-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G5m35srZZqafF8tnOVeOa4AMubMzLonA68QpjYm4QIQ7bH8uO2Lffp4iTXgrmW3t R8oTWtb3Ri4Ji35MBvAOaA== 0000950134-00-002677.txt : 20000331 0000950134-00-002677.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950134-00-002677 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREYHOUND LINES INC CENTRAL INDEX KEY: 0000813040 STANDARD INDUSTRIAL CLASSIFICATION: LOCAL & SUBURBAN TRANSIT & INTERURBAN HWY PASSENGER TRAINS [4100] IRS NUMBER: 860572343 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-10841 FILM NUMBER: 584398 BUSINESS ADDRESS: STREET 1: 15110 N DALLAS PKWY STE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897000 MAIL ADDRESS: STREET 1: 15110 N DALLAS PARKWAY STREET 2: SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLI HOLDING CO CENTRAL INDEX KEY: 0000813041 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 752146309 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-13588-01 FILM NUMBER: 584399 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727987415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC GREYHOUND LINES OF VIRGINIA INC CENTRAL INDEX KEY: 0001041393 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 580869571 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-27267-01 FILM NUMBER: 584400 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREYHOUND DE MEXICO SA DE CV CENTRAL INDEX KEY: 0001041396 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-27267-05 FILM NUMBER: 584401 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 N DALLAS PKWY STE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SISTEMA INTERNACIONAL DE TRANSPORTE DE AUTOBUSES INC CENTRAL INDEX KEY: 0001041398 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 752548617 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-27267-08 FILM NUMBER: 584402 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXAS NEW MEXICO & OKLAHOMA COACHES INC CENTRAL INDEX KEY: 0001041400 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 750605295 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-27267-10 FILM NUMBER: 584403 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TNM & O TOURS INC CENTRAL INDEX KEY: 0001041401 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 751188694 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-27267-11 FILM NUMBER: 584404 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERMONT TRANSIT CO INC CENTRAL INDEX KEY: 0001041402 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 030164980 STATE OF INCORPORATION: VT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-27267-12 FILM NUMBER: 584405 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOS BUENOS LEASING CO INC CENTRAL INDEX KEY: 0001041453 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 840434715 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-27267-07 FILM NUMBER: 584406 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 10-K405 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1999 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER 1-10841 GREYHOUND LINES, INC. AND ITS SUBSIDIARIES IDENTIFIED IN FOOTNOTE (1) BELOW (Exact name of registrant as specified in its charter) DELAWARE 86-0572343 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 15110 N. DALLAS PARKWAY, SUITE 600, DALLAS, TEXAS 75248 (Address of principal executive offices) (Zip code) (972) 789-7000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- 8 1/2% CONVERTIBLE SUBORDINATED DEBENTURES, DUE MARCH 31, 2007 AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of Common Stock held by non-affiliates of the registrant on March 15, 2000, was $0. As of March 15, 2000, the registrant had 58,743,069 shares of Common Stock, $0.01 par value, outstanding all of which are held by the registrant's parent company. (1) THIS FORM 10-K IS ALSO BEING FILED BY THE CO-REGISTRANTS SPECIFIED UNDER THE CAPTION "CO-REGISTRANTS", EACH OF WHICH IS A WHOLLY-OWNED SUBSIDIARY OF GREYHOUND LINES, INC. AND EACH OF WHICH HAS MET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS J(1)(a) AND (b) OF FORM 10-K FOR FILING FORM 10-K IN A REDUCED DISCLOSURE FORMAT. (2) THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS J(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. =============================================================================== 2 CO-REGISTRANTS This Form 10-K is also being filed by the following entities. Except as set forth below, each entity has the same principal executive offices, zip code and telephone number as that set forth for Greyhound Lines, Inc. on the cover of this report:
I.R.S. EMPLOYER JURISDICTION COMMISSION IDENTIFICATION OF NAME FILE NO. NO. INCORP. - ---- ----------- --------------- ------------ Atlantic Greyhound Lines of Virginia, Inc. 333-27267-01 58-0869571 Virginia GLI Holding Company 333-27267-04 75-2146309 Delaware Greyhound de Mexico, S.A. de C.V. 333-27267-05 None Republic of Mexico Los Buenos Leasing Co., Inc. 333-27267-07 85-0434715 New Mexico Sistema Internacional de Transporte de Autobuses, Inc. 333-27267-08 75-2548617 Delaware Texas, New Mexico & Oklahoma Coaches, Inc. 333-27267-10 75-0605295 Delaware 1313 13th Street Lubbock, Texas 79408 (806) 763-5389 T.N.M. & O. Tours, Inc. 333-27267-11 75-1188694 Texas (Same as Texas, New Mexico & Oklahoma Coaches, Inc.) Vermont Transit Co., Inc. 333-27267-12 03-0164980 Vermont 106 Main Street Burlington, Vermont 05401 (802) 862-9671
As of December 31, 1999, Atlantic Greyhound Lines of Virginia, Inc. had 150 shares of common stock outstanding (at a par value of $50.00 per share); GLI Holding Company had 1,000 shares of common stock outstanding (at a par value of $0.01 per share); Greyhound de Mexico, S.A. de C.V. had 10,000 shares of common stock outstanding (at a par value of $0.10 Mexican currency per share); Los Buenos Leasing Co., Inc. had 1,000 shares of common stock outstanding (at a par value of $1.00 per share); Sistema Internacional de Transporte de Autobuses, Inc. had 1,000 shares of common stock outstanding (at a par value of $0.01 per share); Texas, New Mexico & Oklahoma Coaches, Inc. had 1,000 shares of common stock outstanding (at a par value of $0.01 per share); T.N.M. & O. Tours, Inc. had 1,000 shares of common stock outstanding (at a par value of $1.00 per share); and Vermont Transit Co., Inc. had 505 shares of common stock outstanding (no par value). Each of the above named co-registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period such co-registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. 3 GREYHOUND LINES, INC. AND SUBSIDIARIES INDEX TO FORM 10-K
PAGE NO. -------- PART I Item 1. Business........................................................................... 4 Item 2. Properties......................................................................... 9 Item 3. Legal Proceedings.................................................................. 9 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.......... 11 Item 7. Management's Narrative Analysis of Results of Operations........................... 12 Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................... 16 Item 8. Financial Statements and Supplementary Data........................................ 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................................... 43 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 44
4 PART I ITEM 1. BUSINESS GENERAL Greyhound Lines, Inc. and subsidiaries (the "Company") is the only nationwide provider of scheduled intercity bus transportation services in the United States. The Company serves the value-oriented customer by connecting rural and urban markets throughout the United States, offering scheduled passenger service to more than 2,600 destinations with a fleet of 2,883 buses and approximately 1,800 sales locations. The Company also provides package express service, charter bus service and, in many terminals, food service. For the year ended December 31, 1999, the Company generated total operating revenues of $923.5 million and EBITDA of $69.9 million. EBITDA represents income before interest, taxes, minority interest, depreciation and amortization, extraordinary items and settlement of stock options. EBITDA is presented because management believes investors consider it useful in evaluating a company's ability to service and/or incur debt. EBITDA should not be considered in isolation from or as a substitute for net income, cash flows from operating activities and other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. EBITDA as based on the above calculation may not be comparable to other companies or industries, as all companies and industries may not calculate EBITDA in the same manner. The Company serves a diverse customer base, consisting primarily of low to middle income passengers from a wide variety of ethnic backgrounds. Management believes that the demographic groups that make up the core of the Company's customer base are growing at rates faster than the U.S. population as a whole. The Company believes that it is uniquely positioned to serve this broad and growing market because (i) the Company's operating costs, which are lower on an available-seat-mile basis than other modes of intercity transportation, enable it to offer passengers everyday low prices, (ii) the Company offers the only means of regularly scheduled intercity transportation in many of its markets, and (iii) the Company provides additional capacity during peak travel periods to accommodate passengers who lack the flexibility to shift their travel to off-peak periods. On March 16, 1999, the Company's stockholders approved the Agreement and Plan of Merger with Laidlaw Inc. ("Laidlaw") and Laidlaw Transit Acquisition Corp. ("Laidlaw Transit"), a wholly owned subsidiary of Laidlaw pursuant to which Laidlaw Transit was merged with and into the Company (the "Merger"), with the Company, as the surviving corporation, becoming a wholly owned subsidiary of Laidlaw. MARKETS Passengers. While the Company's major passenger markets are large metropolitan areas, its business is geographically fragmented with the 50 largest sales outlets accounting for approximately 50% of 1999 ticket sales, and the 1,200 largest origin/destination city pairs producing only 44% of 1999 ticket sales. Demographic studies have shown that the Company's potential riders are concentrated in the northeastern, southern and industrial mid-western United States, as well as Texas and California. The typical passenger travels to visit friends and relatives and generally has an annual income below $35,000. In many cases, the Company's passengers report that they own automobiles considered sufficiently reliable for a trip of a similar distance, but travel by bus because they are traveling alone or because of the lower cost of bus travel. The majority of the Company's customers usually make the decision to take a trip only a short time before actually traveling and, for the most part, pay cash for their tickets on the day of departure. Package Express. The Company's package express service targets commercial shippers and delivery companies that require rapid delivery of small parcels, typically within 400 miles. The Company's product offerings include standard delivery, the traditional low-value, terminal-to-terminal delivery product, as well as priority and same day delivery, a premium priced product typically delivered door to door. The Company satisfies the door-to-terminal portion of priority and same day deliveries principally through relationships with over 300 courier companies, which serve over 400 markets. Shipments include automotive repair parts, wholesale foods, computer parts and forms, fresh flowers, eyeglasses, medical and dental supplies, architectural and legal documents and pharmaceutical products. 4 5 With its extensive network and multiple schedules, the Company is able to provide expedited service, especially to rural areas. Most shipments arrive at their destination on the same day they are shipped or by 8:00 a.m. the following morning. During 1999, the Company acquired On-Time Delivery Service in Minneapolis, MN and the assets of Larson Express in Chicago, IL, which allows the Company to provide the highest possible level of door-to-door service for its customers in these markets. Food Service. The Company's Food Service division gives passengers the ability to enjoy quality food while reaching their destinations at over 170 locations. In addition to cafeteria-style restaurants and quick grab `n go snack bars, the Company also offers national brand concepts such as Star Hardee's and Kentucky Fried Chicken in several terminals. MARKETING AND ADVERTISING The Company's marketing and advertising philosophy is geared toward stimulating extra travel through price awareness, improving the awareness and image of Greyhound among potential customers and inducing first-time and repeat travel. The Company uses various means to advertise its passenger travel business including radio, television and print media (primarily yellow pages). Additionally, the Company offers convenient around-the-clock fare and schedule quotations via a toll-free telephone number through its telephone information centers and through the Company's internet web site. The Company's telephone centers and web site handled 34.7 million requests in 1999, an increase of 8.0% over 1998. The Company also markets its passenger and in-terminal services through advertising in the terminal facilities and on its ticket jackets. OPERATIONS The Company utilizes approximately 150 company-operated bus terminals and approximately 1,650 agency-operated terminals and/or sales agencies. Maintenance garages are maintained at 24 strategic locations and are supplemented by company-operated service islands and fueling points. The Company currently has approximately 4,800 drivers based in approximately 90 different locations across the country. In the Greyhound Lines unit, drivers report to driver supervisors who are organized into 11 districts reporting to district managers of driver operations. The scheduling and dispatch of the buses and driver corps is a coordinated and centralized function performed by marketing and the operation support center whose purpose is to serve as a liaison between management and the districts in the planning and execution of daily operations through the existing network. This is accomplished through the management of national dispatch operations for equipment and drivers, rental of additional buses to cover peak demand periods, planning and coordinating extra sections with the districts and analyzing and implementing pooling arrangements with other carriers. This group also plans the fleet size and driver requirements by location during the year and assists in determining the resource needs based on the sales plan each year. Subsidiaries of Greyhound Lines independently coordinate and manage their own driver and fleet resources. Information technology is an integral component of the Company's operations. The Company's information systems support, among other things, its scheduling and pricing, dispatch, operations planning, bus maintenance, telephone information center, customer service, point of sale, payroll and finance functions. As of December 31, 1999, the Company's automated fare and schedule quotation and ticketing system, called TRIPS, was in use at 322 locations. COMPETITION Passengers. The transportation industry is highly competitive. The Company's primary sources of competition for passengers are automobile travel, low cost air travel from both regional and national airlines, and in certain markets, regional bus companies and trains. Airlines have increased their penetration in intermediate-haul markets (450 to 1,000 miles), which has resulted in the bus industry, in general, reducing prices in these markets in order to compete. Additionally, airline discount programs have attracted certain long-haul passengers away from the Company. However, these lower airline fares usually contain restrictions and require advance purchase. Typically, the Company's customers decide to travel only a short time before their trip and purchase their tickets on the day of 5 6 travel. The Company's everyday low pricing strategy results in "walk-up" fares substantially below comparable airline fares. In instances where the Company's fares exceed an airline discount fare, the Company believes the airline fares typically are more restrictive and less readily available than travel provided by the Company. However, the Company has also instituted numerous advance purchase programs, in order to attract the price sensitive customer. Price, destination choices and convenient schedules are the ways in which the Company meets this competitive challenge. The automobile is the most significant form of competition to the Company. The out-of-pocket costs of operating an automobile are generally less expensive than bus travel, particularly for multiple persons traveling in a single car. The Company meets this competitive threat through price and convenient scheduling. Additionally, the Company experiences competition from regional bus companies. Price, frequency of service, and convenient scheduling are the current strategies of the Company to meet this competition. The Company's competitors possess operating authority for, but do not currently operate over, numerous routes potentially competitive to the Company. Based on market and competitive conditions, the regional bus companies could operate such routes in the future. Competition by U.S.-based bus and van operators for the market represented by Spanish speaking customers in the U.S. is growing. As of January 1, 1997, barriers to entry into the cross-border intercity bus market between the U.S. and Mexico were reduced under the North American Free Trade Agreement ("NAFTA"). Entry into either market is still regulated by the respective U.S. and Mexican regulatory authorities. The U.S. government currently has a moratorium on grants of cross-border authority to Mexican-owned or controlled carriers of freight and passengers. There is no current indication as to when the moratorium will be lifted; however, should the moratorium be lifted, the Company could experience significant new competition on routes to, from and across Mexican border points. Nevertheless, certain U.S.-based operators are providing cross-border service into Mexico at this time. NAFTA also permits U.S. carriers to make non-controlling, minority investments in Mexican-owned carriers and permits Mexican carriers to make non-controlling, minority investments in U.S.-owned carriers. In addition to bringing new competition, the Company believes that the changes under NAFTA will increase the volume of bus travel along both sides of the border and provide the Company with a growth opportunity. The Company believes that the most effective way to service passengers in this market is through joint ventures or other business combinations with Mexico-based bus carriers and U.S.