-----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, MWfu8aunmqmm54BLo9THCaoZ3U+6wo2v/4EvTnOVy7iRIim7+dikYAX/GFjXphr4 V1HsyD7QJrqs64hpeRbv/w== 0000950134-96-000738.txt : 19960318 0000950134-96-000738.hdr.sgml : 19960318 ACCESSION NUMBER: 0000950134-96-000738 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960315 SROS: AMEX 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10841 FILM NUMBER: 96535011 BUSINESS ADDRESS: STREET 1: 15110 N DALLAS PKWY STE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 2147157000 MAIL ADDRESS: STREET 1: P O BOX 660362 CITY: DALLAS STATE: TX ZIP: 75266-0362 10-K 1 FORM 10-K FISCAL YEAR END 12-31-95 1 ================================================================================ 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 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-10841 GREYHOUND LINES, INC. (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)
(214) 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 - ---------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value per share American Stock Exchange 10% Senior Notes, due July 31, 2001 American Stock Exchange 8.5% Convertible Subordinated Debentures, due March 31, American Stock Exchange 2007
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 the Form 10-K or any amendment to this Form 10-K. / / Aggregate market value of Common Stock held by non-affiliates of the registrant based on the last reported sale price of the Common Stock on the American Stock Exchange composite tape on March 1, 1996, was $203,196,084, which value, solely for the purposes of this calculation, excludes shares held by registrant's executive officers and directors. Such exclusion should not be deemed a determination by the registrant that all such individuals are, in fact, affiliates of the registrant. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES /X/ NO / / APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
CLASS OF COMMON STOCK OUTSTANDING AT MARCH 1, 1996 - ---------------------------------------------------------------------------------------------------------------- $.01 par value 58,179,326 shares
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the definitive proxy statement for the Registrant, to be filed not later than 120 days after the end of the fiscal year covered by this report, are incorporated into Part III by reference. ================================================================================ 2 GREYHOUND LINES, INC. AND SUBSIDIARIES INDEX TO FORM 10-K
PAGE NO. -------- PART I Item 1. Business............................................................... 1 Item 2. Properties............................................................. 6 Item 3. Legal Proceedings...................................................... 7 Item 4. Submission of Matters to a Vote of Security Holders.................... 10 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters................................................................ 11 Item 6. Selected Financial Data................................................ 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 14 Item 8. Financial Statements and Supplementary Data............................ 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................... 58 PART III Item 10. Directors and Executive Officers of the Registrant..................... 59 Item 11. Executive Compensation................................................. 62 Item 12. Security Ownership of Certain Beneficial Owners and Management......... 62 Item 13. Certain Relationships and Related Transactions......................... 62 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........ 65
3 PART I ITEM 1. BUSINESS GENERAL Greyhound Lines, Inc. and subsidiaries (the "Company") is the only nationwide provider of intercity bus transportation services in the United States. The Company currently provides scheduled passenger service to more than 2,400 destinations with a fleet of approximately 2,100 buses. The number of sales outlets increased by 50 during 1995 to approximately 1,500 sales outlets.(a) The Company also provides package express delivery service and, in certain terminals, food service. BUSINESS STRATEGY In late 1994, the Company began the implementation of a "back to basics" strategy focusing on increasing revenues by improving customer service and the frequency and convenience of schedule offerings. This strategy seeks to maximize the unique value of the Company's national bus network by serving both long and short-haul markets, connecting rural and urban America and providing transportation between major cities. During 1995, the Company has further refined this strategy to build on what management believes is the Company's most significant competitive advantage: providing travel to customers when they want to travel, where they want to travel, at an affordable price. Therefore, the Company has further increased its operating capacity, schedule offerings, and telephone answering capacity, and improved pricing and schedules related to long-haul travel. The Company actively manages pricing in individual markets to enhance demand for its services while optimizing margins, and during 1995 stabilized its pricing by introducing everyday low pricing and reducing the use of deeply discounted promotional tickets. The Company's new strategy is supported by a marketing campaign that integrates advertising, public relations, sales promotion and pricing. In response to the Company's strategy, passengers carried have increased each quarter during 1995 as compared to 1994, and passengers carried for the full year of 1995 increased 1.3 million, or 8.4%, as compared to 1994. The growth in passengers is reflected in the following table:
FIRST SECOND THIRD FOURTH FULL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- ------ 1995 Passengers Carried (000's)........ 3,606 4,054 5,179 4,447 17,286 1994 Passengers Carried (000's)........ 3,467 3,784 4,692 4,006 15,949 Percentage increase.................... 4.0% 7.1% 10.4% 11.0% 8.4%
