $3.7 million increase to pension expense due to a reduction in interest rates and deterioration in plan returns principally related to equity investments. For the three months ended June 30, 2001, the increase was due to the increases in incentive plan costs ($3.4 million), Laidlaw management fees ($1.3 million) and pension costs ($3.7 million). Depreciation and amortization expenses increased $0.8 million, up 7.9%, and $1.7 million, up 7.8%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. The increases are primarily due to capital expenditures in prior periods. Operating taxes and licenses expense increased $0.5 million, up 3.5%, and $0.9 million, up 3.0%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. The increases are due primarily to payroll taxes resulting from increased salaries. Operating rents decreased $8.6 million, down 40.2%, and $8.6 million, down 20.5%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. This is mainly due to the settlement of the Port Authority license agreement. See Note 5 to the Interim Consolidated Financial statements for further discussion. Food services cost of goods sold increased $0.4 million, up 5.8%, and $1.1 million, up 8.2%, for the three and six months ended June 30, 2001, compared to the same periods in 2000. This is primarily due to the increases in food costs and the addition of new locations. 13 14 Other operating expenses decreased $0.7 million, down 41.1% for the three months ended June 30, 2001 and increased $0.4 million, up 19.1%, for the six months ended June 30, 2001, compared to the same periods in 2000. The decrease for the three months ended June 30, 2001 is due to a loss on the sale of revenue equipment during the second quarter of 2000. For the six months ended June 30, 2001, the 2000 loss on revenue equipment was offset by losses on disposal of property, plant and equipment experienced during the first quarter of 2001. Interest expense increased $1.8 million, up 30.3%, and $3.9 million, up 35.8%, for the three and six months ended June 30, 2001, compared to the same periods in 2000, due to an increase in the average debt outstanding. LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity requirements are to provide working capital, to finance capital expenditures, including bus acquisitions and to meet debt service requirements, including the payment of interest on the 11 1/2% Senior Notes. The Company's principal sources of liquidity are expected to be cash flow from operations and borrowings under the Revolving Credit Facility. The Company believes that its cash flow from operations, together with borrowings under the Revolving Credit Facility, will fund its working capital and near-term capital expenditure needs. As of June 30, 2001, the Company had outstanding borrowings under the Revolving Credit Facility of $73.2 million and availability of $51.3 million. Net cash provided by operating activities for the six months ended June 30, 2001 was $4.9 million, a decrease of $13.3 million compared to $18.2 million provided by operating activities during the same period of 2000. The principal reason for the decrease is a reduction, during the six months ended June 30, 2001, in rents payable. Net cash used for investing activities for the six months ended June 30, 2001 was $17.7 million compared to $12.7 million net cash used for investing during the same period in 2000. The $5.0 million change is principally due to sale proceeds from assets sold in the six months of 2000. Net cash provided by financing activities for the six months ended June 30, 2001 was $12.1 million as compared to net cash used in financing activities of $5.5 million during the same period in 2000. The $17.6 million difference is principally due to the redemption of $19.4 million of Redeemable Preferred Stock in the six months ended June 30, 2000. The Company currently purchases insurance through Laidlaw with coverage subject to a $50,000 deductible for physical damage to Company property and no deductible for all other claims. Effective with the beginning of the Company's new policy year, September 1, 2001, the Company will purchase coverage from third-party insurers for claims up to $5 million with coverage subject to a $3 million deductible for automobile liability and a $1 million deductible for both general liability and workers' compensation. The Company will purchase excess coverage for automobile liability, general liability and workers' compensation insurance through Laidlaw for claims which exceed $5 million. The Company will continue to purchase from Laidlaw coverage for physical damage to Company property subject to $50,000 deductible. Management believes the cash flow requirements of the new program will be modestly higher during the first half of the policy year, but comparable during the entire policy year to what the requirements would have been had the old program been extended. 14 15 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS None (b) REPORTS ON FORM 8-K On June 28, 2001 the Company filed a current report on Form 8-K with the Securities and Exchange Commission reporting Other Events. No financial statements were included. 15 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 2001 GREYHOUND LINES, INC. By: /s/ Jeffrey W. Sanders ---------------------------------------------- Jeffrey W. Sanders Senior Vice President and Chief Financial Officer ATLANTIC GREYHOUND LINES OF VIRGINIA, INC. By: /s/ Jeffrey W. Sanders ---------------------------------------------- Jeffrey W. Sanders Senior Vice President and Chief Financial Officer GLI HOLDING COMPANY By: /s/ Jeffrey W. Sanders ---------------------------------------------- Jeffrey W. Sanders Senior Vice President and Chief Financial Officer GREYHOUND de MEXICO, S.A. de C.V. By: /s/ Cheryl W. Farmer ---------------------------------------------- Cheryl W. Farmer Examiner SISTEMA INTERNACIONAL de TRANSPORTE de AUTOBUSES, INC. By: /s/ Jeffrey W. Sanders --------------------------------------------- Jeffrey W. Sanders Senior Vice President and Chief Financial Officer TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC. By: /s/ Jeffrey W. Sanders --------------------------------------------- Jeffrey W. Sanders Senior Vice President and Chief Financial Officer T.N.M. & O. TOURS, INC. By: /s/ Jeffrey W. Sanders --------------------------------------------- Jeffrey W. Sanders Senior Vice President and Chief Financial Officer VERMONT TRANSIT CO., INC. By: /s/ Jeffrey W. Sanders --------------------------------------------- Jeffrey W. Sanders Senior Vice President and Chief Financial Officer 16

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