-based bus operators that primarily serve these Spanish-speaking markets. The Company has established a separate operating subsidiary that has completed joint ventures that provide through-bus service at all major gateways between the United States and Mexico. Package Express. The Company faces intense competition in its package express service from local courier services, the U.S. Postal Service and overnight express and ground carriers. The Company continues to develop programs to meet this competition and rebuild its package express business. These programs focus on system upgrades to improve service, billing and tracking for its customers, localized marketing strategies, and local or regional alliances with, or acquisitions of, pick up and delivery carriers. Due to the incremental nature of the package express business, the Company is able to provide same-day package express service at distances of up to 400 miles at a substantially lower price than those charged by other delivery services. Food Service. The captive nature of the food service operations in the Company's terminals limits competition; however, in some locations proximity to fast food outlets and convenience stores can pose a competitive factor. SEASONALITY The Company's business is seasonal in nature and generally follows the pattern of the travel industry as a whole, with peaks during the summer months and the Thanksgiving and Christmas holiday periods. As a result, the Company's cash flows are also seasonal with a disproportionate amount of the Company's annual cash flows being generated during the peak travel periods. Therefore, an event that adversely affects ridership during any of these peak periods could have a material adverse effect on the Company's financial condition and results of operations for that year. The day of the week on which certain holidays occur, the length of certain holiday periods, and the date on which certain holidays occur within a fiscal quarter, may also affect the Company's quarterly results of operations. 6 7 WORKFORCE At March 1, 2000, the Company employed approximately 13,400 workers, consisting of approximately 4,600 terminal employees, 4,800 drivers, 1,500 supervisory personnel, 800 mechanics, 800 telephone information agents, and 900 clerical workers. Of the total workforce, approximately 10,700 are full-time employees and approximately 2,700 are part-time employees. At March 1, 2000, approximately 43% of the Company's employees were represented by collective bargaining agreements. The Amalgamated Transit Union (the "ATU") represents approximately 5,000 of the Company's employees, including drivers, telephone information agents in the Omaha location, terminal workers in seven locations and about half of the Company's mechanics. The largest ATU agreement, which covers the drivers and maintenance employees, expires on January 31, 2004. The International Association of Machinists and Aerospace Workers (the "IAM") represents approximately 360 of the Company's employees, including the remaining mechanics. The IAM agreements expire on October 1, 2004. The Company also has bargaining agreements with the International Brotherhood of Teamsters, which represent approximately 280 employees at six terminal locations and the United Transportation Union, which represents employees at two of the Company's subsidiaries. TRADEMARKS The Company owns the Greyhound name and trademarks and the "image of the running dog" trademarks worldwide. The Company believes that this name and the trademarks have substantial consumer awareness. GOVERNMENT REGULATION The Department of Transportation. As a motor carrier engaged in interstate, as well as intrastate, transportation of passengers and express shipments, the Company is, and must remain, registered with the United States Department of Transportation (the "DOT"). Failure to maintain a satisfactory safety rating, designate agents for service of process or to meet minimum financial responsibility requirements, after notice and opportunity to remedy, may result in the DOT's ordering the suspension or revocation of the registration of the Company and its right to provide transportation. DOT regulations also govern the qualifications, duties and hours of service of drivers, the standards for vehicles, parts and accessories, the maintenance of records and the submission of reports pertaining to the Company's drivers, buses and operations. The Company is subject to periodic and random inspections and audits by the DOT or, pursuant to cooperative arrangements with the DOT, by state police or officials, to determine whether the Company's drivers, buses and records are in compliance with the DOT's regulations. The Company, from time to time, has been cited by the DOT for noncompliance with its regulations but, nevertheless, has retained a satisfactory safety rating. The DOT establishes minimum financial responsibility requirements for motor carriers; the Company has met these requirements and has been authorized to partially self-insure its bodily injury and property damage liability. See "Insurance Coverage." The DOT also administers regulations to assure compliance with vehicle noise and emission standards prescribed by the Environmental Protection Agency (the "EPA"). All of the buses in the Company's fleet contain engines that comply with, or are exempt from compliance with, EPA regulations, but, on occasion, the Company has been cited and fined for non-compliance with noise or emission standards. Additionally, there is currently litigation pending in California seeking to enforce the posting of public health warnings at locations where diesel fuel emissions are present. Surface Transportation Board. The Company is also regulated by the DOT's Surface Transportation Board (the "STB"). The STB must grant advance approval for the Company to pool operations or revenues with another passenger carrier. The STB, moreover, must authorize any merger by the Company with, or its acquisition or control of, another motor carrier of passengers. The Company must maintain reasonable through routes with other motor carriers of passengers, and, if found not to have done so, the STB can prescribe them. The Company is party to certain agreements, which are subject to STB authorization and supervision, for the adoption of mileage guides, rules, divisions or general rate adjustments. 7 8 State Regulations. As an interstate motor carrier of passengers, the Company may engage in intrastate operations over any of its authorized routes. By federal law, states are pre-empted from regulating the Company's fares or its schedules, including the withdrawal of service over any route. However, the Company's buses remain subject to state vehicle registration requirements, bus size and weight limitations, fuel sales and use taxes, speed and traffic regulations and other local standards not inconsistent with federal requirements. Other. The Company is subject to regulation under the Americans with Disabilities Act (the "ADA"). Under final regulations issued by DOT in September 1998, beginning in October 2000, all new buses received by the Company for its fixed route operations will have to be equipped with wheelchair lifts. Additionally, by October 2006, one-half of the Company's fleet involved in fixed route operations will be required to be lift-equipped, and by October 2012, such fleet will need to be entirely lift-equipped. The regulations do not require the retrofitting of existing buses with lift equipment. Nor do the regulations require the purchase of accessible used buses. Under an initiative to be fully implemented by the spring of 2000, and continuing until the fleet is fully equipped, the Company will begin to provide an accessible bus to any disabled passenger who provides at least 48 hours notice. This is over 18 months in advance of the October 2001 deadline for larger fixed route operators being required to provide an accessible bus to any disabled passenger who provides at least 48 hours notice. The Company currently estimates that a built-in lift device will add approximately $30,000 to the cost of a new bus and that maintenance and employee training costs will increase. Passenger revenues could also be impacted by the loss of seating capacity when wheelchair passengers are on the bus, partially offset by potentially increased ridership by disabled persons. INSURANCE COVERAGE Following the Merger, the Company began to purchase its insurance through Laidlaw with coverage subject to a $50,000 deductible for property damage claims and no deductible for all other claims. As a result, the Company requires no insurance reserve associated with claims arising after March 16, 1999. Additionally, on December 31, 1999, the Company transferred liability for all known, and unknown claims, and all related insurance reserves, associated with the period prior to March 16, 1999 to Laidlaw for which Laidlaw received compensation in an amount equal to the book value of the reserves. The predecessor agency to the STB granted the Company authority to self-insure its automobile liability exposure for interstate passenger service up to a maximum level of $5.0 million per occurrence, which has been continued by the DOT. To maintain self-insurance authority, the Company is required to maintain a satisfactory safety rating by the DOT, a tangible net worth of $10.0 million (as of December 31, 1999, the Company's tangible net worth was $156.7 million) and a $15.0 million trust fund (currently fully funded) to provide security for payment of claims. Under the current insurance program with Laidlaw, the Company is no longer self-insured; however, the Company has continued to maintain its self-insurance authority should it be necessary or desirable to reactivate a self-insurance program in the future. ENVIRONMENTAL MATTERS The Company may be liable for certain environmental liabilities and clean-up costs relating to underground fuel storage tanks and systems in the various facilities presently or formerly owned or leased by the Company. Based upon surveys conducted solely by Company personnel or its experts, 53 locations have been identified as remaining sites requiring potential clean-up and/or remediation as of December 31, 1999. Additionally, the Company has, or has assumed, potential liability with respect to four active locations, which the EPA has designated as Superfund sites. The Company, as well as other parties designated by the EPA as potentially responsible parties, face exposure for costs related to the clean-up of those sites. Based on the EPA's enforcement activities to date, the Company believes its liability at these sites will not be material because its involvement was as a de minimis generator of wastes disposed of at the sites. In light of its minimal involvement, the Company has been negotiating to be released from liability in return for the payment of immaterial settlement amounts. 8 9 The Company has recorded a total environmental reserve of $7.3 million at December 31, 1999, of which approximately $0.7 million is indemnifiable by the predecessor owner of Greyhound's domestic bus operations, now known as Viad Corp. The environmental reserve relates to sites identified for potential clean-up and/or remediation and represents the present value of estimated cash flows discounted at 8.0%. As of the date of this report, the Company is not aware of any additional sites to be identified, and management believes that adequate accruals have been made related to all known environmental matters. ITEM 2. PROPERTIES LAND AND BUILDINGS At December 31, 1999, the Company used 571 parcels of real property in its operations, of which it owns 163 properties and leases 408 properties. Of those properties, 410 are bus terminals, 37 are maintenance facilities, 34 are terminal/maintenance facilities, and the remaining properties consist of driver dormitories, parking/storage lots, office/storage/warehouse buildings and telephone information centers. These properties are located throughout the United States, with a few in Mexico and Canada. The Company believes the current makeup of its properties is adequate for its operations, and although there can be no assurance, based on its recent experience, the Company believes that it will be able to find suitable replacement properties on acceptable terms for any properties the Company chooses to replace, or which are condemned, or for which leases are not renewed or are otherwise terminated. FLEET COMPOSITION AND BUS ACQUISITIONS During 1999, the Company took delivery of 353 new buses, and retired 117 buses, resulting in a fleet of 2,883 buses at year-end. Through March 20, 2000, the Company has taken delivery of an additional 107 buses and retired 72 buses. At March 20, 2000, the Company owned 1,288 buses and leased an additional 1,630 buses for a total fleet of 2,918. Motor Coach Industries, Inc. ("MCI") or its affiliate, Dina Autobuses, S.A. de C.V. ("DASA"), hereafter referred to collectively as "MCI", produced all but 106 of these buses. The Company is party to a long-term supply agreement with MCI. The agreement extends through 2007, but may be canceled at the end of any year upon six months notice. If the Company decides to acquire new buses, the Company and its affiliates must purchase at least 80% of its new bus requirements from MCI pursuant to the agreement. ITEM 3. LEGAL PROCEEDINGS LEGAL PROCEEDINGS The Company is a defendant in various lawsuits arising in the ordinary course of business, primarily cases involving personal injury and property damage claims and employment-related claims. Although these lawsuits involve a variety of different facts and theories of recovery, the majority arises from traffic accidents involving buses operated by the Company. The vast majority of these claims are covered by insurance for amounts in excess of the deductible portion of the policies. Therefore, based on the Company's assessment of known claims and its historical claims payout pattern and discussion with internal and outside legal counsel and risk management personnel, management believes that there is no proceeding either threatened or pending against the Company that, if resolved against the Company, would materially exceed the amounts recorded as estimated liabilities by the Company. 9 10 SEC INVESTIGATION In January 1995, the Company received notice that the Securities and Exchange Commission (the "Commission") is conducting a formal, non-public investigation into possible securities laws violations allegedly involving the Company and certain of its former officers, directors and employees and other persons. The Commission's Order of Investigation (the "Order of Investigation") states that the Commission is exploring possible insider trading activities, as well as possible violations of the federal securities laws relating to the adequacy of the Company's public disclosures with respect to problems with its passenger reservation system implemented in 1993 and lower-than-expected earnings for 1993. In addition, the Commission has stated that it will investigate the adequacy of the Company's record keeping with respect to the passenger reservation system and its internal auditing controls. Although the Commission has not announced the targets of the investigation, it does not appear from the Order of Investigation that the Company is a target of the insider trading portion of the investigation. In September 1995, the Commission served a document subpoena on the Company requiring the production of documents, most of which, the Company had voluntarily produced to the Commission in late 1994. The Company has fully cooperated with the Commission's investigation of these matters. The Company has had limited contact with the Commission in connection with the investigation since January 1996. The probable outcome of this investigation cannot be predicted at this stage in the proceeding. 10 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Prior to completing the Merger on March 16, 1999 (see Item 1, Business-in this report), the Company's Common Stock, par value $.01 per share (the "Common Stock"), was listed on the American Stock Exchange under the symbol "BUS." The following table sets forth the high and low sale prices for the Company's Common Stock during the periods indicated as reported by the American Stock Exchange: HIGH LOW ---- --- First Quarter 1998................................. $ 5 3/4 $ 3 9/16 Second Quarter 1998................................ 6 7/8 4 3/8 Third Quarter 1998................................. 6 3/16 3 5/8 Fourth Quarter 1998................................ 6 1/16 3 3/8 January 1, 1999 - March 16, 1999................... $ 6 1/2 $ 5 3/4 HOLDERS The number of shares of Common Stock outstanding as of March 15, 2000, was 58,743,069. As a result of the Merger, Laidlaw is the sole record holder of the Company's Common Stock. DIVIDENDS The Company had not paid any dividends on its Common Stock during the last three years. 11 12 ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS GENERAL Greyhound is the only nationwide provider of scheduled intercity bus transportation services in the United States. The Company's primary business consists of scheduled passenger service, package express service and food services at certain terminals, which accounted for 84.8%, 4.2% and 4.3%, respectively, of the Company's total operating revenues for 1999. The Company's operations include a nationwide network of terminal and maintenance facilities, a fleet of 2,883 buses and approximately 1,800 sales outlets. RESULTS OF OPERATIONS The following table sets forth the Company's results of operations as a percentage of total operating revenue for 1999, 1998 and 1997:
YEARS ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 ------ ------- ------- Operating Revenues Transportation Services Passenger services .................. 84.8% 86.0% 85.4% Package express ..................... 4.2 4.0 4.6 Food services .......................... 4.3 3.7 3.8 Other operating revenues ............... 6.7 6.3 6.2 ----- ----- ----- Total Operating Revenues ........ 100.0 100.0 100.0 ----- ----- ----- Operating Expenses Maintenance ............................ 9.9 9.9 10.0 Transportation ......................... 23.9 23.8 24.3 Agents' commissions and station costs .. 18.7 18.4 18.3 Marketing, advertising and traffic ..... 3.4 3.2 3.5 Insurance and safety ................... 5.5 5.9 5.9 General and administrative ............. 12.9 11.8 11.8 Depreciation and amortization .......... 4.8 4.3 4.1 Operating taxes and licenses ........... 6.5 6.7 6.7 Operating rents ........................ 8.5 7.8 7.7 Cost of goods sold - Food services ..... 2.8 2.4 2.5 Other operating expenses ............... 0.3 0.3 0.4 ----- ----- ----- Total Operating Expenses ........ 97.2 94.5 95.2 ----- ----- ----- Operating Income ......................... 2.8 5.5 4.8 Settlement of Stock Options .............. 2.3 0.0 0.0 Interest Expense ......................... 2.4 3.3 3.6 Income Tax Provision (Benefit) ........... (0.5) (2.1) 0.1 Minority Interest ........................ 0.2 0.1 0.0 Extraordinary Items ...................... 0.2 0.0 3.3 ----- ----- ----- Net Income (Loss) ........................ (1.8)% 4.2% (2.2)% ===== ===== =====
12 13 The following table sets forth certain operating data for the Company for 1999, 1998 and 1997. Certain statistics have been adjusted and restated from those previously published to provide consistent comparisons.