As part of its revenue enhancement plans, the Company reestablished relations with certain regional bus carriers to improve interline service and to increase the use of shared terminals. Management is also developing programs to improve its package express delivery service through system upgrades, localized marketing strategies and price and schedule improvements. Additionally, the Company will continue its efforts to develop markets where it believes there are revenue growth opportunities, such as those along the U.S.-Mexico border and between major Hispanic population centers in the U.S. Many of the Company's operating expenses are fixed costs or costs that cannot be changed rapidly. For example, the costs associated with running bus miles would typically be classified as a variable cost. The Company operates approximately 86.5% of the aggregate bus miles on a regularly scheduled basis (the "base schedule offering"), approximately 10.0% of the aggregate bus miles are operated on a capacity flexible, "whenever you want to go" basis to provide service when the customer demand exceeds the base schedule offering ("extra-section miles") and the balance of the bus miles are attributable to charter, training and repositioning of equipment. When the schedules are published and the fleet and driver corps are organized - --------------- (a) In 1994, the Company disclosed the number of sales outlets as 1,700. This amount duplicated certain locations at which both Greyhound Lines, Inc. and its subsidiaries sold tickets. Further, it included certain locations which the Company served as bus stops, but at which no tickets were sold. The 1995 disclosure excludes these locations. 1 4 around the base schedule offering, the scheduled miles being run cannot be quickly reduced and, as a result, become more of a fixed cost. Accordingly, typical fixed costs such as depreciation, amortization and lease expenses related to the bus fleet and facilities, along with otherwise variable costs such as maintenance, driver operations and customer service generally do not vary proportionately with short-term changes in demand for the Company's services except to the extent that capacity flexible extra-section miles permit the adjustment of mileage-related costs. Management believes that the market requires a core offering of scheduled service and, as a result, there are limited opportunities to further reduce the Company's cost structure and that returning the Company to profitability will be principally dependent on increasing revenues. Moreover, the revenue enhancement strategy, which involves, in part, providing more convenient service over the Company's routes, the addition of new and more frequent schedules to meet customer travel preferences, as well as improvements in customer service and telephone answering, will require the Company to incur additional expenses during 1996 and future years compared to 1995 and 1994. While limited in overall scope, management is pursuing cost reduction opportunities in insurance and claims and accounting processes. The Company currently uses an automated system ("TRIPS") at approximately 260 terminals to sell tickets, issue daily reports of business, manage revenue and seat capacity and quote fare and schedule information. To further improve customer service, during late 1994, the Company modified its telephone answering procedures and, in May 1995, opened a new telephone center to provide more telephone-answering capacity. These improvements have resulted in an increase in the number of unique callers reaching the telephone information center from approximately 75% in October 1994, to approximately 94% in January 1995, to in excess of 98% in January 1996, and resulted in 23.6 million calls being handled in 1995 representing a 25.4% increase from the same period in 1994. MARKETS Passengers. The Company's major passenger markets are large metropolitan areas, although the business is geographically fragmented with the 50 largest of its 1,500 sales outlets accounting for approximately 48% of 1995 ticket sales and the 1,000 largest origin/destination city pairs comprising approximately 36% of 1995 ticket sales. Prior demographic studies have shown that the Company's potential riders are concentrated in the northeastern, southern and industrial Midwestern United States, as well as Texas and California. The typical passenger travels to visit friends and relatives and generally has an annual income of below $35,000. Based on market studies, the Company believes its customers are price sensitive but not particularly time sensitive. In many cases, the Company's passengers report that they own automobiles considered sufficiently reliable for a trip of a similar distance. 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 delivery service primarily serves small commercial shippers that require rapid delivery of small parcels within a fairly limited geographical area. Typical shipments include car repair parts, computer parts and forms, fresh flowers, eyeglasses, medical and dental supplies, and certain pharmaceutical products. This portion of the Company's business is strongest in the southern and western regions of the United States. The Company is not a significant service provider in the document or letter delivery business. Depending on the service chosen and the distance to the receiving location, the Company's delivery time ranges from four to 48 hours. During 1995, the average parcel shipped via the Company's package express delivery service weighed 20.25 pounds and was shipped at an average sales price of $13.35 as compared to 19.14 pounds and $13.15 during 1994. Food Service. The Company's food service division manages facilities in approximately 200 locations, which primarily serve the Company's passengers. The operations include Company-operated facilities and contract concessionaires and range in service levels from full-service cafeterias to vending machines. 