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---------- ---------- ---------- Regular Service Miles (000's).............................................. 339,752 316,045 285,689 Total Bus Miles (000's).................................................... 347,392 323,393 291,537 Passenger Miles (000's).................................................... 8,739,219 7,820,225 7,049,637 Passengers Carried (000's)................................................. 24,698 22,552 19,893 Load (avg. number of passengers per regular service mile).................. 25.7 24.7 24.7 Load Factor (% of available seats filled).................................. 52.9% 52.3% 52.6% Yield (regular route revenue/passenger mile)............................... $ 0.0896 $ 0.0931 $ 0.0934 Total Revenue Per Total Bus Mile........................................... 2.66 2.62 2.65 Operating Income Per Total Bus Mile........................................ 0.07 0.14 0.13 Cost per Total Bus Mile: Maintenance.............................................................. $ 0.262 $ 0.258 $ 0.264 Transportation........................................................... 0.635 0.622 0.642
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 The Company's results of operations include the operating results of Peoria-Rockford Bus Lines, Autobuses Americanos, Autobuses Amigos, On-Time Delivery and LSX Delivery (collectively the "acquisitions"). Peoria-Rockford Bus Lines, Autobuses Americanos and Autobuses Amigos were formed or acquired in the fourth quarter of 1998, the purchase of On-Time Delivery occurred during the first quarter of 1999 and the acquisition involving LSX Delivery occurred during the second quarter of 1999. The results for the acquisitions are included as of their respective purchase dates. Operating Revenues. Total operating revenues increased $77.5 million (or 9.2%) for the year ended December 31, 1999 compared to the same period in 1998. Acquisitions accounted for $26.9 million of this growth, resulting in internal growth of $50.6 million or 6.0%. Passenger services revenues increased $55.5 million (or 7.6%) in 1999 compared to 1998 (including $18.2 million related to the acquisitions). The increase in regular route revenues reflect the consolidated impact of a 9.5% increase in the number of passengers carried, partially offset by a 3.8% decrease in yield. The decrease in yield is a reflection of a 2.0% increase in average trip length as well as promotional pricing in the long-haul corridors to meet airline competition and stimulate demand. Package Express revenue increased $5.3 million (or 15.6%) in 1999 compared to 1998 (including $7.2 million related to acquisitions). Excluding the acquisitions, the Company experienced a $1.9 million decrease in revenue due to reduced standard product deliveries (the traditional, low-value, terminal to terminal market segment) offset somewhat by gains in same day and priority product deliveries. The declines in the standard product are a result of continued competition, as well as expanded product offerings (such as United Parcel Service's guaranteed service "brown label" product), from larger package delivery companies. In response, the Company continues to increase its focus on the same day delivery market niche through selling of priority service and the creation of new product offerings such as Daily Direct, a guaranteed same day or early overnight service. Food services revenues increased $8.0 million (or 25.7%) for the year ended December 31, 1999, compared to the same period in 1998. Food services revenues increased over the prior year due primarily to the increase in passenger traffic discussed above, and the addition of eight in-terminal restaurants that were previously concessionaire-operated Burger King locations. 13 14 Other operating revenues, consisting primarily of revenue from charter and other in-terminal sales and services, increased $8.8 million (or 16.4%) for the year ended December 31, 1999 compared to the same period in 1998. The increase was primarily due to increases in tenant income as a result of the Peter Pan Pool, initiated on January 12, 1999, which results in income to the Company for sharing its terminal space with Peter Pan. The Company also had an increase in charter service revenue of $2.4 million. Operating Expenses. Total operating expenses increased $98.8 million (or 12.4%) for the year ended December 31, 1999, compared to the same period in 1998. The increase is due primarily to increased bus miles (7.4%), increased fuel cost, higher driver wages, increased terminal salaries, increased ticket and express commissions due to higher sales, an increase in buses operated under operating leases, and $23.8 million related to the operations of the acquisitions. Maintenance costs increased $7.6 million (or 9.1%) for the year ended December 31, 1999, compared to the same period in 1998, primarily due to increased bus miles. On a per-mile basis maintenance cost increased by only 1.6%. Transportation expenses, which consist primarily of fuel costs and driver salaries, increased $19.3 million (or 9.6%) for the year ended December 31, 1999, compared to the same period in 1998, due primarily to increased bus miles, fuel costs, and contractual driver wage increases. Transportation expenses increased on a per-mile basis by 2.1% due in part to the impact of the driver wage increases and higher fuel prices in 1999 compared to the prior year, offset somewhat by the acquisitions which generally have lower driver wages on a per-mile basis. During 1999 the average cost per gallon of fuel increased to $0.61 per gallon, compared to $0.53 per gallon in 1998, resulting in increased fuel cost of $4.9 million during 1999. Agents' commissions and station costs increased $17.3 million (or 11.1%) for the year ended December 31, 1999, compared to the same period in 1998, primarily due to commissions from increased ticket sales, terminal salaries associated with staffing for the increase in passengers, terminal salary raises and the inclusion of the acquisitions. Additionally, the Peter Pan Pool increased terminal wages as the increase in sales resulted in increased staffing needs. Income from the Peter Pan Pool that offsets these costs is reflected in other operating revenue. As a result, agents' commissions and station costs increased slightly as a percentage of total operating revenues. Marketing, advertising and traffic expenses increased $4.0 million (or 14.5%) for the year ended December 31, 1999, compared to the same period in 1998, increasing slightly as a percentage of total operating revenues. The increase as a percentage of revenue is principally due to higher advertising rates. Insurance and safety costs increased $1.4 million (or 2.9%) for the year ended December 31, 1999, compared to the same period in 1998, due primarily to increased bus miles and the inclusion of the acquisitions. Insurance and safety costs decreased slightly as a percentage of revenue. General and administrative expenses increased $19.6 million (or 19.6%) for the year ended December 31, 1999, compared to the same period in 1998, primarily due to the increase in revenues, $4.9 million of expenses associated with remediation of the Company's computer systems related to the Year 2000 issue and $2.9 million of costs related to the Merger, which were primarily comprised of severance payments. Depreciation and amortization expense increased $8.1 million (or 22.2%) for the year ended December 31, 1999, compared to the same period in 1998, primarily due to increased capital expenditures in the current and prior period, and goodwill amortization attributable to the acquisitions. Operating taxes and license costs increased $3.1 million (or 5.5%) for the year ended December 31, 1999, compared to the same period in 1998, primarily due to increased payroll taxes resulting from increased salaries and head-counts related to higher business volume (including increased miles operated), increased fuel taxes due to increased miles and the inclusion of the acquisitions. 14 15 Operating rents increased $12.5 million (or 19.0%) for the year ended December 31, 1999, compared to the same period in 1998, primarily due to an increase in facilities rents and the number of buses leased under operating leases and the inclusion of the acquisitions. The Peter Pan Pool resulted in an increase in facility rents for which the Company receives income, reflected in other operating revenue, as an offset. Food services and related cost of goods sold increased $5.4 million (or 26.1%) for the year ended December 31, 1999, compared to the same period in 1998, primarily due to the 25.7% increase in food services revenues for the same period. As a result of the Merger, the Company incurred $21.3 million in charges related to the settlement of the Company's outstanding stock options. Interest expense decreased $5.9 million (or 21.2%) for the year ended December 31, 1999, compared to the same period in 1998. The decrease is the result of a lower outstanding balance on the Company's Revolving Credit Facility through March 16, 1999. Additionally, on March 17, 1999, subsequent to the Merger, all amounts outstanding under the revolving credit facility were paid and the revolving credit facility was terminated. In 1999, the Company recorded an extraordinary loss of $1.9 million, net of tax benefit of $1.0 million, related to the termination of the Company's Revolving Credit Facility. The amount represents the write-off of previously incurred debt issuance costs that were being amortized over the life of the revolving credit facility. LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity requirements are to provide working capital, to finance capital expenditures, including bus acquisitions, to meet debt service requirements, including the payment of interest on the 11 1/2% Senior Notes and to pay dividends and amounts due to the remaining holders of the Company's redeemable preferred stock. The Company's principal sources of liquidity are expected to be cash flow from operations and funds provided by Laidlaw. The Company believes that its cash flow from operations, together with funds provided by Laidlaw will be sufficient to meet its liquidity needs. Net cash provided by operating activities was $74.9 million, $46.1 million and $49.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. The increase in cash provided by operating activities in 1999 is principally due to the $45.8 million reduction in insurance and security deposits which were obtained following the Merger with Laidlaw, partially offset by the $21.3 million payment for settlement of stock options. Net cash used for investing activities was $81.2 million, $47.4 million and $80.8 million for 1999, 1998 and 1997, respectively, principally due to capital expenditures, consisting primarily of acquisitions of buses and real estate and facility improvements, totaling $78.9 million, $33.7 million and $45.1 million for 1999, 1998 and 1997, respectively. Additionally, cash used for investing activities includes payments relating to the acquisitions of $7.5 million in 1999, $10.9 million in 1998 and $40.1 million in 1997. Net cash provided by financing activities was $9.8 million, $4.0 million and $32.1 million for 1999, 1998 and 1997, respectively. As a part of its operating strategy, the Company anticipates continuing to make significant capital expenditures in connection with improvements to its infrastructure, including acquiring buses, making improvements to its terminals and maintaining and upgrading its computer systems. The Company's experience indicates that as the age of its bus fleet increases, the dependability and quality of service declines, which may make the Company less competitive. In addition, the Company believes that acquiring new buses and improving the Company's terminals and computer systems will permit the Company to continue to improve customer service. COMPUTER SYSTEMS / YEAR 2000 READINESS Some computers, software, and other equipment include computer code in which calendar year data is abbreviated to only two digits. As a result of this design decision, some of these systems could fail to operate or fail to produce correct results if "00" is interpreted to mean 1900, rather than 2000. These problems are commonly 15 16 referred to as the "Year 2000 Problem." Although only minor problems were observed in systems operated by the Company during the transition from 1999 to 2000, Company management continues to believe that it is not possible to determine with complete certainty that all Year 2000 Problems that could affect the Company have been identified or resolved. The number of devices that could be affected and the interactions among these devices are simply too numerous. It is possible that additional problems could occur later this year as month end, quarter end and year-end processes are executed. As a result, the Company is continuing to review and monitor systems it believes could be affected and to take precautions as appropriate. The Company believes that it has identified substantially all of the major computers, software applications, and related equipment used in connection with its internal operations that had to be modified, upgraded, or replaced to minimize the possibility of a material disruption to its business. The Company estimates the total costs of completing modifications, upgrades, or replacements to internal systems is $14.4 million, most of which was incurred during 1999 and 1998. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about the Company's market risk includes "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from these projections. The Company is currently exposed to market risk from changes in commodity prices for fuel and investment prices. In addition, the Company has market risk related to its put/call agreement for certain buses owned by the Company. The Company does not use derivative instruments to mitigate market risk, nor does the Company use market risk sensitive instruments for speculative or trading purposes. COMMODITY PRICES. The Company currently has exposure to commodity risk from its fuel inventory and its advance purchase commitments for fuel. The Company has fuel inventory at December 31, 1999, at a carrying value of $1.0 million. The Company's fuel inventory is used in operations before a change in the market price of fuel could have a material effect on the Company's results of operation. Additionally, the Company has entered into an advance purchase commitment for fuel whereby the Company has agreed to take delivery of 252,000 gallons during January 2000 for a fixed price of $167,000. A 10% increase or decrease in the cost of fuel would not have a material effect on this commitment, or the Company's financial position, annual results of operations or cash flows. INVESTMENT PRICES. The Company currently has exposure in the market price of investments in its available for sale securities. At December 31, 1999, the Company has approximately $5.2 million of investments classified as available for sale and a 10% decrease in the market price would not have a material effect on the Company's financial position. As required by GAAP, we have reported these investments at fair value, with any unrecognized gains or losses excluded from earnings and reported in a separate component of stockholders' equity. MARKET RISK. The Company negotiated a put/call agreement whereby the Company prearranged the sale of certain buses. This agreement allows the Company to put these buses to the contracting party for $3.2 million during January 2001 or allows the contracting party to call these buses for $3.9 million during January 2001. A 10% decrease in the market value of these buses would result in a market value that is lower than the call price, but higher than the put price, and thus have no effect on the Company. A 10% increase in market value would result in a market value that is greater than the call price and could, therefore, limit the proceeds the Company would have otherwise received from the disposal of these units by an immaterial amount. INTEREST RATE SENSITIVITY. The table below presents principal cash flows and related weighted average interest rates by contractual maturity dates as of December 31, 1999 Long Term Debt:
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE ---- ---- ---- ---- ---- ---------- ----- ---------- Fixed Rate Debt (in thousands) $5,671 $5,002 $4,672 $7,087 $ 442 $157,378 $180,252 $197,866 Average Interest Rate 9.23% 9.32% 10.44% 10.23% 13.24% 11.42% 11.22% --
16 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO. -------- Management Report on Responsibility for Financial Reporting ....................................... 18 Reports of Independent Public Accountants.......................................................... 19 Consolidated Statements of Financial Position as of December 31, 1999 and 1998..................... 21 Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998, and 1997........ 22 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998, and 1997...................................................................................... 23 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997........ 24 Notes to Consolidated Financial Statements......................................................... 25 Schedule II - Valuation and Qualifying Accounts - For the Years Ended December 31, 1999, 1998, and 1997...................................................................................... 42
17 18 MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING The management of Greyhound Lines, Inc. and its subsidiaries (the "Company") has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis and are not misstated due to fraud or material error. The financial statements include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the annual report on Form 10-K and is responsible for its accuracy and consistency with the financial statements. The Company's consolidated financial statements have been audited by PricewaterhouseCoopers LLP as of and for the year ended December 31, 1999, and by Arthur Andersen LLP as of December 31, 1998 and for the years ended December 31, 1998 and 1997 (the "Independent Public Accountants"). Management has made available to the Independent Public Accountants all the Company's financial records and related data, as well as the minutes of the stockholders' and directors' meetings. Furthermore, management believes that all representations made to the Independent Public Accountants during their audits were valid and appropriate. Management of the Company has established and maintains a system of internal control that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting. The system of internal control provides for appropriate division of responsibility and is documented by written policies and procedures that are communicated to employees with significant roles in the financial reporting process and updated as necessary. Management continually monitors the internal control system for compliance. The Company maintains an internal auditing program that independently assesses the effectiveness of the internal controls and recommends possible improvements thereto. In addition, as part of their audits of the Company's consolidated financial statements, the Independent Public Accountants considered the Company's system of internal control to the extent they deemed necessary to determine the nature, timing and extent of audit tests to be applied. Management has considered the internal auditors' and Independent Public Accountants' recommendations concerning the Company's system of internal control and has taken actions that the Company believes respond appropriately to these recommendations. Management believes that the Company's system of internal control is adequate to accomplish the objectives discussed herein. Management also recognizes its responsibility for fostering a strong ethical climate so that the Company's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the Company's code of corporate conduct, which is publicized throughout the Company. The code of conduct addresses, among other things, the necessity of ensuring open communication within the Company; potential conflicts of interests; compliance with all domestic and foreign laws, including those relating to financial disclosure; and the confidentiality of proprietary information. The Company maintains a systematic program to assess compliance with these policies. Jeffrey W. Sanders Senior Vice President and Chief Financial Officer (Principal Financial Officer) Cheryl W. Farmer Vice President and Controller (Principal Accounting Officer) Dallas, Texas March 24, 2000 18 19 REPORT OF INDEPENDENT ACCOUNTANTS To Greyhound Lines, Inc: In our opinion, the consolidated financial statements listed in the accompanying index, present fairly, in all material respects, the financial position of Greyhound Lines, Inc. and its subsidiaries at December 31, 1999, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein for the year ended December 31, 1999 when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Dallas, Texas March 24, 2000 19 20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Greyhound Lines, Inc.: We have audited the accompanying consolidated statement of financial position of Greyhound Lines, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Greyhound Lines, Inc. and subsidiaries as of December 31, 1998, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index at Item 8 (Schedule II) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The financial data for each of the two years in the period ended December 31, 1998, included in this schedule, has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Dallas, Texas February 15, 1999 (except with respect to the merger of Greyhound Lines, Inc. and subsidiaries with Laidlaw, Inc. as discussed in Note 1, as to which the date is March 16, 1999) 20 21 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, -------------------------- 1999 1998 ----------- ----------- Current Assets Cash and cash equivalents ....................................................... $ 8,295 $ 4,736 Accounts receivable, less allowance for doubtful accounts of $402 and $198 ...... 46,830 40,774 Inventories, less allowance for shrinkage of $226 and $205 ...................... 7,494 5,705 Prepaid expenses ................................................................ 5,694 5,170 Assets held for sale ............................................................ 4,545 3,029 Current portion of deferred tax assets .......................................... 12,864 24,053 Other current assets ............................................................ 1,851 9,907 ----------- ----------- Total Current Assets ...................................................... 87,573 93,374 Prepaid Pension Plans .............................................................. 29,983 27,917 Property, Plant and Equipment, net of accumulated depreciation of $173,273 and $151,468 ................................................................... 397,077 362,417 Investments in Unconsolidated Affiliates ........................................... 16,028 13,560 Deferred Income Taxes .............................................................. 14,711 8,988 Insurance and Security Deposits .................................................... 22,220 67,908 Goodwill, net of accumulated amortization of $3,523 and $1,755 ..................... 45,384 39,510 Intangible Assets, net of accumulated amortization of $31,825 and $28,503 .......... 25,821 29,704 ----------- ----------- Total Assets .............................................................. $ 638,797 $ 643,378 =========== =========== Current Liabilities Accounts payable ............................................................... $ 23,824 $ 27,724 Due to Laidlaw ................................................................. 42,560 -- Accrued liabilities ............................................................ 76,367 64,819 Unredeemed tickets ............................................................. 11,956 12,143 Current portion of reserve for injuries and damages ............................ 1,473 22,967 Current maturities of long-term debt ........................................... 5,671 7,970 ----------- ----------- Total Current Liabilities ................................................. 161,851 135,623 Reserve for Injuries and Damages ................................................... 5,840 37,392 Long-Term Debt, net ................................................................ 174,581 225,688 Minority Interests ................................................................. 4,233 3,058 Other Liabilities .................................................................. 22,432 23,604 ----------- ----------- Total Liabilities ......................................................... 368,937 425,365 Redeemable Preferred Stock (2,400,000 shares authorized and 1,678,150 shares issued as of December 31, 1999) ........................................... 41,954 -- Commitments and Contingencies (Notes 15 and 16) Stockholders' Equity Preferred Stock (10,000,000 shares authorized as of December 31,1998; par value $.01) 8 1/2% Convertible Exchangeable Preferred Stock (2,760,000 shares authorized and 2,400,000 shares issued as of December 31, 1998) ........... -- 60,000 Series A Junior Preferred Stock (1,500,000 shares authorized as of December 31, 1998; par value $.01; none issued) ........................... -- -- Common Stock (100,000,000 shares authorized; 58,743,069 and 60,255,117 shares issued as of December 31, 1999 and 1998, respectively; par value $.01) ............................................................... 587 603 Treasury Stock, at cost (109,192 shares as of December 31, 1998) .............. -- (1,038) Capital in Excess of Par Value ................................................ 322,026 237,441 Accumulated Other Comprehensive Loss, net of tax benefit of $1,360 and $3,181 .......................................................... (2,525) (7,232) Retained Deficit .............................................................. (92,182) (71,761) ----------- ----------- Total Stockholders' Equity ................................................ 227,906 218,013 ----------- ----------- Total Liabilities and Stockholders' Equity ................................ $ 638,797 $ 643,378 =========== ===========