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, 2 5 and in certain markets, regional bus companies and Amtrak. During the past few years, regional airlines have increased their penetration in intermediate-haul markets (400 to 1,000 miles), forcing the Company and the bus industry generally to reduce prices in these markets in order to compete. Additionally, airline discount programs may attract certain long-haul passengers 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 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 are more restrictive and less readily available than travel provided by the Company. In addition, the Company believes that in many cases it offers more destination choices and more convenient schedules. 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 trend through price and convenient scheduling. To some extent, the Company is protected from the incremental economics of auto travel since many of its customers travel alone. The lack of multiple, reliable cars within a family and fear of driving alone for long distances serve to offset the reduced convenience of bus travel and the economic advantage of multi-person travel in a single car. Competition from regional bus companies has increased materially during the past several years and may continue to increase in the future. Price, frequency of service and convenient scheduling are the current strategies of the Company to meet this competition. Regional bus companies currently service more routes in direct competition with the Company than in the recent past. These competitors also 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 Spanish speaking customers is growing, particularly in states along the U.S.-Mexican border. The Company also expects significant competition from Mexican bus carriers beginning in 1997 when barriers to entry into the cross-border intercity bus market are proposed to be eliminated under the North American Free Trade Agreement. In addition to bringing new competition, the Company believes that this change will serve to increase the volume of bus travel along both sides of the border. The Company is pursuing various strategies which take advantage of this opportunity, including alliances with Mexican bus carriers as well as U.S.-based Hispanic-oriented bus companies. Package Express. The Company faces intense competition in its package express delivery service from local courier services, the U.S. Postal Service and overnight, express and ground carriers. The Company is attempting to stabilize its position in the industry by concentrating its efforts on telemarketing and customer service by installing a 1-800 number staffed by knowledgeable sales personnel, by improving local marketing, and by utilizing terminal managers to solicit local sales prospects and improve local operations. In addition, the Company intends to pursue consignment shipping opportunities. 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 business as a whole, with peaks during the summer months and the Thanksgiving and Christmas holiday periods. Historically, the Company has experienced substantial seasonal variances in its cash flow. The first quarter of the year has historically produced operating losses and negative cash flows which are not offset until the third and fourth quarters when the Company's operations typically produce substantial positive cash flows. 1991 REORGANIZATION UNDER CHAPTER 11 In March 1990, substantially all the Company's bus drivers, clerical workers and mechanics represented by the Amalgamated Transit Union (the "ATU") went on strike following unsuccessful contract renewal 3 6 negotiations. Although the Company continued its operations by hiring replacement drivers as quickly as possible, and most striking workers, other than drivers, returned to work, the revenue losses and expenses associated with the strike exhausted the Company's cash resources. In June 1990, the Company filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). The Company's Chapter 11 plan of reorganization was confirmed by the United States Bankruptcy Court for the Southern District of Texas, Brownsville Division (the "Bankruptcy Court"), and the Company emerged from bankruptcy on October 31, 1991. WORKFORCE At January 31, 1996, the Company employed approximately 10,800 workers, consisting of approximately 4,200 terminal employees, 3,700 drivers, 1,000 supervisory personnel, 800 mechanics, 500 clerical workers, and 600 telephone information agents. Of the total workforce, approximately 8,100 are full-time employees and approximately 2,700 are part-time employees. Total salary and wage costs increased by 7.9% in 1995 to $230.0 million which accounted for 35% of total operating expenses in 1995. At January 31, 1996, 45% of the Company's employees were represented by collective bargaining agreements. The ATU represents approximately 4,180 of the Company's drivers, telephone information agents, terminal workers at two locations, and mechanics. These employees, with the exception of the terminal workers, are governed by a collective bargaining agreement that expires on January 31, 1999. The terminal workers at two locations are governed by collective bargaining agreements that expire during 1996. Additionally, approximately 370 mechanics and other maintenance employees in 20 locations are represented by the International Association of Machinists and Aerospace Workers (the "IAM"). The IAM-represented employees are governed by a labor contract that expires on October 1, 1996. Also, the International Brotherhood of Teamsters represents 138 terminal employees at three bus terminals. Texas, New Mexico & Oklahoma Coaches, Inc., a subsidiary of the Company, employs 138 drivers who are represented by the United Transportation Union and 42 mechanics represented by the IAM. TRADEMARKS The Company has a perpetual, exclusive license to use, at no cost, the Greyhound name and trademarks and the "image of the running dog" trademarks in the United States and Mexico for travel and transportation (except by water) purposes pursuant to a trademark license agreement. These names and 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 U.S. Department of Transportation (the "DOT"). Failure to maintain a satisfactory safety rating 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 and, hence, the right to provide transportation. The Company is subject to periodic and random inspections and audits by the DOT to determine whether the Company's drivers, buses and records are in compliance with the DOT's regulations. The DOT's regulations 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, 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 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 or 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 grandfathered from compliance under, EPA regulations, but, on occasion, the Company has been cited and fined for non-compliance with noise or emission standards. 