The accompanying notes are an integral part of these statements. 21 22 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Operating Revenues Transportation services Passenger services ........................................ $ 783,299 $ 727,786 $ 658,396 Package express ........................................... 39,051 33,790 35,676 Food services ............................................... 39,124 31,127 29,611 Other operating revenues .................................... 62,057 53,293 47,439 ----------- ----------- ----------- Total Operating Revenues .............................. 923,531 845,996 771,122 ----------- ----------- ----------- Operating Expenses Maintenance ................................................. 90,999 83,444 77,022 Transportation .............................................. 220,477 201,190 187,311 Agents' commissions and station costs ....................... 173,091 155,799 141,100 Marketing, advertising and traffic .......................... 31,325 27,349 26,860 Insurance and safety ........................................ 51,178 49,748 45,860 General and administrative .................................. 119,396 99,836 91,307 Depreciation and amortization ............................... 44,396 36,332 31,259 Operating taxes and licenses ................................ 59,818 56,703 51,511 Operating rents ............................................. 78,222 65,756 59,105 Cost of goods sold - Food services .......................... 26,045 20,656 19,631 Other operating expenses .................................... 3,054 2,352 3,050 ----------- ----------- ----------- Total Operating Expenses .............................. 898,001 799,165 734,016 ----------- ----------- ----------- Operating Income ............................................... 25,530 46,831 37,106 Settlement of Stock Options .................................... 21,294 -- -- Interest Expense ............................................... 21,993 27,899 27,657 ----------- ----------- ----------- Net Income (Loss) Before Income Taxes .......................... (17,757) 18,932 9,449 Income Tax Provision (Benefit) ................................. (4,612) (16,856) 1,051 Minority Interests ............................................. 1,278 556 -- ----------- ----------- ----------- Net Income (Loss) Before Extraordinary Items ................... (14,423) 35,232 8,398 Extraordinary Items (net of a tax benefit of $1,021 and $0) .... 1,897 -- 25,323 ----------- ----------- ----------- Net Income (Loss) .............................................. $ (16,320) $ 35,232 $ (16,925) =========== =========== ===========
The accompanying notes are an integral part of these statements. 22 23 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
PREFERRED STOCK COMMON STOCK TREASURY STOCK SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT --------- --------- --------- --------- --------- --------- BALANCE, JANUARY 1, 1997 ............................. -- $ -- 58,469 $ 585 109 $(1,038) Issuance of stock in connection with employee benefit plans ............................ -- -- 801 7 -- -- Issuance of preferred stock .......................... 2,400 60,000 -- -- -- -- Dividends on preferred stock ......................... -- -- -- -- -- -- Acquisition of Carolina .............................. -- -- 168 2 -- -- Benefit of pre-bankruptcy deferred tax assets ........ -- -- -- -- -- -- Comprehensive Income (Loss): Adjustment for unfunded accumulated pension obligation .............. -- -- -- -- -- -- Net Loss ........................................ -- -- -- -- -- -- Total Comprehensive (Loss) ............. --------- --------- --------- --------- --------- --------- BALANCE, DECEMBER 31, 1997 ........................... 2,400 60,000 59,438 594 109 (1,038) Issuance of stock in connection with employee benefit plans including tax benefit of $844 .................... -- -- 817 9 -- -- Dividends on preferred stock ......................... -- -- -- -- -- -- Benefit of pre-bankruptcy deferred tax assets ........ -- -- -- -- -- -- Comprehensive Income (Loss): Market value adjustment for securities held ....... -- -- -- -- -- -- Adjustment for unfunded accumulated pension obligation, net of tax of $857 ........ -- -- -- -- -- -- Deferred tax benefit on prior years unfunded accumulated pension obligation ....... -- -- -- -- -- -- Net Income ........................................ -- -- -- -- -- -- Total Comprehensive Income .................... --------- --------- --------- --------- --------- --------- BALANCE, DECEMBER 31, 1998 ........................... 2,400 60,000 60,255 603 109 (1,038) Reclassification of preferred stock due to Merger .... (2,400) (60,000) Issuance of stock in connection with employee benefits plans ........................... -- -- 6 -- -- -- Dividends on preferred stock ......................... -- -- -- -- -- -- Purchase and cancellation of shares .................. -- -- (1,518) (16) (109) 1,038 Redemption of preferred stock ........................ -- -- -- -- -- -- Issuance of stock to Laidlaw ......................... -- -- -- -- -- -- Comprehensive Income (Loss): Market value adjustment for securities held ....... -- -- -- -- -- -- Adjustment for unfunded accumulated pension obligation, net of tax of $1,821 ...... -- -- -- -- -- -- Net Loss .......................................... -- -- -- -- -- -- Total Comprehensive (Loss) .................... --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- BALANCE, DECEMBER 31, 1999 ........................... -- $ -- 58,743 $ 587 -- $ -- ========= ========= ========= ========= ========= ========= ACCUMULATED CAPITAL IN OTHER TOTAL EXCESS OF RETAINED COMPREHENSIVE COMPREHENSIVE PAR VALUE DEFICIT LOSS INCOME (LOSS) ---------- --------- ------------- ------------- BALANCE, JANUARY 1, 1997 ............................. $ 229,103 $ (81,236) $ (6,533) $ Issuance of stock in connection with employee benefit plans ............................ 1,385 -- -- -- Issuance of preferred stock .......................... (2,440) -- -- -- Dividends on preferred stock ......................... -- (3,648) -- -- Acquisition of Carolina .............................. 748 -- -- -- Benefit of pre-bankruptcy deferred tax assets ........ 569 -- -- -- Comprehensive Income (Loss): Adjustment for unfunded accumulated pension obligation .............. -- -- (980) (980) Net Loss ........................................ -- (16,925) -- (16,925) --------- Total Comprehensive (Loss) ............. $ (17,905) ---------- --------- ------------- ========= BALANCE, DECEMBER 31, 1997 ........................... 229,365 (101,809) (7,513) Issuance of stock in connection with employee benefit plans including tax benefit of $844 .................... 3,785 -- -- $ -- Dividends on preferred stock ......................... -- (5,184) -- -- Benefit of pre-bankruptcy deferred tax assets ........ 4,291 -- -- -- Comprehensive Income (Loss): Market value adjustment for securities held ....... -- -- (682) (682) Adjustment for unfunded accumulated pension obligation, net of tax of $857 ........ -- -- (1,361) (1,361) Deferred tax benefit on prior years unfunded accumulated pension obligation ....... -- -- 2,324 2,324 Net Income ........................................ -- 35,232 -- 35,232 --------- Total Comprehensive Income .................... $ 35,513 ---------- --------- ------------- ========= BALANCE, DECEMBER 31, 1998 ........................... 237,441 (71,761) (7,232) Reclassification of preferred stock due to Merger .... Issuance of stock in connection with employee benefits plans ........................... (108) -- -- $ -- Dividends on preferred stock ......................... -- (4,101) -- -- Purchase and cancellation of shares .................. (267,953) -- Redemption of preferred stock ........................ (6,012) -- -- -- Issuance of stock to Laidlaw ......................... 358,658 -- -- -- Comprehensive Income (Loss): Market value adjustment for securities held ....... -- -- 682 682 Adjustment for unfunded accumulated pension obligation, net of tax of $1,821 ...... -- -- 4,025 4,025 Net Loss .......................................... -- (16,320) -- (16,320) --------- Total Comprehensive (Loss) .................... $ (11,613) ---------- --------- ------------- ========= ---------- BALANCE, DECEMBER 31, 1999 ........................... $ 322,026 $ (92,182) $ (2,525) ========== ========= =============
The accompanying notes are an integral part of these statements. 23 24 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Cash Flows From Operating Activities Net Income (Loss) ....................................................... $ (16,320) $ 35,232 $ (16,925) Extraordinary items ..................................................... 1,897 -- 25,323 Non-cash expenses and gains included in net income (loss) Depreciation and amortization ......................................... 44,396 36,332 31,259 Other non-cash expenses and gains, net ................................ 2,337 (19,134) 1,618 Net Change in Certain Operating Assets and Liabilities Accounts receivable ................................................... (4,855) (4,121) (1,099) Inventories ........................................................... (1,789) (1,032) (278) Prepaid expenses ...................................................... (482) 273 5,359 Other current assets .................................................. 8,052 1,608 (261) Insurance and security deposits ....................................... 45,828 3,042 3,838 Intangible assets ..................................................... (4,583) (5,911) (11,610) Accounts payable ...................................................... (3,964) (5,469) 6,798 Due to Laidlaw ........................................................ 18,566 -- -- Accrued liabilities ................................................... 13,985 (545) 7,335 Reserve for injuries and damages ...................................... (28,350) 1,985 (1,999) Unredeemed tickets .................................................... (186) 1,817 501 Other liabilities ..................................................... 415 2,012 (16) ---------- ---------- ---------- Net Cash Provided by Operating Activities .......................... 74,947 46,089 49,843 ---------- ---------- ---------- Cash Flows From Investing Activities Capital expenditures .................................................. (78,915) (33,706) (45,114) Proceeds from assets sold ............................................. 6,052 3,935 6,547 Payments for business acquisitions, net of cash acquired .............. (7,491) (10,924) (40,104) Other investing activities ............................................ (796) (6,753) (2,146) ---------- ---------- ---------- Net Cash Used for Investing Activities ............................. (81,150) (47,448) (80,817) ---------- ---------- ---------- Cash Flows From Financing Activities Payments on debt and capital lease obligations ........................ (11,919) (5,730) (20,297) Redemption of Preferred Stock ......................................... (24,058) -- -- Proceeds from issuance of Common Stock to Laidlaw ..................... 358,658 -- -- Purchase of Common Stock from Laidlaw ................................. (266,931) -- -- Proceeds from 11 1/2% Senior Notes and Preferred Stock Issuance ...... -- -- 203,031 Redemption of 10% Senior Notes ........................................ -- -- (161,022) Redemption of 8 1/2% Debentures ....................................... (3,740) -- -- Payment of Preferred Stock dividends .................................. (4,355) (5,184) (2,784) Retirement of interest swap ........................................... -- -- (3,010) Issuance of Common Stock in connection with employee benefit plans .... (108) 2,950 1,097 Net change in revolving credit facility ............................... (37,785) 12,007 15,113 ---------- ---------- ---------- Net Cash Provided by Financing Activities .......................... 9,762 4,043 32,128 ---------- ---------- ---------- Net Increase in Cash and Cash Equivalents .................................. 3,559 2,684 1,154 Cash and Cash Equivalents, Beginning of Year ............................... 4,736 2,052 898 ---------- ---------- ---------- Cash and Cash Equivalents, End of Year ..................................... $ 8,295 $ 4,736 $ 2,052 ========== ========== ==========
The accompanying notes are an integral part of these statements. 24 25 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 1. BACKGROUND AND OPERATING ENVIRONMENT Greyhound Lines, Inc. and subsidiaries (the "Company") is the only nationwide provider of scheduled intercity bus service in the United States. The Company provides various services including scheduled passenger service, package express service and food service at certain terminals. The Company's operations include a nationwide network of terminal and maintenance facilities, a fleet of 2,883 buses and approximately 1,800 sales outlets. The Company's operating subsidiaries include Texas, New Mexico & Oklahoma Coaches, Inc. ("TNM&O"), Vermont Transit Co., Inc. ("Vermont Transit"), Carolina Coach Company ("Carolina"), Valley Transit Co., Inc., Sistema Internacional de Transporte de Autobuses, Inc., On-Time Delivery Service, Inc., LSX Delivery, L.L.C., and Peoria Rockford Bus Lines, LLC. The Company is subject to regulation by the Department of Transportation (the "DOT") and certain states. On March 16, 1999, the Company's stockholders approved the Agreement and Plan of Merger with Laidlaw Inc. ("Laidlaw") and Laidlaw Transit Acquisition Corp. ("Laidlaw Transit"), a wholly owned subsidiary of Laidlaw), pursuant to which Laidlaw Transit was merged with and into the Company (the "Merger"), with the Company, as the surviving corporation, becoming a wholly owned subsidiary of Laidlaw. The consolidated financial statements of the Company do not reflect any purchase accounting adjustments relating to the Merger. As a result of the Merger, the Company incurred $21.3 million in charges related to the settlement of the Company's outstanding stock options. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company. Investments in companies that are 20% to 50% owned ("affiliates") are accounted for using the equity method. All significant intercompany transactions and balances have been eliminated. Certain Reclassifications Certain reclassifications have been made to the prior period statements to conform them to the current year presentation. Cash and Cash Equivalents Cash and cash equivalents include short-term investments that are part of the Company's cash management portfolio. These investments are highly liquid and have original maturities of three months or less. Inventories Inventories are stated at the lower of cost or market, with costs determined using the weighted average method. 25 26 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Property, Plant and Equipment Property, plant and equipment, including capitalized leases, are recorded at cost, including interest during construction, if any. Depreciation is recorded over the estimated useful lives or lease terms and range from three to twenty years for structures and improvements, four to eighteen years for revenue equipment, and five to ten years for all other items. The Company principally uses the straight-line method of depreciation for financial reporting purposes and accelerated methods for tax reporting purposes. Maintenance costs are expensed as incurred, and renewals and betterments are capitalized. Investments and Security Deposits At December 31, 1998, the Company held one equity investment that was classified as an "available-for-sale" investment. Any unrealized holding gains or losses, net of taxes, were excluded from operating results and were recognized as a separate component of stockholders' equity until realized. This investment had an unrealized loss at December 31, 1998 of $0.7 million, which was recognized in stockholders' equity. During 1999, this investment ceased trading on a national exchange and accordingly, the Company reversed the unrealized losses which had been recognized in stockholders' equity and is now accounting for this investment on the historical cost basis which is less than the estimated fair value. At December 31, 1998, security deposits consisting of debt securities were recorded at cost plus earned interest, as it was the intent of the Company to hold these securities until maturity. As a result, the temporary gains and losses associated with the change in market value of these securities were excluded from operating results or stockholders' equity. As a result of a change in investment strategy following the Merger, the Company no longer intends to hold these securities to maturity and, during 1999, the Company started classifying these securities as "available-for-sale." Goodwill Goodwill represents the excess of cost over fair value of assets acquired related to the acquisition of regional bus carriers and courier companies as prescribed by the purchase method of accounting. The Company is amortizing goodwill on a straight-line basis over a 20 to 30 year period. Debt Issuance Costs Costs incurred related to the issuance of debt are deferred, and such costs are amortized to interest expense over the life of the related debt. Software Development Costs Direct costs of materials and services consumed in developing or obtaining internal use software and certain payroll costs for employees directly associated with internal use software projects are capitalized. Amortization of these costs begins when the software is available for its intended use and is recognized on a straight-line basis over 5 years. 26 27 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Reserve for Injuries and Damages The Company maintains comprehensive automobile liability, general liability, workers' compensation and property insurance to insure its assets and operations. Following the Merger, the Company began to purchase its insurance through Laidlaw with coverage subject to a $50,000 deductible for property damage claims and no deductible for all other claims. As a result, the Company requires no insurance reserve associated with claims arising after March 16, 1999. Additionally, on December 31, 1999 the Company transferred liability for all known and unknown claims, and all related insurance reserves, associated with the period prior to March 16, 1999 to Laidlaw for which Laidlaw received compensation in an amount equal to the book value of the reserves. Prior to the Merger, automobile and general liability insurance coverages were subject to a $1.5 million deductible per occurrence. The Company also maintained property insurance subject to a $0.1 million deductible per occurrence, and workers' compensation insurance subject to a $1.0 million deductible per occurrence. A reserve for injuries and damages had been established for these claim payments. The reserve at December 31, 1998, was based on an assessment of actual claims and claims incurred but not reported, based upon historical experience, and were discounted at 8.75%. This reserve also includes an estimate of environmental liabilities. The environmental reserve includes all sites identified for potential clean-up and/or remediation and represents the present value of estimated cash flows discounted at 8.0%. Revenue Recognition Transportation revenue is recognized when the service is provided. A liability for tickets sold but not used is recorded as unredeemed tickets on the Consolidated Statements of Financial Position. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Long-Lived Assets The Company periodically evaluates whether the remaining useful life of long-lived assets may require revision or whether the remaining unamortized balance is recoverable. When factors indicate that an asset should be evaluated for possible impairment, the Company uses an estimate of the asset's undiscounted cash flows in assessing for a possible impairment. 3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES Cash paid for interest was $22.3 million, $26.3 million and $29.4 million for the years ended December 31, 1999, 1998 and 1997, respectively. There were no cash payments for federal income taxes for the years ended December 31, 1999, 1998 and 1997. Significant non-cash investing and financing activities during 1999 included a sale of property in exchange for a $2 million note receivable payable in 2000. In 1998, non-cash activity included a garage that was acquired under a capital lease for $1.0 million. In 1997, non-cash activity included $0.9 million primarily related to stock issued in July 1997 for consideration in the purchase of Carolina. 27 28 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 4. INVENTORIES Inventories consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1999 1998 ------- ------- Service parts........................................................... $ 4,770 $ 3,811 Fuel.................................................................... 984 631 Food service operations................................................. 1,966 1,468 ------- ------- Total Inventories.................................................... 7,720 5,910 Less: Allowance for shrinkage....................................... (226) (205) ------- ------- Inventories, net.................................................. $ 7,494 $ 5,705 ======= =======
5. PREPAID EXPENSES Prepaid expenses consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1999 1998 ------- ------- Insurance............................................................... $ -- $ 813 Taxes and licenses...................................................... 3,521 1,645 Rents................................................................... 1,238 1,493 Other................................................................... 935 1,219 ------- ------- Prepaid expenses...................................................... $ 5,694 $ 5,170 ======= =======
6. OTHER CURRENT ASSETS Other current assets consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1999 1998 ------- ------- Deposits on insurance................................................... $ -- $ 8,658 Other deposits.......................................................... 289 465 Other................................................................... 1,562 784 ------- ------- Other current assets.................................................. $ 1,851 $ 9,907 ======= =======
Deposits on insurance held as of December 31, 1998 represented the current portion of self-insurance deposits required by the Company's previous primary insurance carrier to cover interstate and certain intrastate claims for bodily injury and property damage liability. As a result of the Company's change in insurance coverage following the Merger, these deposits were no longer required and returned to the Company. 28 29 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 7. BENEFIT PLANS Pension Plans The Company has nine defined benefit pension plans. The first plan (the "ATU Plan") covers certain of the Company's hourly employees hired before November 1, 1983. The ATU Plan provides normal retirement benefits to the covered employees based upon a percentage of average final earnings, reduced pro rata for service of less than 15 years. Participants in this plan will continue to accrue benefits as long as no contributions are due from the Company. In the event a contribution is required, the plan benefits will be frozen until such time as the assets of the plan exceed 115% of the plan liabilities. The second plan covered salaried employees through May 7, 1990, when the plan was curtailed. The third plan is a multi-employer pension plan, instituted in 1992, to cover certain union mechanics represented by the International Association of Machinists and Aerospace Workers. The remaining six plans are held by TNM&O, Vermont Transit, and Carolina and cover substantially all of their salaried and hourly personnel. It is the Company's policy to fund the minimum required contribution under existing laws.
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 ----------- ----------- CHANGE IN BENEFIT OBLIGATION: (IN THOUSANDS) Benefit Obligation at Beginning of Year................................. $ 749,372 $ 729,421 Service Cost............................................................ 5,309 4,614 Interest Cost........................................................... 50,605 51,011 Plan Participants' Contributions........................................ 210 137 Plans Transferred due to Acquisition.................................... - 922 Actuarial Gain.......................................................... 9,922 43,649 Benefits Paid........................................................... (79,280) (80,382) ----------- ----------- Benefit Obligation at End of Year....................................... $ 736,138 $ 749,372 ----------- ----------- CHANGE IN PLAN ASSETS: Fair Value of Plan Assets at Beginning of Year.......................... $ 810,160 $ 820,168 Actual Return on Plan Assets............................................ 61,699 67,340 Employer Contribution................................................... 2,677 2,219 Plans Transferred due to Acquisition.................................... - 612 Plan Participants' Contributions........................................ 210 203 Benefits Paid........................................................... (79,280) (80,382) ----------- ----------- Fair Value of Plan Assets at End of Year................................ $ 795,466 $ 810,160 ----------- ----------- Funded Status........................................................... $ 59,328 $ 60,788 Unrecognized Net Gain................................................... (27,291) (32,333) ----------- ----------- Prepaid Benefit Cost (Net Amount Recognized)............................ $ 32,037 $ 28,455 =========== ===========
29 30
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 ----------- ----------- AMOUNTS RECOGNIZED IN THE STATEMENTS OF FINANCIAL POSITION: (IN THOUSANDS) Prepaid Benefit Cost.................................................... $ 31,130 $ 26,257 Accrued Benefit Liability............................................... (2,978) (7,533) Accumulated Other Comprehensive Loss.................................... 3,885 9,731 ----------- ----------- Prepaid Benefit Cost (Net Amount Recognized)............................ $ 32,037 $ 28,455 =========== ===========
As of December 31, 1999, two of the Company's pension plans have accumulated benefit obligations in excess of plan assets, for which the projected benefit obligations, accumulated benefit obligations and fair value of plan assets are $39,020, $39,020 and $38,455, respectively. As of December 31, 1998, six of the Company's pension plans have accumulated benefit obligations in excess of plan assets, for which the projected benefit obligations, accumulated benefit obligations and fair value of plan assets are $66,710, $65,916 and $56,699, respectively. As of December 31, 1999, three of the Company's pension plans have projected benefit obligations in excess of plan assets, for which the projected benefit obligations, accumulated benefit obligations and fair value of plan assets are $43,112, $42,403 and $42,548, respectively. As of December 31, 1998, seven of the Company's pension plans have projected benefit obligations in excess of plan assets, for which the projected benefit obligations, accumulated benefit obligations and fair value of plan assets are $70,876, $68,842 and $60,595, respectively. Plan assets consist primarily of government-backed securities, corporate equity securities, guaranteed insurance contracts, annuities and corporate debt obligations. In determining the benefit obligations and service costs for the Company's defined benefit pension plans, the following assumptions were used:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 ----------- ----------- WEIGHTED-AVERAGE ASSUMPTIONS FOR END OF YEAR DISCLOSURE: Weighted Average Discount Rate.......................................... 7.25-7.50% 6.75% Rate of Salary Progression.............................................. 0.00-6.00% 0.00-6.00% Expected Long-Term Rate of Return on Plan Assets........................ 7.75-9.00% 7.25-9.00%
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 ----------- ----------- COMPONENTS OF NET PERIODIC PENSION COST: (IN THOUSANDS) Service Cost............................................................ $ 5,309 $ 4,614 Interest Cost........................................................... 50,605 51,011 Expected Return on Assets............................................... (56,785) (57,507) Amortization of Actuarial (Gain) Loss................................... (34) 303 ----------- ----------- Net Periodic Pension (Income)........................................... $ (905) $ (1,579) =========== ===========
30 31 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Statement of Financial Accounting Standards No. 87, "Employers Accounting for Pensions," required the Company to record a decrease in the additional minimum liability of $4.0 million, net of a tax liability of $1.8 million as of December 31, 1999 and an increase in the additional minimum liability of $1.4 million, net of a $0.8 million tax benefit as of December 31, 1998. These amounts are reflected as a component of comprehensive income. Included in the above is a multi-employer pension plan, instituted in 1992, to cover certain union mechanics, for which the Company made contributions of $0.6 million and $0.5 million for the years ended December 31, 1999 and 1998, respectively. Cash or Deferred Retirement Plans The Company sponsors 401(k) cash or deferred retirement plans that cover substantially all of its ongoing salaried, hourly and represented employees. Costs to the Company related to these plans were $2.9 million, $1.9 million, and $1.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. Other Plans A contributory trusteed health and welfare plan has been established for all active hourly employees which are represented by collective bargaining agreements and a contributory health and welfare plan has been established for salaried employees and hourly employees who are not represented by collective bargaining agreements. For the years ended December 31, 1999, 1998 and 1997, the Company incurred costs of $21.9 million, $18.1 million, and $17.8 million, respectively, related to these plans. No post-retirement health and welfare plans exist. The Company also has a Supplemental Executive Retirement Plan (the "SERP"), which covers only key executives of the Company. During 1995, the SERP was converted from a defined benefit plan to a defined contribution plan. For the years ended December 31, 1999, 1998 and 1997, the Company incurred costs of $0.8 million, $0.6 million and $0.2 million, respectively. 8. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1999 1998 ---------- --------- Land and improvements................................................... $ 85,173 $ 90,258 Structures and improvements Owned................................................................. 120,660 111,445 Capitalized leased assets............................................. 1,395 1,626 Lease interests....................................................... 4,376 4,376 Leasehold improvements................................................ 37,633 35,417 Revenue equipment Owned................................................................. 221,990 170,506 Capitalized leased assets............................................. 23,153 36,046 Leasehold improvements................................................ 5,278 3,957 Furniture and fixtures.................................................. 57,850 49,050 Vehicles, machinery and equipment ...................................... 12,842 11,204 ---------- ---------- Property, plant and equipment........................................... 570,350 513,885 Accumulated depreciation............................................ (173,273) (151,468) ---------- ---------- Property, plant and equipment, net.............................. $ 397,077 $ 362,417 ========== ==========
31 32 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) During 1999, the Company took delivery of 353 new buses, all of which were manufactured by Motor Coach Industries, Inc. or its affiliate, Dina Autobuses, S.A. de C.V (collectively "Motor Coach"). The Company purchased 302 of these buses, and the remaining were financed as long-term operating leases. In addition, the Company purchased 147 buses from expiring leases (97 from capital and 50 from operating leases). During 1998, the Company took delivery of 293 buses, all but three of which were manufactured by Motor Coach. The Company purchased 23 of these buses and the remaining were financed as long-term operating leases. Accumulated depreciation of capitalized leased revenue equipment amounted to $5.0 million and $14.9 million at December 31, 1999, and 1998, respectively. 9. INSURANCE AND SECURITY DEPOSITS Insurance and security deposits consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1999 1998 --------- --------- Insurance deposits..................................... $ 15,270 $ 32,443 Security deposits...................................... 5,642 31,808 Other.................................................. 1,308 3,657 --------- --------- Insurance and security deposits............. $ 22,220 $ 67,908 ========= =========
Insurance deposits are required to retain the Company's self-insurance authorizations. Security deposits at December 31, 1999, include two separate deposits pledged as collateral in connection with the sale and leaseback of 125 buses. During 1999, a significant portion of the insurance and security deposits were returned to the Company as a result of the change in insurance coverage and improved credit rating following the Merger. 10. INTANGIBLE ASSETS Intangible assets consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1999 1998 --------- --------- Trademarks.......................................... $ 10,198 $ 10,198 Software............................................ 37,151 34,398 Debt issuance costs................................. 6,254 10,741 Deferred lease costs................................ 3,847 2,841 Other............................................... 196 29 --------- --------- Intangible assets................................... 57,646 58,207 Accumulated amortization.......................... (31,825) (28,503) --------- --------- Intangible assets, net.......................... $ 25,821 $ 29,704 ========= =========
Trademarks are amortized using the straight-line method over 15 years. 32 33 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 11. ACCRUED LIABILITIES Accrued liabilities consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1999 1998 --------- --------- Compensation, benefits and payroll-related taxes........................ $ 22,491 $ 20,036 Bus and property operating leases and rentals........................... 17,729 10,188 Interest................................................................ 3,971 4,288 Operating, property and income taxes.................................... 6,455 6,161 Dividends payable....................................................... 609 864 Other expenses.......................................................... 25,112 23,282 --------- --------- Accrued liabilities................................................. $ 76,367 $ 64,819 ========= =========
12. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1999 1998 --------- --------- Secured Indebtedness Revolving bank loans, prime plus 0.25% or LIBOR plus 1.75% (weighted average 7.7%) as of December 31, 1998....................... $ -- $ 37,785 Capital lease obligations (weighted average 10.7% at December 31, 1999 and 10.8% at December 31, 1998) due through 2033...................... 18,752 31,967 Real estate mortgages (weighted average 8.6% at December 31, 1999 and 9.5% at December 31, 1998) due through 2005...................... 633 623 Unsecured Indebtedness 11 1/2% Senior notes, due 2007....................................... 150,000 150,000 8 1/2% Convertible debentures, due 2007.............................. 6,064 9,804 Other long-term debt (weighted average 8.3% at December 31, 1999 and 5.6% at December 31, 1998) due through 2003...................... 4,803 3,479 --------- ---------- Long-term debt............................................................ 180,252 233,658 Less current maturities................................................. (5,671) (7,970) --------- ---------- Long-term debt, net................................................. $ 174,581 $ 225,688 ========= ==========
11 1/2% Senior Notes The Company's 11 1/2% Senior Notes due 2007 (the "11 1/2% Senior Notes") bear interest at the rate of 11 1/2% per annum, payable each April 15 and October 15. The 11 1/2% Senior Notes are redeemable at the option of the Company in whole or in part, at any time on or after April 15, 2002, at redemption prices of 105.750% in 2002, 103.834% in 2003, 101.917% in 2004 and 100% in 2005 and thereafter plus any accrued but unpaid interest. The 11 1/2% Senior Note indenture contains certain covenants that, among other things, limit the ability of the Company to incur additional indebtedness, pay dividends or make other distributions, repurchase equity interests or subordinated indebtedness, create certain liens, sell assets or enter into certain mergers or consolidations. As of December 31, 1999, the Company was in compliance with all such covenants. 8 1/2% Convertible Debentures During 1992, the Company issued $98.9 million of 8 1/2% Convertible Subordinated Debentures ("Convertible Debentures") of which $6.1 million remains outstanding as of December 31, 1999. Interest on the Convertible Debentures is payable semiannually (each March 31 and September 30). Prior to the Merger, the Convertible 33 34 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Debentures were convertible into shares of Common Stock at any time prior to maturity (unless earlier redeemed or repurchased), at a conversion rate of approximately 80.81 shares of Common Stock per $1,000 principal amount of Convertible Debentures. Following the Merger, the Convertible Debentures may be converted into $525.27 in cash per $1,000 principal amount of Convertible Debentures. At December 31, 1999, maturities of long-term debt for the next five years ending December 31 and all years thereafter, are as follows (in thousands): 2000............................................. $ 5,671 2001............................................. 5,002 2002............................................. 4,672 2003 ............................................ 7,087 2004 ............................................ 442 Thereafter....................................... 157,378 ---------- $ 180,252 ==========
For the year ended December 31, 1999, the Company recorded an extraordinary loss of $1.9 million, net of tax benefit of $1.0 million, related to the termination of the Company's revolving credit facility. The amount represents the write-off of previously incurred debt issuance costs that were being amortized over the life of the revolving credit facility. For the year ended December 31, 1997, the Company recorded an extraordinary loss of $25.3 million relating to (i) the retirement of an interest rate swap ($2.5 million), (ii) the retirement of the Company's 10% Senior Notes due 2001 ($21.3 million) and (iii) the write-off of debt issuance costs related to the refinancing of the Company's revolving credit facility ($1.5 million). 13. INCOME TAXES Tax Allocation Agreement Effective with the Merger, the Company became a member of Laidlaw's U.S. consolidated tax return group ("U.S. Group") and subject to a tax allocation agreement. The Company is allocated its share of the tax liability of the U.S. Group or receives a benefit for any losses used by the U.S. Group based on its separate taxable income or loss. Income Tax Provision The income tax provision (benefit) consisted of the following (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------------- 1999 1998 1997 --------- -------- -------- Current Federal........................................................... $ (9,125) $ 6,843 $ -- State............................................................. 868 862 482 --------- -------- -------- Total Current............................................... (8,257) 7,705 482 ---------- -------- -------- Deferred Federal........................................................... 3,595 (22,376) 478 State............................................................. 50 (2,185) 91 --------- -------- -------- Total Deferred.............................................. 3,645 (24,561) 569 --------- -------- -------- Income tax provision (benefit).............................. $ (4,612) $(16,856) $ 1,051 ========= ======== ========
34 35 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Additionally, the Company recorded a $1.0 million benefit for income taxes as an offset to the extraordinary loss recorded in 1999. Effective Tax Rate The differences, expressed as a percentage of income before taxes and extraordinary items, between the statutory and effective federal income tax rates are as follows:
YEARS ENDED DECEMBER 31, ---------------------------- 1999 1998 1997 ------ ------ ------ Statutory tax rate ............................................ (35.0)% 35.0% 34.0% State income taxes, net of federal benefit .................... 3.4 4.6 6.1 Recognition of previously unrecognized deferred tax assets .... -- (132.6) (31.0) Other ......................................................... 5.6 4.0 2.0 ------ ------ ------ Effective tax rate ......................................... (26.0)% (89.0)% 11.1% ====== ====== ======
Deferred Tax Assets Significant components of deferred income taxes at December 31, 1999 and 1998, were as follows (in thousands):
DECEMBER 31, ----------------------------- 1999 1998 ---------- ----------- Deferred Tax Assets Federal and state NOL carryforwards................................... $ 41,168 $ 37,571 Reserve for injuries and damages...................................... 2,591 18,703 Other accrued expenses and liabilities................................ 17,704 7,828 Other deferred tax assets............................................. 701 716 ---------- ----------- Total deferred tax assets........................................... 62,164 64,818 ---------- ----------- Deferred Tax Liabilities Tax over book depreciation and amortization........................... 20,881 20,407 Pension cost for tax purposes in excess of books...................... 8,791 6,546 Other deferred tax liabilities........................................ 967 874 ---------- ----------- Total deferred tax liabilities...................................... 30,639 27,827 ---------- ----------- Net deferred tax assets.................................................... 31,525 36,991 Valuation allowance........................................................ (3,950) (3,950) ---------- ----------- Net deferred tax assets, net of valuation allowance................. $ 27,575 $ 33,041 ========== ===========
35 36 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) During 1998 the Company recognized deferred tax assets primarily related to net operating losses from prior years expected to be realized in the current or future years. These tax assets had been previously reserved; however, the Company recognized these tax assets due to a continued trend of earnings improvement and current and future expected positive earnings, as well as the successful negotiation of the new union agreement. The changes in the valuation allowance are as follows (in thousands):
1999 1998 -------- -------- Decrease resulting from identification of additional temporary differences ......................................................... $ -- $ (3,953) Decrease related to income recorded as deferred tax benefit ............... -- (5,898) Decrease in deferred income tax asset recorded to capital in excess of par .............................................................. -- (960) Deferred tax asset recognized due to a change in estimate of future realization recorded as a deferred tax benefit ...................... -- (25,144) Deferred tax asset recognized due to a change in estimate of future realization recorded as an increase in additional paid in capital ... -- (3,331) -------- -------- Net change in valuation allowance ............. $ -- $(39,286) ======== ========