4 7 Surface Transportation Board. As a result of the Interstate Commerce Commission Termination Act of 1995, the Company is now also regulated by 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 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. Agreements between motor carriers of passengers for their joint adoption of mileage guides, rules, divisions or general rate adjustments are subject to STB authorization and supervision. 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 express charges 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 and other local standards not inconsistent with Federal requirements. In some states the Company's securities issues are subject to regulation, in addition to those of the Securities and Exchange Commission. Other. In addition, the Company is subject to regulations under the Americans with Disabilities Act (the "ADA"), the Civil Rights Act of 1964, as amended, and the Occupational Safety and Health Act. Under the ADA, the Company will be required, at an uncertain date in the future, to make new buses accessible to disabled persons. The ADA does not require the retrofitting of existing buses with lift equipment. The DOT is currently developing regulations regarding bus access and determining whether new buses should be equipped with lift equipment or whether alternative forms of stationary terminal-based lift devices should be permitted. Following the promulgation of final regulations, which are not expected to be finalized during 1996, the Company will have two years before the new regulations become effective, at which point newly acquired buses must be accessible. The form of required access is uncertain as of the date of this filing, but the expense of compliance, once the new regulations take effect, could be material to the Company's results of operations. The Company expects that new buses with built-in lift devices will be more costly to purchase, by as much as $10,000 to $25,000 per bus, and will be more costly to maintain. Additionally, the ADA requires the Company to design its new facilities and retrofit existing facilities to eliminate barriers affecting access by handicapped persons. The Company has a program to identify and address mobility barriers at its facilities and has made, and is expected to continue to make, expenditures to address these issues. INSURANCE COVERAGE The Interstate Commerce Commission (now the DOT) has 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. To maintain self-insurance authority, the Company is required to maintain a tangible net worth of $10.0 million (as of December 31, 1995, the Company's tangible net worth was $129.8 million) and to maintain a $15.0 million trust fund (currently fully funded) to provide security for payment of claims. Subsequent to the self-insurance grant by the federal government, thirty-eight states granted the Company the authority to self-insure its intrastate automobile liability exposure. The Company maintains comprehensive automobile liability and general liability insurance to insure its assets and operations subject to a $1.5 million self-insured retention per occurrence. The Company also maintains property insurance subject to a $0.1 million deductible per occurrence, and maintains workers' compensation insurance, subject to a $1.0 million deductible per occurrence. Insurance coverage and risk management expense are a key component of the Company's cost structure. A decision by the Company's insurers to modify the Company's program substantially, by either increasing cost, reducing availability or increasing collateral, could have a materially adverse effect on the Company's financial condition. 5 8 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 by Company personnel, 74 locations have been identified as sites requiring potential clean-up and/or remediation as of December 31, 1995. The Company has estimated the clean-up and/or remediation costs of these sites to be $4.3 million, of which $0.9 million is indemnifiable by the predecessor owner of the Greyhound domestic bus operations, now known as The Dial Corp ("Dial"). The Company has no reason to believe that Dial will not fulfill its indemnification obligations to the Company. However, if Dial does not fulfill such obligations, the Company could have liability with respect to those matters. Additionally, the Company has been designated as a potentially responsible party by the EPA at three Superfund sites where the Company and other 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 the 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 $1.0 million receivable from Dial for the indemnification at December 31, 1995, including costs associated with previously remediated sites. The Company has also recorded a total environmental reserve of $4.2 million at December 31, 1995 for noncapitalizable expenses related to the sites identified for potential clean-up and/or remediation. The reserve amount for the remaining sites is based on discounted cash flows at a discount rate of 8%. Management believes that adequate accruals have been made related to all known environmental matters. ITEM 2. PROPERTIES LAND AND BUILDINGS At January 31, 1996, the Company used 502 pieces of real property in its operations, of which 153 properties are owned and 349 are leased. Of those properties, 396 are bus terminals, 33 are maintenance facilities, and the remaining properties consist of driver dormitories, parking/storage lots, office buildings and telephone information centers. The Company's properties vary in size from approximately 100 square feet to approximately 150,000 square feet. The Company leases eight of its key facilities from Dial, seven of which are leased pursuant to a master lease