Availability and Amount of NOL's As a result of the ownership change from the Merger and in a previous period, Section 382 of the Internal Revenue Code places an annual limitation on the amount of federal net operating loss ("NOL") carryforwards which the Company and the U.S. group may utilize. Consequently the Company's NOL carryforwards are subject to an annual limitation of $22.2 million and a fifteen-year carryforward period. The NOL carryforwards of $99.0 million expire as follows (in thousands): 2008............................................. $ 5,208 2009............................................. 17,685 2010............................................. 23,536 2011 ............................................ 19,670 2012 ............................................ 20,589 2014............................................. 12,308 ---------- $ 98,996 ==========
The Company has additional federal NOLs of $5.5 million that can only be used against a specific subsidiary's income. A full valuation allowance has been provided for these NOLs. Included in the deferred tax assets is $4.6 million less a valuation allowance of $2.0 million for the Company's various state NOLs which have carryforward periods of 3 to 15 years and expiration dates of 2000 and later. 14. FAIR VALUES OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments", 36 37 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) requires disclosure of the fair value of financial instruments. The following methods and assumptions were used by the Company in estimating the fair value disclosures for its financial instruments. For cash and cash equivalents and accounts receivable, the carrying amounts reported in the Consolidated Statements of Financial Position approximate fair value. The fair values of the short-term deposits and long-term insurance deposits are based upon quoted market prices at December 31, 1999 and 1998, where available. For the portion of short-term deposits and long-term insurance and security deposits where no quoted market price is available, the carrying amounts are believed to approximate fair value. For the other secured indebtedness, real estate mortgages and other long-term debt, the fair values are estimated using discounted cash flow analysis, based upon the Company's incremental borrowing rates for similar types of borrowing arrangements. The fair values of the Senior Notes and the Convertible Debentures were based upon quoted market prices at December 31, 1999 and 1998. The carrying amounts and fair values of the Company's financial instruments at December 31, 1999 and 1998, are as follows (in thousands):
DECEMBER 31, 1999 DECEMBER 31, 1998 -------------------------- -------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ----------- ----------- ----------- ----------- Other Current Assets Deposits on Insurance ......................... $ -- $ -- $ 8,658 $ 8,658 Other Deposits ................................ 289 289 465 465 Insurance and Security Deposits Insurance Deposits ............................ 15,270 15,270 32,443 32,443 Security Deposits ............................. 5,642 5,642 31,808 33,166 Long-Term Debt Real Estate Mortgages ......................... (633) (560) (623) (467) 11 1/2% Senior Notes .......................... (150,000) (168,000) (150,000) (170,250) 8 1/2% Convertible Subordinated Debentures .... (6,064) (6,200) (9,804) (9,951) Other Long-term Debt .......................... (4,803) (4,354) (3,479) (3,434)
15. LEASE COMMITMENTS The Company leases buses and terminals from various parties pursuant to capital and operating lease agreements expiring at various dates through 2065. At December 31, 1999, scheduled future minimum payments for the next five years ending December 31, under the capital leases and non-cancelable operating leases are as follows (in thousands):
CAPITAL OPERATING LEASES LEASES --------- ---------- 2000................................................ $ 5,106 $ 61,484 2001................................................ 4,738 57,757 2002................................................ 5,091 47,861 2003................................................ 7,015 52,776 2004................................................ 532 45,524 Thereafter.......................................... 1,734 60,834 --------- ---------- Total minimum lease payments................ 24,216 $ 326,236 ========== Amounts representing interest................... 5,464 --------- Present value of minimum lease payments..... $ 18,752 =========
37 38 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) For the years ended December 31, 1999, 1998 and 1997, rental expenses for operating leases (net of sublease rental income of approximately $2.8 million, $2.2 million and $2.1 million, respectively) amounted to $76.5 million, $60.0 million and $57.6 million, respectively. Rental expenses for bus operating leases, excluding casual rents and other short term leases during peak periods, amounted to $39.4 million, $34.4 million and $32.1 million in 1999, 1998 and 1997, respectively. 16. COMMITMENTS AND CONTINGENCIES SEC INVESTIGATION In January 1995, the Company received notice that the Securities and Exchange Commission (the "Commission") is conducting a formal, non-public investigation into possible securities laws violations allegedly involving the Company and certain of its former officers, directors and employees and other persons. The Commission's Order of Investigation (the "Order of Investigation") states that the Commission is exploring possible insider trading activities, as well as possible violations of the federal securities laws relating to the adequacy of the Company's public disclosures with respect to problems with its passenger reservation system implemented in 1993 and lower-than-expected earnings for 1993. In addition, the Commission has stated that it will investigate the adequacy of the Company's record keeping with respect to the passenger reservation system and its internal auditing controls. Although the Commission has not announced the targets of the investigation, it does not appear from the Order of Investigation that the Company is a target of the insider-trading portion of the investigation. In September 1995, the Commission served a document subpoena on the Company requiring the production of documents, most of which, the Company had voluntarily produced to the Commission in late 1994. The Company has fully cooperated with the Commission's investigation of these matters. The Company has had limited contact with the Commission in connection with the investigation since January 1996. The probable outcome of this investigation cannot be predicted at this stage in the proceeding. ENVIRONMENTAL MATTERS The Company may be liable for certain environmental liabilities and clean-up costs relating to underground fuel storage tanks and systems in the various facilities presently or formerly owned or leased by the Company. Based upon surveys conducted solely by Company personnel or its experts, 53 locations have been identified as remaining sites requiring potential clean-up and/or remediation as of December 31, 1999. Additionally, the Company has, or has assumed, potential liability with respect to four active locations which the Environmental Protection Agency ("EPA") has designated as Superfund sites. The Company, as well as other parties designated by the EPA as potentially responsible parties, face exposure for costs related to the clean-up of those sites. Based on the EPA's enforcement activities to date, the Company believes its liability at these sites will not be material because its involvement was as a de minimis generator of wastes disposed of at the sites. In light of its minimal involvement, the Company has been negotiating to be released from liability in return for the payment of immaterial settlement amounts. The Company has recorded a total environmental reserve of $7.3 million at December 31, 1999 of which approximately $0.7 million is indemnifiable by the predecessor owner of the Company's domestic bus operations, now known as Viad Corp. The environmental reserve relates to sites identified for potential clean-up and/or remediation and represents the present value of estimated cash flows discounted at 8.0%. The Company expects the majority of this environmental liability to be paid over the next five to seven years. As of the date of this report, the Company is not aware of any additional sites to be identified, and management believes that adequate accruals have been made related to all known environmental matters. 38 39 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) POTENTIAL PENSION PLAN FUNDING REQUIREMENTS The Company maintains nine defined benefit pension plans, the most significant of which (the ATU Plan) covers approximately 15,650 current and former employees, fewer than 1,500 of which are active employees of the Company. The ATU Plan was closed to new participants in 1983 and over 85% of its participants are over the age of 50. For financial reporting and investment planning purposes, the Company currently uses an actuarial mortality table that closely matches the actual experience related to the existing participant population. Based upon the application of this table and other actuarial and investments assumptions, the Company believes that the ATU Plan is adequately funded. For funding purposes, legislation passed by the United States Congress in 1994, and amended in 1997, mandates the use of a prescribed actuarial mortality table and discount rates that differ from those used by the Company for financial reporting and investment planning purposes. Nevertheless, based upon the application of the actuarial mortality table, discount rates and funding calculations prescribed by current regulations, the Company does not anticipate that it will be required to make any contributions to the ATU Plan in the foreseeable future. However, there is no assurance that the ATU Plan will be able to earn the assumed rate of return or that contribution to the ATU Plan will not be significant. Additionally, there can be no assurance that new regulations may result in changes in the prescribed actuarial mortality table and discount rates, which would result in the Company being required to make substantial contributions in the future. REDEEMABLE PREFERRED STOCK During 1997, the Company issued 2,400,000 shares of 8 1/2% convertible exchangeable preferred stock ("the Preferred Stock"). The Preferred Stock carries a liquidation preference of $25.00 per share plus accumulated and unpaid dividends. The holders of the Preferred Stock are currently entitled to vote with the holders of the Common Stock on all matters submitted to a vote of stockholders of the Company, each share of Preferred Stock entitling the holder thereof to one vote. Dividends accrue at a rate per annum equal to 8 1/2% of the liquidation preference per share of Preferred Stock and are payable quarterly in arrears on February 1, May 1, August 1 and November 1. Prior to the Merger, the Preferred Stock was convertible, at the option of the holder thereof, into approximately 5.128 shares of Common Stock. Following the Merger, each share of Preferred Stock is convertible into $33.33 in cash which, based upon the number of shares outstanding at December 31, 1999, results in a total conversion value of $55.9 million. The Preferred Stock will be redeemable at the option of the Company, in whole or in part, at any time on or after May 3, 2000, at redemption prices of 104.86% in 2000, 103.64% in 2001, 102.43% in 2002, 101.21% in 2003 and 100% in 2004 and thereafter plus accumulated and unpaid dividends. The Company is recording the conversion of Preferred Stock as a reduction in the carrying value with the excess deducted from paid in capital. Subsequent to year end and through March 24, 2000, 1,069,600 shares of preferred stock were converted. LEGAL PROCEEDINGS The Company is a defendant in various lawsuits arising in the ordinary course of business, primarily cases involving personal injury and property damage claims and employment-related claims. Although these lawsuits involve a variety of different facts and theories of recovery, the majority arises from traffic accidents involving buses operated by the Company. The vast majority of these claims are covered by insurance for amounts in excess of the self-retention or deductible portion of the policies. Therefore, based on the Company's assessment of known claims and its historical claims payout pattern and discussion with internal and outside legal counsel and risk management personnel, management believes that there is no proceeding either threatened or pending against the Company that, if resolved against the Company, would materially exceed the amounts recorded as estimated liabilities by the Company. 39 40 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 17. RELATED PARTY TRANSACTIONS Following the Merger, the Company began to purchase its insurance through Laidlaw. The Company has a $50,000 deductible for property damage claims and no deductible for all other claims. As a result, there is no insurance reserve associated with claims arising after March 16, 1999. The Company has recorded $31.7 million in insurance expense under this program, which the Company believes is comparative to the cost under its previous insurance program. Additionally, on December 31, 1999, the Company transferred liability for all known and unknown claims, and all related insurance reserves, associated with the period prior to March 16, 1999 to Laidlaw for aggregate consideration of $24.0 million, which equaled the book value of the reserves. The consideration received included $1.9 million of Company deposits which had been required by the Company's previous primary insurance carrier. Laidlaw has provided credit support in the form of corporate guarantees and letters of credit for certain of the Company's operating leases. As of February 29, 2000, Laidlaw has guaranteed $123.0 million of future minimum lease payments on buses under lease by the Company, and has provided $22.0 million in letters of credit. The Company's SERP has been funded, through a rabbi trust, with a $2.5 million letter of credit issued by Laidlaw. Certain of the Company's employees participate in a stock option program offered by Laidlaw. 18. QUARTERLY FINANCIAL DATA (UNAUDITED) Selected unaudited quarterly financial data for the years ended December 31, 1999 and 1998 are as follows (in thousands):
FIRST SECOND THIRD FOURTH YEAR ENDED DECEMBER 31, 1999 QUARTER QUARTER QUARTER QUARTER ---------------------------- --------- --------- --------- --------- Operating revenues...................................... $ 194,738 $ 228,353 $ 268,377 $ 232,063 Operating expenses...................................... 207,150 219,655 242,363 228,833 --------- --------- --------- --------- Operating income (loss)................................. (12,412) 8,698 26,014 3,230 Settlement of stock options............................. 19,929 1,365 -- -- Interest expense........................................ 6,280 5,377 5,304 5,032 Income tax provision (benefit).......................... (17,353) 881 10,789 1,071 Minority Interest....................................... 56 267 460 495 --------- --------- --------- --------- Net income (loss) before extraordinary item............. (21,324) 808 9,461 (3,368) Extraordinary item...................................... 1,607 -- -- 290 --------- --------- --------- --------- Net income (loss)....................................... $ (22,931) $ 808 $ 9,461 $ (3,658) ========= ========= ========= ==========
Adjustments to the Company's annual effective income tax rate in the fourth quarter of 1999 increased the net loss before extraordinary items by approximately $1.5 million and resulted in the adjustment to the extraordinary item. The total after-tax effect of these adjustments reduced net income in the fourth quarter by approximately $1.8 million. 40 41 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FIRST SECOND THIRD FOURTH YEAR ENDED DECEMBER 31, 1998 QUARTER QUARTER QUARTER QUARTER ---------------------------- --------- --------- --------- --------- Operating revenues...................................... $ 180,720 $ 211,247 $ 244,134 $ 209,895 Operating expenses...................................... 187,623 201,890 211,350 198,302 --------- --------- --------- --------- Operating income (loss)................................. (6,903) 9,357 32,784 11,593 Interest expense........................................ 6,654 7,305 7,263 6,677 Income tax provision (benefit).......................... (1,096) 179 (16,250) 311 Minority Interest....................................... (8) (83) 134 513 ---------- --------- --------- --------- Net income (loss)....................................... $ (12,453) $ 1,956 $ 41,637 $ 4,092 ========= ========= ========= =========
41 42 SCHEDULE II GREYHOUND LINES, INC. AND SUBSIDIARIES(a) VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR -------------- ---------- ---------- ---------- ---------- --------- December 31, 1997: Allowance for Doubtful Accounts...... $ 241 $ 302 $ (61) $ (214) (b) $ 268 Inventory Reserves................... 95 80 -- -- 175 Accumulated Amortization of Intangible Assets................. 19,105 5,434 -- (2,351) (c) 22,188 Reserves for Injuries and Damages.... 59,963 32,687 (194) (34,491) (d) 57,965 ---------- ---------- ---------- ---------- --------- Total Reserves and Allowances... $ 79,404 $ 38,503 $ (255) $ (37,056) $ 80,596 ========== ========== ========== ========== ========= December 31, 1998: Allowance for Doubtful Accounts...... $ 268 $ 342 $ (40) $ (372) (b) $ 198 Inventory Reserves................... 175 30 -- -- 205 Accumulated Amortization of Intangible Assets................. 22,188 6,908 -- (594) (c) 28,503 Reserves for Injuries and Damages.... 57,965 35,237 (1,021) (31,822) (d) 60,359 ---------- ---------- ---------- ---------- --------- Total Reserves and Allowances... $ 80,596 $ 42,517 $ (1,061) $ (32,788) $ 89,265 ========== ========== ========== ========== ========= December 31, 1999: Allowance for Doubtful Accounts...... $ 198 $ 510 $ 224 $ (530) (b) $ 402 Inventory Reserves................... 205 21 -- -- 226 Accumulated Amortization of Intangible Assets................. 28,503 4,996 -- (1,674) (c) 31,825 Reserves for Injuries and Damages.... 60,359 10,026 -- (63,072) (d) 7,313 ---------- ---------- ---------- ---------- --------- Total Reserves and Allowances... $ 89,265 $ 15,553 $ 224 $ (65,276) $ 39,766 ========== ========== ========== ========== =========
- ---------- (a) This schedule should be read in conjunction with the Company's audited consolidated financial statements and related notes thereto. (b) Write-off of uncollectible receivables, net of recovery of receivables previously written-off. (c) Write-off or amortization of other assets and deferred costs. (d) Payments of settled claims and, in 1999, $24.0 million represents the payment to Laidlaw for liabilities assumed by Laidlaw. 42 43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Subsequent to the merger of Greyhound Lines, Inc. (the "Company") with Laidlaw Inc. ("Laidlaw"), PricewaterhouseCoopers LLP was engaged to audit the consolidated financial statements of the Company in connection with the audit of Laidlaw's consolidated financial statements as of and for the fiscal year ended August 31, 1999. PricewaterhouseCoopers LLP is the independent accountants for Laidlaw. Additionally, the Company engaged PricewaterhouseCoopers LLP to audit the consolidated financial statements of the Company as of and for the year ended December 31, 1999, in place of the Company's previous independent accountants, Arthur Andersen LLP. The reports of Arthur Andersen LLP on the consolidated financial statements of the Company for the two years in the period ended December 31, 1998, contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with its audits for the two years ended December 31, 1998, and through March 29, 2000, there have been no disagreements with Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to the satisfaction of Arthur Andersen LLP would have caused them to make reference thereto in their report on the consolidated financial statements for such years. The Company has requested that Arthur Andersen LLP furnish it with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with the above statements. A copy of such letter, dated March 29, 2000, is filed as Exhibit 16.1 to this Form 10-K. 43 44 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) CERTAIN DOCUMENTS FILED AS PART OF THE FORM 10-K 1. AND 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES The following financial statements and financial statement schedule are set forth in Item 8 of this report. Financial statement schedules not included in this report have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Financial statements for fifty percent or less owned companies accounted for by the equity method have been omitted because, considered in the aggregate, they have not been considered to constitute a significant subsidiary.