agreement that expires in March 1997. Under the master lease agreement, Dial may terminate the lease as to any or all of the seven leased properties on six months' notice. The Company is reviewing the suitability of each of the remaining Dial properties and may either attempt to negotiate the purchase or re-lease of some of the facilities or find alternative locations from which to conduct business. The Company believes the current makeup of its properties is adequate for its operations, and although there is 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 (including those properties leased from Dial). BUSES At January 31, 1996, the Company operated a fleet of approximately 2,100 buses. Of those buses, approximately 800 are owned and 1,300 are leased. All but 181 of these buses were produced by one manufacturer, Motor Coach Industries International, Inc. ("MCII"). The Company must purchase at least 75% of its bus requirements, if any, from MCII pursuant to a bus purchase requirements contract that continues through March 18, 1998. The average age of the fleet has been reduced from 9.5 years in January 1993 to 6.8 years in January 1996. However, 30% of the Company's bus fleet remains in excess of 10 years old. While the Company could continue to use these older buses, the Company intends, over time, to replace these older, less reliable vehicles with new buses. The Company believes that newer buses, as well as older buses with newer engines, are more fuel efficient than buses with older engines. New buses are generally less costly to maintain, in part because of warranty coverage. The Company also anticipates acquiring new buses to increase the size 6 9 of the fleet in order to implement its plan to increase revenues by operating additional bus miles. Due to technical design improvements and governmental regulations, the principal bus engine model used in the Company's fleet will no longer be available after 1997. In anticipation of this change, the Company expects to acquire and begin advance testing of new bus models. The Company expects to acquire up to 250 new buses during 1996 at an aggregate cost of approximately $62 million. Orders will be placed subject to the availability of cash from operations or financing on suitable terms. Financing may be obtained through a variety of methods, including borrowings under its credit agreement, operating and capital leases, and the possible sale of securities. While the Company believes that its available credit facility will provide the necessary funds for a significant portion of these buses and that recent operating trends will support additional financing, there can be no assurance that the Company will be able to obtain the necessary financing on suitable terms for these purposes. ITEM 3. LEGAL PROCEEDINGS LABOR LITIGATION The ATU strike in March 1990 resulted in litigation before the National Labor Relations Board ("NLRB"). In early 1995, a settlement among the ATU, the NLRB and the Company was finalized. The settlement resulted in the dismissal of all litigation between the ATU, the NLRB and the Company, with the exception of one issue related to the Company's granting, in 1990, of experience-based seniority ("EBS") to drivers hired with previous commercial driving experience. The Company continued to litigate this issue before the NLRB. In September 1994, an Administrative Law Judge ("ALJ") of the NLRB issued a ruling finding that the granting of EBS to drivers with previous commercial driving experience constituted an unfair labor practice by the Company. The Company appealed the ALJ's ruling. In October 1995, the NLRB affirmed the ALJ's ruling. The Company opted not to appeal the NLRB's decision and in December 1995 announced that it would eliminate EBS, effective in January 1996. In June 1995, the Company extended an offer to over 350 post-March 1990 drivers with EBS. Pursuant to the offer, approximately 80% of eligible drivers agreed to relinquish their seniority rights in return for cash payments. In December 1995, a revised offer was made to the post-March 1990 drivers who did not accept the prior buyout. Approximately two-thirds of the remaining drivers accepted the revised offer, leaving, as of March 1, 1996, 21 post-March 1990 drivers who have not released the Company from liability as a result of their loss of EBS seniority. These remaining 21 drivers could sue the Company based on damages allegedly resulting from the loss of EBS, although to date, only one of these remaining drivers has commenced litigation. Based on an assessment of the potential liability it could face from claims by these remaining EBS drivers, the Company does not believe that any such liability exposure is material nor should it materially exceed the amounts recorded. The elimination of EBS also affected drivers hired before March 1990. However, liability to this class of drivers was resolved in the aforementioned settlement. DEPARTMENT OF JUSTICE INVESTIGATION In March 1994, the Antitrust Division of the U.S. Department of Justice (the "DOJ") initiated an antitrust investigation to determine whether there is, has been, or may be a violation by the Company of Sections 1 and 2 of the Sherman Act by conduct or activities constituting a restraint of trade, monopolization or an attempt to monopolize. This investigation principally involved the competitive impact of (i) the Company's computerized reservation system, including the provision of fare and scheduling information via telephone, (ii) the Company's decision to discontinue publishing its bus schedules in an industry publication and (iii) various provisions contained in agreements with bus carriers using the Company's terminals. In April 1995, the Company resumed publishing its schedules in the industry publication. Pursuant to this investigation, the DOJ served a civil investigative demand ("CID") on the Company in March 1994. The CID required the Company to answer various interrogatories and to produce certain documents. In July 1994, the Company completed the production of documents and answered the interrogatories required by the CID. 7 10 In September 1995, the Company agreed with the DOJ to the entry of a consent decree that would end the investigation. Under the provisions of the consent decree, the Company has agreed not to enforce a provision in its bus terminal lease agreements prohibiting a tenant bus carrier from selling its tickets within 25 miles of the Company's terminal and has agreed not to adopt any comparable provision. The Company rarely enforced this lease provision and recently revised its lease agreements to eliminate the provision. The consent decree was approved by a federal district court on February 28, 1996, and is now final. The consent decree does not constitute an admission by the Company of any violation of law, liability or wrongdoing. Management of the Company believes that the consent decree will have no material impact on the Company's business, financial condition or results of operations. OKLAHOMA SALES TAX CLAIM In January 1991, the Oklahoma Tax Commission ("OTC") filed a proof of claim with the Bankruptcy Court in connection with the Company's 1990 Chapter 11 bankruptcy case. That claim related to sales taxes which the OTC alleged were due and owing by the Company on interstate bus tickets sold in Oklahoma. The OTC claim involved a proposed assessment of approximately $908,000 plus additional interest from the date of the claim. The Company objected to the claim on the basis that the tax the OTC proposed to assess was an improper burden on interstate commerce in violation of the Commerce Clause of the United States Constitution. In February 1993, the Bankruptcy Court denied the OTC's claim in its entirety, finding that the Oklahoma sales tax on interstate travel was unconstitutional. The OTC subsequently appealed the Bankruptcy Court's decision. In April 1995, the United States Supreme Court upheld the constitutionality of a sales tax imposed on interstate bus tickets by the State of Oklahoma in a case involving another bus company. Subsequent to the Supreme Court's decision, the Company's case has been remanded to the Bankruptcy Court where additional proceedings concerning the claim will be heard. In April 1995, the Company began collecting sales taxes from its customers for interstate bus tickets sold in Oklahoma. Additionally, the OTC conducted an audit for the sales taxes due for the period from August 1992 to July 1995. The Company established a reserve during 1995 for its estimate of the liability for the Bankruptcy claim and such audits. Based on an assessment of the potential liability, the Company does not believe that any such liability exposure is material nor should it materially exceed the amounts recorded. Effective as of January 1, 1996, by federal legislation, all states, including Oklahoma, are prohibited from collecting sales, use or similar taxes on interstate bus tickets. SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION Between August and December 1994, seven purported class action lawsuits were filed by purported owners of the Company's Common Stock (defined herein), Convertible Debentures (defined herein) and Senior Notes (defined herein) against the Company and certain of its former officers and directors. The suits seek unspecified damages for securities law violations as a result of statements made in public reports and press releases and to securities analysts during 1993 and 1994 that are alleged to have been false and misleading. All the purported class action cases referred to above (with the exception of one suit that was dismissed before being served on any defendants) have been transferred to the United States District Court for the Northern District of Texas, the Court in which the first purported class action suit was filed, and are pending under a case styled In re Greyhound Securities Litigation, Civil Action 3-94-CV-1793-G. A joint pretrial order has been entered in the class action litigation which consolidates for pretrial and discovery purposes all of the stockholder actions and, separately, all of the debtholder actions. The joint pretrial order required plaintiffs to file consolidated amended complaints and excused answers to the original complaints. In July 1995, the plaintiffs filed their consolidated amended complaints, naming Greyhound Lines, Inc., Frank J. Schmieder, J. Michael Doyle, Phillip W. Taff, Robert R. Duty, Don T. Seaquist, Charles J. Lee, Charles A. Lynch and Smith Barney Incorporated as defendants. Messrs. Lee and Lynch were subsequently dismissed from the case by the plaintiffs. In September 1995, the various defendants filed motions to dismiss plaintiffs' complaints. Also, in September 1995, plaintiffs filed a motion seeking to certify the class of plaintiffs. Both motions have been fully briefed and are pending for decision before the Court. 8 11 In November 1994, a shareholder derivative lawsuit was filed by Harvey R. Rice, a purported owner of the Company's Common Stock, against present directors and former officers and directors of the Company and the Company as a nominal defendant. The suit seeks to recover monies obtained by certain defendants by allegedly trading in the Company's securities on the basis of nonpublic information and to recover monies for certain defendants' alleged fraudulent dissemination of false and misleading information concerning the Company's financial condition and future business prospects. The suit, filed in the Delaware Court of Chancery, New Castle County, is styled Harvey R. Rice v. Frank J. Schmieder, J. Michael Doyle, Charles A. Lynch, Richard J. Caley, Thomas F. Meagher, Thomas G. Plaskett, Kenneth R. Norton, Robert B. Gill, Alfred E. Osborne, Jr., J. Patrick Foley, Charles J. Lee and Greyhound Lines, Inc., Civil Action No. 13854. Pursuant to a stipulation, the time for all defendants to answer, move or otherwise plead with respect to the derivative complaint is not yet due. In May 1995, a lawsuit was filed on behalf of two individuals, purported owners of the Company's Common Stock, against the Company and certain of its former officers and directors. The suit seeks unspecified damages for securities law violations as a result of statements made in public reports and press releases and to securities analysts during 1993 and 1994 that are alleged to have been misleading. The suit, filed in the United States District Court for the Northern District of Ohio, is styled James Illius and Teodore J. Krawec v. Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action No. 1-95-CV-1140. The defendants filed a motion to transfer venue seeking to have the case transferred to the Northern District of Texas where the class action litigation is pending. In September 1995, the defendants' motion was granted and pursuant to the joint pretrial order in the class action case, the matter will be consolidated into the litigation pending before the Court in Dallas. Based on a review of the litigation, a limited investigation of the underlying facts and discussions with legal and outside counsel, the Company does not believe that the outcome of this litigation would have a material adverse effect on its business and financial condition. The Company intends to defend against the actions vigorously. To the extent permitted by Delaware law, the Company is obligated to indemnify and bear the cost of defense with respect to lawsuits brought against its officers and directors. The Company maintains directors' and officers' liability insurance that provides certain coverage for itself and its officers and directors against claims of the type asserted in the subject litigation. The Company has notified its insurance carriers of the asserted claims. In January 1995, the Company received notice that the Securities and Exchange Commission (the "SEC") is conducting a formal, non-public investigation into possible securities laws violations allegedly involving the Company and certain of its present and former officers, directors and employees and other persons. The SEC Order of Investigation (the "Order of Investigation") states that the SEC 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 SEC 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 SEC 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 SEC served a document subpoena on the Company requiring the production of documents, most of which the Company voluntarily produced to the SEC in late 1994. The Company is fully cooperating with the SEC's investigation of these matters. The probable outcome of this investigation cannot be predicted at this stage in the proceeding. OTHER LEGAL PROCEEDINGS In addition to the litigation discussed above, the Company is a defendant in various lawsuits arising in the ordinary course of business, primarily cases involving personal injury and property damage claims. Although these lawsuits involve a variety of different facts and theories of recovery, the majority arise from traffic accidents involving buses operated by the Company. The vast majority of these claims are covered by insurance for amounts in excess of the self-retention or deductible portion of the policies. Therefore, based on the Company's assessment of known claims and its historical claims payout pattern and discussion with legal and outside counsel and risk management personnel, management believes that there is no proceeding either 9 12 threatened or pending against the Company relating to such personal injury and/or property damage claims arising out of the ordinary course of business that, if resolved against the Company, would materially exceed the amounts recorded. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 10 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Common Stock, par value $.01 per share (the "Common Stock"), of the Company is 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 1994....................................... $12 1/2 $9 1/2 Second Quarter 1994...................................... 11 6 1/4 Third Quarter 1994....................................... 6 7/8 1 3/4 Fourth Quarter 1994...................................... 3 1 5/8 First Quarter 1995....................................... $ 2 3/4 $1 1/4 Second Quarter 1995...................................... 5 11/16 2 15/16 Third Quarter 1995....................................... 5 5/16 3 1/2 Fourth Quarter 1995...................................... 4 5/8 3 5/8 January 1, 1996 - March 1, 1996.......................... $ 4 9/16 $2 7/8
HOLDERS The number of shares of Common Stock outstanding as of March 1, 1996, was 58,179,326. The Company has issued 58,288,518 shares of Common Stock, of which 109,192 shares are currently held by the Company as treasury stock. As of March 1, 1996, there were approximately 12,976 recordholders of Common Stock. DIVIDENDS The Company has not paid any dividends on the Common Stock in the past and does not expect to pay any dividends on the Common Stock in the foreseeable future. The indenture governing the Senior Notes (defined herein) restricts the Company's ability to pay, and the New Credit Facility (defined herein) prohibits the Company from paying cash dividends on the Common Stock. In the event the Company were not contractually prohibited from paying dividends, the holders of Common Stock would be entitled to receive dividends only when and as declared by the Board of Directors of the Company, subject to the prior rights and preferences, if any, of holders of preferred stock. CONVERTIBLE DEBENTURES At December 31, 1995, the Company had outstanding $9.8 million principal amount of its 8.5% Convertible Subordinated Debentures due March 31, 2007 (the "Convertible Debentures") which are convertible at the option of the holder at any time prior to maturity, unless previously redeemed, into Common Stock at the conversion price of $12.375 per share, subject to adjustment in certain events (see Note 12 to the December 31, 1995, Consolidated Financial Statements). In December 1994, the Company completed the Tender Offer (defined herein) in which approximately $89.0 million of its Convertible Debentures were exchanged for approximately 22.8 million shares of the Company's Common Stock (see ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"). 