PAGE NO. -------- Management Report on Responsibility for Financial Reporting................................. 18 Reports of Independent Public Accountants................................................... 19 Consolidated Statements of Financial Position at December 31, 1999 and 1998................. 21 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997.................................................................................. 22 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997............................................................................. 23 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997.................................................................................. 24 Notes to Consolidated Financial Statements.................................................. 25 Schedule II - Valuation and Qualifying Accounts............................................. 42
3. EXHIBITS 2.1 -- Amended and Restated Agreement and Plan of Merger dated as of November 5, 1998 (the "Merger Agreement") by and among Greyhound Lines, Inc., Laidlaw Inc. and Laidlaw Transit Acquisition Corp. (14) 3.1 -- Restated Certificate of Incorporation of Greyhound Lines, Inc. (15) 3.2 -- Bylaws of Greyhound Lines, Inc. (15) 4.1 -- Indenture governing the 8 1/2% Convertible Subordinated Debentures due March 31, 2007, including the form of 8 1/2% Convertible Subordinated Debentures due March 31, 2007. (3) 4.2 -- First Supplemental Indenture to the 8 1/2% Convertible Subordinated Debentures Indenture between the Registrant and Shawmut Bank Connecticut, N.A., as Trustee. (6) 4.3 -- Second Supplemental Indenture to the 8 1/2% Convertible Subordinated Debentures Indenture between the Registrant and State Street Bank and Trust Company, as trustee. (15) 4.4 -- Indenture, dated April 16, 1997, by and among the Company, the Guarantors and PNC Bank, N.A., as Trustee. (9) 4.5 -- First Supplemental Indenture dated as of July 9, 1997 between the Registrant and PNC Bank, N.A. as Trustee. (12) 4.6 -- Second Supplemental Indenture dated as of August 25, 1997 between the Registrant and PNC Bank, N.A. as Trustee. (13) 4.7 -- Third Supplemental Indenture dated as of February 1, 1999, between the Registrant and Chase Manhattan Trust Company as Trustee. (16) 4.8 -- Fourth Supplemental Indenture dated as of May 14, 1999, between the Registrant and Chase Manhattan Trust Company as Trustee. (16) 4.9 -- Form of 11 1/2% Series A Senior Notes due 2007. (9) 4.10 -- Form of 11 1/2% Series B Senior Notes due 2007. (11) 4.11 -- Form of Guarantee of 11 1/2% Series A and B Senior Notes. (11) 44 45 4.12 -- Indenture dated April 16, 1997, by and between the Company and U.S. Trust of Texas, N.A., as Trustee. (10) 10.1 -- Acquisition Agreement dated December 22, 1986, among The Greyhound Corporation, Greyhound Lines, Inc., the Registrant, GLI Holding Company, GLI Bus Operations Holding Company and GLI Merger Company. (1) 10.2 -- First Amendment to Acquisition Agreement dated January 31, 1987. (1) 10.3 -- Second Amendment to Acquisition Agreement dated March 18, 1987. (1) 10.4 -- Third Amendment to Acquisition Agreement dated March 18, 1987. (1) 10.5 -- Fourth Amendment to Acquisition Agreement dated September 18, 1987. (1) 10.6 -- Contested Claim Pool Trust Agreement to be entered into as of October 31, 1991, by and between the Registrant and Smith Barney Trust Company, as trustee. (2) 10.7 -- Claims Treatment Agreement dated August 23, 1991, by and among Eagle Bus Manufacturing, Inc., the Registrant, Trailways Commuter Transit, Inc., GLI Bus Operations Holding Company, GLI Food Services, Inc., Southern Greyhound Lines Co., GLI Holding Company, Central Greyhound Lines Co., Greyhound Travel Services, Inc., Eastern Greyhound Lines, Co., and Western Greyhound Lines Co., on the one hand, and The Dial Corp, on the other. (2) 10.8 -- Affiliated Companies Demand Loan Agreement dated March 16, 1999, between the Registrant and Laidlaw Transportation Inc. (17) 10.9 -- Tax Allocation Agreement dated June 1, 1982, between the Registrant and Laidlaw Transportation Inc. (17) 10.10 -- Loss Portfolio Transfer Agreement dated December 31, 1999, between the Registrant and Laidlaw Transportation Inc. (17) 10.11 -- Memorandum of Agreement, dated September 30, 1998, between the Registrant and the Amalgamated Transit Union National Local 1700. (14) 10.12 -- Lease Agreement No. 1, dated as of December 29, 1993, between Wilmington Trust Company and the Registrant. (4) 10.13 -- Lease Agreement No. 2, dated as of December 29, 1993, between Wilmington Trust Company and the Registrant. (4) 10.14 -- Lease Agreement No. 3, dated as of December 29, 1993, between Wilmington Trust Company and the Registrant. (4) 10.15 -- Lease Supplement No. 1-1, dated as of December 30, 1993, between Wilmington Trust Company and the Registrant. (4) 10.16 -- Lease Supplement No. 2-1, dated as of December 30, 1993, between Wilmington Trust Company and the Registrant. (4) 10.17 -- Lease Supplement No. 3-1, dated as of December 30, 1993, between Wilmington Trust Company and the Registrant. (4) 10.18 -- Tax Indemnification Agreement, dated as of December 29, 1993, between NationsBank Lease Investments, Inc. and the Registrant. (4) 10.19 -- Pledge Agreement, dated as of December 29, 1993, among the Registrant, Wilmington Trust Company and NationsBank Lease Investments, Inc. (4) 10.20 -- Participation Agreement, dated as of December 29, 1993, among NationsBank Lease Investments, Inc. and the Registrant. (4) 10.21 -- Lease Agreement, dated as of March 28, 1994, between Wilmington Trust Company and the Registrant. (5) 10.22 -- Lease Supplement No. 1, dated as of March 28, 1994, between Wilmington Trust Company and the Registrant. (5) 10.23 -- Pledge Agreement, dated as of March 28, 1994, among the Registrant, Wilmington Trust Company and Cargill Leasing Corporation. (5) 10.24 -- Participation Agreement, dated as of March 28, 1994, among Cargill Leasing Corporation and the Registrant. (5) 10.25 -- Bill of Sale, dated as of March 28, 1994, between the Registrant and Wilmington Trust Company. (5) 45 46 10.26 -- Tax Indemnification Agreement, dated as of March 28, 1994, between Cargill Leasing Corporation and the Registrant. (5) 10.27 -- Lease Agreement, dated as of March 29, 1994, between Wilmington Trust Company and the Registrant. (5) 10.28 -- Lease Supplement No. 1, dated as of March 29, 1994, between Wilmington Trust Company and the Registrant. (5) 10.29 -- Pledge Agreement, dated as of March 29, 1994, among the Registrant, Wilmington Trust Company and Cargill Leasing Corporation. (5) 10.30 -- Participation Agreement, dated as of March 29, 1994, among Cargill Leasing Corporation and the Registrant. (5) 10.31 -- Bill of Sale, dated as of March 29, 1994, between the Registrant and Wilmington Trust Company. (5) 10.32 -- Tax Indemnification Agreement, dated as of March 29, 1994, between Cargill Leasing Corporation and the Registrant. (5) 10.33 -- Termination Agreement dated as of March 17, 1999, by and between Greyhound Lines, Inc. and Foothill Capital Corporation and BankBoston N.A. (15) 10.34 -- Greyhound Lines, Inc. Supplemental Executive Retirement Plan. (7) 10.35 -- First Amendment to Supplemental Executive Retirement Plan. (8) 10.36 -- Second Amendment to Supplemental Executive Retirement Plan. (15) 10.37 -- Supplemental Executive Retirement Plan Trust Agreement (15) 10.38 -- Second Amended Employment Agreement dated March 16, 1999, between Registrant and Craig R. Lentzsch. (15) 10.39 -- Second Amended Employment Agreement dated March 16, 1999, between Registrant and John Werner Haugsland. (15) 10.40 -- First Amendment to the Second Amended Executive Employment Agreement dated December 1999 between Registrant and John Warner Haugsland. (17) 10.41 -- 1998 Stock Option Plan for ATU Represented Drivers and Mechanics, dated July 22, 1998. (14) 10.42 -- Greyhound Lines, Inc. Change in Control Severance Pay Program. (14) 10.43 -- Form of Change in Control Agreement between the Company and certain officers of the Company. (14) 16.1 -- Arthur Andersen letter dated March 29, 2000. (17) 21 -- Subsidiaries of the Registrant. (17) 27 -- Financial Data Schedule as of and for the year ended December 31, 1999. (18) - ----- (1) Incorporated by reference from the Annual Report Form 10-K/A for the year ended December 31, 1994. (2) Incorporated by reference from the Registration Statement on Form S-1 (File Nos. 33-45060-01 and 33-45060-02) regarding the Registrant's 8 1/2% Convertible Subordinated Debentures Due 2007. (3) Incorporated by reference from the Company's Registration Statement on Form S-1 (File No. 33-47908) regarding the Registrant's Common Stock and 10% Senior Notes Due 2001 held by the Contested Claims Pool Trust. (4) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. (5) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. (6) Incorporated herein by reference from the Registrant's Issuer Tender Offer Statement on Schedule 13E-4 (File No. 5-41800). 46 47 (7) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. (8) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. (9) Incorporated by reference from the Company's Registration Statement on Form S-4 regarding the Company's 11 1/2% Series B Senior Notes due 2007. (10) Incorporated by reference from the Company's Registration Statement on Form S-3 regarding the Company's 8 1/2% Convertible Exchangeable preferred Stock, Common Stock and 8 1/2% Convertible Subordinated Debentures due 2009. (11) Incorporated by reference from Amendment 1 to Form S-4 filed on June 27, 1997. (12) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (13) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (14) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. (15) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. (16) Incorporated by reference from the Registrant's Quarterly Report on Form 10-K for the quarter ended June 30, 1999. (17) Filed herewith. (18) Filed only in EDGAR format with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999. (b) REPORTS ON FORM 8-K The Company was not required to file any current reports on Form 8-K during the quarter ended December 31, 1999. 47 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Dallas and the State of Texas, on March 29, 1999. GREYHOUND LINES, INC. By: /s/ CRAIG R. LENTZSCH ---------------------------------------- Craig R. Lentzsch President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ JOHN R. GRAINGER Director March 29, 2000 - ------------------------------------------ John R. Grainger /s/ CRAIG R. LENTZSCH President and Chief March 29, 2000 - ------------------------------------------ Executive Officer Craig R. Lentzsch (Principal Executive Officer) /s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000 - ------------------------------------------ Chief Financial Officer Jeffrey W. Sanders (Principal Financial Officer) /s/ CHERYL W. FARMER Vice President and Controller March 29, 2000 - ------------------------------------------ (Principal Accounting Officer) Cheryl W. Farmer
48 49 CO-REGISTRANTS ATLANTIC GREYHOUND LINES OF VIRGINIA, INC. By: /s/ CRAIG R. LENTZSCH Director, Chairman of the Board, March 29, 2000 - ------------------------------------------ President and Chief Executive Officer Craig R. Lentzsch (Principal Executive Officer) /s/ J. FLOYD HOLLAND Director March 29, 2000 - ------------------------------------------ J. Floyd Holland /s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000 - ------------------------------------------ Chief Financial Officer Jeffrey W. Sanders (Principal Financial and Accounting Officer) GLI HOLDING COMPANY By: /s/ CRAIG R. LENTZSCH Director, President and March 29, 2000 - ------------------------------------------ Chief Executive Officer Craig R. Lentzsch (Principal Executive Officer) /s/ JACK W. HAUGSLAND Director March 29, 2000 - ------------------------------------------ Jack W. Haugsland /s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000 - ------------------------------------------ Chief Financial Officer Jeffrey W. Sanders (Principal Financial and Accounting Officer) GREYHOUND de MEXICO S.A. de C.V. By: /s/ CRAIG R. LENTZSCH Director, President and March 29, 2000 - ------------------------------------------ Chief Executive Officer Craig R. Lentzsch (Principal Executive Officer) /s/ JACK W. HAUGSLAND Director March 29, 2000 - ------------------------------------------ Jack W. Haugsland /s/ JEFFREY W. SANDERS Director March 29, 2000 - ------------------------------------------ Jeffrey W. Sanders /s/ CHERYL W. FARMER Examiner March 29, 2000 - ------------------------------------------ (Principal Financial and Cheryl W. Farmer Accounting Officer)
49 50 LOS BUENOS LEASING CO., INC. By: /s/ ALFONSO PENEDO Director, President, Chief March 29, 2000 - ------------------------------------------ Executive Officer and General Alfonso Penedo Manager (Principal Executive Officer) /s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000 - ------------------------------------------ Chief Financial Officer Jeffrey W. Sanders (Principal Financial and Accounting Officer) SISTEMA INTERNACIONAL de TRANSPORTE de AUTOBUSES, INC. By: /s/ CRAIG R. LENTZSCH Director, President, and March 29, 2000 - ------------------------------------------ Chief Executive Officer Craig R. Lentzsch (Principal Executive Officer) /s/ JACK W. HAUGSLAND Director March 29, 2000 - ------------------------------------------ Jack W. Haugsland /s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000 - ------------------------------------------ Chief Financial Officer Jeffrey W. Sanders (Principal Financial and Accounting Officer)
50 51 TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC. By: /s/ CRAIG R. LENTZSCH Director and Chief March 29, 2000 - ------------------------------------------ Executive Officer Craig R. Lentzsch (Principal Executive Officer) /s/ JACK W. HAUGSLAND Director March 29, 2000 - ------------------------------------------ Jack W. Haugsland /s/ J. FLOYD HOLLAND Director March 29, 2000 - ------------------------------------------ J. Floyd Holland /s/ ROBERT D. GREENHILL Director March 29, 2000 - ------------------------------------------ Robert D. Greenhill /s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000 - ------------------------------------------ Chief Financial Officer Jeffrey W. Sanders (Principal Financial and Accounting Officer) T.N.M. & O. TOURS, INC. By: /s/ CRAIG R. LENTZSCH Director and Chief March 29, 2000 - ------------------------------------------ Executive Officer Craig R. Lentzsch (Principal Executive Officer) /s/ JACK W. HAUGSLAND Director March 29, 2000 - ------------------------------------------ Jack W. Haugsland /s/ J. FLOYD HOLLAND Director March 29, 2000 - ------------------------------------------ J. Floyd Holland /s/ ROBERT D. GREENHILL Director March 29, 2000 - ------------------------------------------ Robert D. Greenhill /s/ RICHARD M. PORTWOOD Director March 29, 2000 - ------------------------------------------ Richard M. Portwood /s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000 - ------------------------------------------ Chief Financial Officer Jeffrey W. Sanders (Principal Financial and Accounting Officer)
51 52 VERMONT TRANSIT CO., INC. By: /s/ CRAIG R. LENTZSCH Director, President and March 29, 2000 - ------------------------------------------ Chief Executive Officer Craig R. Lentzsch (Principal Executive Officer) /s/ JACK W. HAUGSLAND Director March 29, 2000 - ------------------------------------------ Jack W. Haugsland /s/ J. FLOYD HOLLAND Director March 29, 2000 - ------------------------------------------ J. Floyd Holland /s/ JEFFREY W. SANDERS Senior Vice President and March 29, 2000 - ------------------------------------------ Chief Financial Officer Jeffrey W. Sanders (Principal Financial and Accounting Officer)
52 53 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.8 Affiliated Companies Demand Loan Agreement dated March 16, 1999, between the Registrant and Laidlaw Transportation Inc. 10.9 Tax Allocation Agreement dated June 1, 1982, between the Registrant and Laidlaw Transportation Inc. 10.10 Loss Portfolio Transfer Agreement dated December 31, 1999, between the Registrant and Laidlaw Transportation Inc. 10.40 First Amendment to the Second Amended Executive Employment Agreement dated December 31, 1999, between the Registrant and Jack Warner Haugsland. 16.1 Arthur Andersen Letter dated March 29, 2000 21 Subsidiaries of the Registrant 27 Financial Data Schedule
EX-10.8 2 AFFILIATED COMPANIES DEMAND LOAN AGREEMENT 1 EXHIBIT 10.8 AFFILIATED COMPANIES DEMAND LOAN AGREEMENT THIS AFFILIATED COMPANIES DEMAND LOAN AGREEMENT made as of March 16, 1999, by and among Laidlaw Transportation, Inc. and Greyhound Lines, Inc. and its present and any future affiliated companies (as hereinafter defined), which affiliated companies, including Greyhound Lines, Inc. are hereinafter collectively referred to as the "Affiliates" or individually referred to as an "Affiliate". WHEREAS, the Affiliates which are parties to this Agreement wish to provide for the payment of loans and interest charges on any and all intercompany indebtedness by or among any of the Affiliates. NOW, THEREFORE, in consideration of the mutual covenants herein set out and intending to be legally bound, the Affiliates which are parties to this Agreement agree each with the others as follows: 1. Definitions: For the purposes of this Agreement: (a) A company is an "affiliate" of, or a company is "affiliated" with another specified company if it, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the other specified company; (b) "Control" means (i) the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a company, or (ii) the ownership, directly or indirectly, of shares possessing more than 80% of the voting power of all of the shares of a company. 2. Intercompany Loans. Any intercompany loan or indebtedness which is shown on the books and records of any Affiliate and which has been received or advanced from another Affiliate shall hereby be deemed to be an intercompany loan made between such Affiliates which shall be due and payable in full, together with interest thereon as set out below, upon demand made by the Affiliate advancing the intercompany loan. 3. Interest Charges. An Affiliate which receives an intercompany loan from any of the other Affiliates shall pay interest on such intercompany loan calculated quarterly at the prime rate of interest in effect at the First National Bank of Chicago plus a percentage thereon, not to exceed two percent (2%), as may be determined by Laidlaw Transportation, Inc. from time to time. 2 4. Interest Payments. The interest charges set out in Section 3 above shall be payable by the Affiliate which received an intercompany loan to the Affiliate which makes such intercompany loan annually on the anniversary date of the intercompany loan. 5. Further Actions. The Affiliates shall take such further actions and shall execute such further documents or instruments as may be reasonably necessary to fulfill or give force and effect to this Agreement. 6. Successors and Assigns. This Agreement shall be binding upon and ensure to the benefit of the Affiliates which are parties hereto and their respective successors and assigns. 7. Additional Parties and Withdrawal. An Affiliate may join in this Agreement at any time, by duly adopted resolution of its Board of Directors and by giving notice thereof to Laidlaw Transportation, Inc., and shall thereafter be bound by the terms hereof together with all other Affiliates then parties hereto. Any Affiliate may withdraw from this Agreement by giving 30 days' written notice of its withdrawal to the other Affiliates then party to this Agreement, which giving of notice may be effected by the delivery thereof to Laidlaw Transportation, Inc. 8. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws in force in the State of Delaware, and the Affiliates hereby attorn to the jurisdiction of the courts of that State. 9. Effective Date. This Agreement shall commence as of March 16, 1999 and shall continue in force and effect for all taxable years thereafter until terminated. This Agreement shall terminate and supersede any and all prior intercompany loan agreements between Greyhound Lines, Inc. and its affiliates. IN WITNESS WHEREOF this Agreement has been duly adopted by the Boards of Directors of each of the Affiliates which are parties hereto. 2 3 LAIDLAW TRANSPORTATION, INC. By: /s/ Ivan R. Cairns --------------------------------------------- IVAN R. CAIRNS Senior Vice President GREYHOUND LINES, INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH President and Chief Executive Officer ASI ASSOCIATES, INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chief Executive Officer ATLANTIC GREYHOUND LINES OF VIRGINIA, INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chairman of the Board and President and Chief Executive Officer CAROLINA ASSOCIATES, INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chief Executive Officer CAROLINA COACH COMPANY By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chief Executive Officer GLI HOLDING COMPANY By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH President and Chief Executive Officer GREYHOUND DE MEXICO, S.A. DE C.V. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH President GRUPO CENTRO, INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH President LOS BUENOS LEASING CO., INC. By: /s/ Alfonso Penedo --------------------------------------------- ALFONSO PENEDO President and Chief Executive Officer and General Manager LSX DELIVERY, L.L.C. By: : /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chairman of the Board ON TIME DELIVERY SERVICE, INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chairman of the Board 3 4 PRB ACQUISITION, LLC By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chief Executive Officer and President RED BUS SYSTEMS, INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chief Executive Officer SEASHORE TRANSPORTATION COMPANY By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chief Executive Officer SET ACQUISITION CORP. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH President SISTEMA INTERNACIONAL DE TRANSPORTE DE AUTOBUSES, INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH President and Chief Executive Officer TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chief Executive Officer T.N.M. & O. TOURS, INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chief Executive Officer VALLEY GARAGE COMPANY By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chief Executive Officer VALLEY TRANSIT CO., INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH Chief Executive Officer VERMONT TRANSIT CO., INC. By: /s/ Craig R. Lentzsch --------------------------------------------- CRAIG R. LENTZSCH President and Chief Executive Officer 4 EX-10.9 3 TAX ALLOCATION AGREEMENT 1 EXHIBIT 10.9 SCHEDULE A TAX ALLOCATION AGREEMENT TAX ALLOCATION AGREEMENT, made this 1st day of June, 1982, by and among Laidlaw Transportation, Inc. ("Parent") and the subsidiaries of Parent that are includible in the consolidated federal income tax return of the Parent affiliated group for the taxable year beginning on September 1, 1981 or for any subsequent taxable year with respect to which Parent files a consolidated federal income tax return as the common parent corporation of an affiliated group (the "Subsidiaries"). Parent and the Subsidiaries (the "Affiliated Group") wish to provide for payment of the consolidated federal income tax liability of the Affiliated Group by Parent; for the contribution to such payment by the various members of the Affiliated Group, including Parent to which such liability is attributable in whole or in part; and for the reimbursement by members of the Affiliated Group that benefit from any losses or credits of members of the Affiliated Group in an amount which is agreed upon in writing annually by affected members. In consideration of the foregoing, and of the mutual covenants and promises herein contained, Parent and the Subsidiaries agree as follows: 1. Tax Liability of Group. The tax liability of the Affiliated Group for the taxable year in question shall be the consolidated tax liability as determined in Form 1120 (Corporate Income Tax Return) filed by the members of the Group. In years in which a consolidated tax liability exists, each member (including Parent, as the case may be) shall make payment to the Parent of an amount no less than its pro-rata share of such liability. This amount shall be derived by a formula in which the aggregate of all separate tax return liabilities is the denominator and each member's separate tax liability is the numerator. The separate return liabilities shall be determined by applying consolidated return limitations on all appropriate items such as capital gains, investment tax credits and charitable contributions. 2. Tax Benefits of Group. The tax benefits enjoyed by the Affiliated Group for the taxable year in question as a result of losses, deductions or credits of any member or members of the Affiliated Group shall be ascertained by comparing the consolidated tax return liability to the sum of the separate tax return liabilities of all members with such liabilities. The tax benefits will then be allocated to each of those members who actually contributed such benefits. Each such member who contributed benefits will be compensated by those members who realized the benefits in an amount determined annually as negotiated between the members. Such amount of negotiated payment represents the "Tax Benefit Liability". -1- 2 3. Payment for Tax Benefits of Group. The Tax Benefit Liability shall be paid to the respective Members within a reasonable time period after the annual filing of the consolidated tax return. All computations of tax benefit amounts shall be substantiated by specific records maintained by the Affiliated Group. 4. Adjustments. Any adjustment of income, deduction or credit that results after the taxable year in question by reason of any carryback, amended return, claim for refund, or audit shall be given effect by redetermining amounts payable and reimbursable for such taxable year hereunder as if such adjustment had been part of the original determination hereunder. The amount of any adjustment shall reflect any interest actually due to the United States or to the Affiliated Group as a result thereof. Any penalties imposed with respect to any consolidated return filed on behalf of the Affiliated Group shall be the sole responsibility of Parent. Cessation of membership in the Affiliated Group shall not deprive a corporation of its Tax Benefit Liability amounts, or of any payment otherwise due to it, hereunder. 5. Payments. The Parent may request from any member of the Affiliated Group a contribution towards estimated tax payments in an amount equal to the expected pro-rata portion of the consolidated tax liability of each such member. Such requested payments shall be offset against the final liability of each such member and appropriate refunds or requests for additional payments shall be made whenever the consolidated tax liability for the year becomes reasonably ascertainable. 6. Effective Date. The Agreement shall be effective for the taxable year of the Affiliated Group ended August 31, 1982 and for all taxable years thereafter. 7. Governing Law. This Agreement shall be governed by the laws applicable to contracts entered into and to be fully performed within the State of Illinois by residents thereof. 8. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of, the parties hereto and their respective successors and assigns. -2- EX-10.10 4 LOSS PORTFOLIO TRANSFER AGREEMENT 1 EXHIBIT 10.10 LOSS PORTFOLIO TRANSFER AGREEMENT This Loss Portfolio Transfer Agreement (the "Agreement") is made as of 12/31/99 between Greyhound Lines, Inc. ("Greyhound") and Laidlaw Transportation, Inc. ("Parent"). WHEREAS, Greyhound desires to end uncertainty about its ultimate liability for all pre 3/16/99 insurance deductible liabilities associated with all insurance policies ("Policies") and insurance programs ("Program Agreements") of Greyhound, including, without limitation, Automobile, Comprehensive Liability, General and Property Liability and Workers' Compensation coverages ("Insurance Liabilities"); and WHEREAS, Greyhound desires to eliminate the future administration associated with the Policies and the Program Agreements for all such Insurance Liabilities pre 3/16/99 liabilities; and ACCORDINGLY, for the purposes and consideration stated in this Agreement, Greyhound and Parent have agreed and do hereby as follows: 1. Greyhound agrees to pay Parent the sum of $23,994,229, which sum includes a Paid Loss Deposit Fund totaling $1,861,266 previously deposited with insurance companies, as the agreed upon final amount payable for all Insurance Liabilities under the Policies and the Program Agreements, and as consideration for Parent's assumption of additional liability under the pre-acquisition insurance liabilities. This consideration is equal to the book value of the reserves and deposits. 2. In respect of the operations of Greyhound from 3/15/87 to 3/16/99, Greyhound entered into a number of insurance contracts, whereby they had retained responsibility for deductibles or self insured retentions and, as such, retained the liabilities for these "pre-aquisition" liabilities. These liabilities include paid loss retro plans, incurred loss retro plans, deductibles, retentions and possible future or additional assessments. This Agreement hereby transfers the entire liability for these insurance Liabilities amounts to Parent. It is recognized that all the original agreements and policies are between Greyhound and the various insurers and these remain in effect. As such, Greyhound is primarily responsible for these liabilities and Parent hereby agrees to pay such liabilities on Greyhound's behalf, or reimburse Greyhound as is necessary. 3. Parent agrees to pay all amounts due for claims covered by the Policies, in accordance with their terms and conditions. Greyhound agrees, at Parent's request, to provide any necessary authorization for Parent to purchase insurance or reinsurance coverage for the additional risk they assume under this Agreement, if they so desire. 4. Greyhound agrees that Parent will assume sole control of management and administration of all claims subject to this Agreement in accordance with the terms and conditions of the Policies. Greyhound further agrees to honor and abide by all the terms and conditions of the Policies and help and assist Parent in the settlement of the claims, as is necessary. 2 5. Parent further agrees to release and forever discharge Greyhound, its directors, officers, employees, agents, attorneys, representatives, successors and assigns, from any and all claims, demands, actions, or causes of action, known or unknown, which Parent has, might have had, or might have in the future, arising out of or connected with, in whole or in part, any event act, omission, or transaction, relating in any way to the Policies or the Program Agreements, or the payment of premiums or other amounts otherwise payable by Greyhound under the terms of the Policies or the Program Agreements, for the pre-acquisition insurance liabilities associated with the period prior to 3/16/99. 6. This Agreement constitutes the full and entire agreement between Greyhound and Parent. Both parties hereby expressly represent and warrant that no other statements or representations, oral or written, have induced them in any way to execute this Agreement, but that the entire consideration for same and all representations or statements bearing on or relating to this Agreement are expressly set forth herein. 7. Greyhound and Parent both understand and represent that they have not assigned any of their rights under the Policies or the Program Agreements, and the signatories to this Agreement represent that they are fully authorized to execute the agreements and releases set forth herein on behalf of Greyhound and Parent, respectively. 8. This Agreement shall be governed by and construed in accordance with the laws of Delaware. Greyhound and Parent agree that this Agreement can be filed in any court adjudicating issues or claims relating to the Policies and/or the Program Agreements.
GREYHOUND LINES, INC. LAIDLAW TRANSPORTATION, INC. By: /s/ CRAIG R. LENTZSCH By: /s/ LESLIE W. HAWORTH ------------------------ ----------------------------- Name: Craig R. Lentzsch Name: Leslie W. Haworth Title: President and CEO Title: Senior Vice President & CFO
2 EX-10.40 5 1ST AMEND. TO 2ND AMENDED EXECUTIVE EMPLOY. AGMT. 1 EXHIBIT 10.40 FIRST AMENDMENT TO THE SECOND AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This FIRST AMENDMENT TO THE SECOND AMENDED EXECUTIVE EMPLOYMENT AGREEMENT, dated this 31st day of December, 1999 (the "Amendment"), is by and among GREYHOUND LINES, INC. (together with its successors, the "Company"), LAIDLAW INC. (together with its successors, the "Parent") and JOHN WERNER HAUGSLAND (the "Executive"). WHEREAS, the Executive, Parent and the Company are parties to a Seconded Amended Executive Employment Agreement dated March 16, 1999 (the "Agreement"); and WHEREAS, the parties desire to modify and amend the terms of the Agreement as set forth herein. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth in this Amendment, the Executive, Parent and the Company agree as follows: 1. Based on an annual review and adjustment by the Company's Board of Directors, effective as of April 1, 1999, Executive's Base Salary shall be increased to $325,000. 2. The last sentence of Section 1(a) of the Agreement shall be modified to read as follows: "The Company and the Executive acknowledge that during the employment of the Executive pursuant to this Agreement, the Executive's Base Salary will be subject to an annual review and adjustment by the Board of Directors of the Company (the "Board of Directors") but, in no event, will the Executive's annual Base Salary be less than $325,000." 3. A new Section 1(e) to the Agreement shall be added as follows: "e. ANNUAL STAY BONUS: Beginning on the Effective Time and on the anniversary date of the Agreement thereafter for four (4) additional years, an annual stay bonus of $50,000 will accrue for the benefit of Executive. The stay bonus shall vest, and Executive shall be entitled to request payment of all or any portion of the vested amount, according to the following schedule:
Date Amount Vested ---- ------------- After March 30, 2002 $100,000 After March 30, 2003 $150,000 After March 15, 2004 $250,000"
1 2 4. The second sentence of Section 3 of the Agreement shall be deleted in its entirety and the following provision will be substituted therefor: "Executive's responsibilities shall include the inter-city coach, coach charter and line haul and any other related business thereto of Parent and its subsidiaries in the United States and Canada; provided, however, upon any realignment of Company and its affiliates along distinct product or business lines, Executive's responsibilities may be altered to exclude responsibility for the courier/package express and tour/charter businesses, and such change in responsibilities shall not constitute grounds for resignation by Executive for "Good Reason" pursuant to Section 2(c)(5)(a)(ii) of the Agreement." 5. The first sentence of Section 5(d) of the Agreement shall be deleted in its entirety and the following provision will be substituted therefor: "In the event of a Non-Renewal Without Good Cause or a Termination Without Good Cause or a Resignation For Good Reason, the Company agrees to continue any and all benefits as provided in the Greyhound Lines, Inc. Medical Plan and Subsections 1(d) (2) through (8) of this Agreement, as modified pursuant to the terms of Subsection 1(d), and Subsection 1(e) of this Agreement for twenty four (24) months after the effective date of termination, non-renewal or resignation." 6. Defined terms used herein without definition shall have the meaning as ascribed to such term as set forth in the Agreement. 7. Except for the modifications and amendments set forth in this document, the Agreement shall continue in full force and effect according to its original terms. 8. This Amendment shall become effective as of the date set forth above, except where an earlier date is specified in the Amendment. JOHN WERNER HAUGSLAND GREYHOUND LINES, INC. /s/ John W. Haugsland By: /s/ Craig R. Lentzsch - ----------------------------- --------------------------- Craig R. Lentzsch President and CEO LAIDLAW INC. By: /s/ John R. Grainger --------------------------- John R. Grainger President and CEO
2 EX-16.1 6 ARTHUR ANDERSEN LETTER DATED MARCH 29, 2000 1 EXHIBIT 16.1 March 29, 2000 Office of the Chief Accountant Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sir/Madam: We have read the four paragraphs of Item 9 included in the Form 10-K dated March 29, 2000 of Greyhound Lines, Inc. to be filed with the Securities and Exchange Commission and are in agreement with the statements contained therein. Very truly yours, Arthur Andersen LLP EX-21 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 Greyhound Lines, Inc. Amarillo Trailways Bus Center Inc. (75%) Atlantic Greyhound Lines of Virginia, Inc. (100%) Continental Panhandle Lines, Inc. (50%) Gateway Ticketing Systems, Inc. (25%) GLI Holding Company (100%) ASI Associations, Inc. (100%) Carolina Associates, Inc. (100%) Carolina Coach Company (100%) Wilmington Union Bus Station Corporation (3%) Red Bus Systems, Inc. (100%) Seashore Transportation Company (100%) Wilmington Union Bus Station Corporation (39.5%) LSX Delivery, LLC (100%) On-Time Delivery Service, Inc. (100%) Greyhound Transit Ltd (20%) Peoria Rockford Bus Lines LLC (99%) Texas New Mexico & Oklahoma Coaches, Inc. (100%) T.N.M.&O. Tours, Inc. (100%) Vermont Transit Co. Inc. (100%) Valley Garage Company (100%) Valley Transit Co., Inc. (100%) Greyhound de Mexico, S.A. de C.V. (99.9%) Peoria Rockford Bus Lines LLC (1%) SET Acquisition Corp. (100%) Sistema Internacional De Transporte de Autobuses, Inc. (100%) American Bus Sales Associates, Inc. (100%) Americanos U.S.A., LLC (51%) Autobus Leasing Co., LLC (51%) Autobuses Americanos, S.A. de C. V. (49%) Autobuses Amigos, LLC (51%) Autobuses Amigos, S.A. de C. V. (49%) Autobuses Crucero, S.A. de C. V. (49%) Gonzalez, Inc. d/b/a Golden State Transportation (51%) Grupo Centro, Inc. (100%) Los Buenos Leasing Co., Inc. (100%) Los Rapidos, Inc. (51%) Omnibus Americanos, S.A. de C. V. (49%) Transportation Reality Income Partners, L.P. (50%) Union Bus Station of Oklahoma City, Oklahoma (40%) Wilmington Union Bus Station Corporation (24.6%) EX-27 8 FINANCIAL DATA SCHEDULE
5 ART. 5 FOR 12-MOS 10-K 0000813040 GREYHOUND LINES INC 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 8,295 0 47,232 402 7,494 87,573 570,350 173,273 638,797 161,851 174,581 41,954 0 587 227,319 638,797 0 923,531 0 583,471 21,294 0 21,993 (17,757) (4,612) (14,423) 0 1,897 0 (16,320) 0 0
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