11 14 ITEM 6. SELECTED FINANCIAL DATA Except for "Other Data" and "Operating Data," the following have been extracted from the audited Consolidated Financial Statements of the Company for each of the respective periods. The Company's results of operations for the ten months ended October 31, 1991, are not representative of normal operations, and thus, are not comparable to its results of operations for subsequent periods due to the effects of the strike that began on March 2, 1990, and the Company's subsequent Chapter 11 reorganization. See "BUSINESS -- Reorganization under Chapter 11" included elsewhere in this filing. Additionally, as a result of the adoption of fresh start financial reporting upon emergence from bankruptcy and the consolidation, pursuant to the Company's Chapter 11 plan of reorganization, of the operations of the Company and previously unconsolidated affiliates under a centralized corporate structure, the Statement of Operations Data for the ten months ended October 31, 1991, are not comparable to the Statement of Operations Data and the Operating Data presented for later periods. Additionally, the Statement of Operations Data for the year ended December 31, 1994, includes $61.9 million in certain operating charges which may affect comparability. The following financial data, as it relates to the Company, should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", "BUSINESS" and the Consolidated Financial Statements of Greyhound Lines, Inc. and Subsidiaries included elsewhere in this filing. FIVE-YEAR STATISTICAL SUMMARY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED TWO MONTHS TEN MONTHS DECEMBER 31, ENDED ENDED ---------------------------------------------------- DECEMBER 31, OCTOBER 31, 1995 1994(A) 1993 1992 1991 1991 ----------- ----------- ----------- ---------- ------------ ----------- STATEMENT OF OPERATIONS DATA: Operating revenues........................ $ 657,364 $ 616,331 $ 666,496 $ 692,981 $ 124,937 $ 609,751 Operating expenses Transportation services(b)................ 616,991 645,761 593,501 604,094 109,888 583,968 Depreciation and amortization............. 31,010 36,046 33,154 33,499 5,255 24,478 Interest expense............................ 26,807 33,456 30,832 35,297 6,038 15,557 Reorganization costs(c)..................... -- -- -- -- -- 83,150 Income tax provision (benefit)............ 374 16,862 6,253 9,142 1,580 (355) Income (loss) before extraordinary items and cumulative effect of a change in accounting principle...................... (17,818) (115,794) 8,594 10,949 2,176 (97,047) Extraordinary items(d)...................... -- (38,373) 407 -- -- (249,698) Cumulative effect of a change in accounting principle(e).............................. -- -- 690 -- -- -- Net income (loss)........................... $ (17,818) $ (77,421) $ 7,497 $ 10,949 $ 2,176 $ 152,651 Earnings per share of Common Stock(f): Primary Income (loss) before extraordinary items and cumulative effect of a change in accounting principle.... $ (0.33) $ (7.58) $ 0.65 $ 1.10 $ 0.22 N/A Extraordinary items................. -- 2.51 (0.03) -- -- N/A Cumulative effect of a change in accounting principle.............. -- -- (0.05) -- -- N/A ---------- ---------- ---------- --------- --------- Net income (loss)................... $ (0.33) $ (5.07) $ 0.57 $ 1.10 $ 0.22 N/A ========== ========== ========== ========= ========= Fully diluted Income (loss) before extraordinary items and cumulative effect of a change in accounting principle.... $ (0.33) $ (7.58) $ 0.65 $ 0.96 $ 0.22 N/A Extraordinary items................. -- 2.51 (0.03) -- -- N/A Cumulative effect of a change in accounting principle.............. -- -- (0.05) -- -- N/A ---------- ---------- ---------- --------- --------- Net income (loss)................... $ (0.33) $ (5.07) $ 0.57 $ 0.96 $ 0.22 N/A ========== ========== ========== ========= =========
12 15
YEARS ENDED TWO MONTHS TEN MONTHS DECEMBER 31, ENDED ENDED ---------------------------------------------------- DECEMBER 31, OCTOBER 31, 1995 1994(A) 1993 1992 1991 1991 ---------- ---------- ---------- --------- ------------ ----------- STATEMENT OF FINANCIAL POSITION DATA: Total assets.............................. $ 480,648 $ 511,449 $ 541,812 $ 485,936 $ 480,667 $ 503,462 Long-term debt(g)......................... 172,671 197,125 260,412 290,712 269,010 290,873 Stockholders' equity...................... 149,762 153,196 152,166 52,262 41,813 39,637 OTHER DATA: Outstanding shares of Common Stock(f)..... 58,168,126 37,458,552 14,651,154 9,911,029 9,911,026 N/A Number of common stockholders(f).......... 15,228 14,692 14,611 15,890 15,800 N/A Dividends declared per common share(f).... -- -- -- -- -- N/A OPERATING DATA: Regular service miles operated (millions).............................. 257 236 235 242 41 209 Passenger miles (millions)................ 5,985 5,392 5,926 5,967 989 5,394 Load factor (% of available seats filled)................................. 50.7 49.9 56.0 54.8 53.9 57.5 Yield per passenger mile (cents).......... 9.36 9.61 9.45 9.73 10.26 9.39 Passenger revenue per regular service mile (dollars)............................... 2.18 2.20 2.38 2.40 2.49 2.42
- --------------- NOTES: (a) The 1994 loss reflected $61.9 million in certain operating charges, including increases in insurance and legal reserves to recognize the pre-bankruptcy claims previously barred by the courts, adverse claims development in 1994, and certain litigation exposure; write-downs of real estate and other assets; costs associated with an operational restructuring; and a $17.0 million increase in the income tax provision due to the reversal of a previously recognized deferred tax benefit. (b) Transportation services includes bus operating lease payments of $23.7 million, $22.7 million, $20.0 million, $27.8 million, and $31.8 million for the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively. (c) These reorganization costs are incremental revenues and expenses related to the Company's Chapter 11 reorganization combined with the impacts of the application of fresh start reporting to record the fair value of assets and assumed liabilities of the reorganized Company. (d) For the year ended December 31, 1994, the Company recorded an extraordinary loss of $3.6 million, of which $3.2 million related to the write-off of debt issuance costs and $0.4 million related to professional fees in conjunction with the replacement of the Company's existing credit agreement with a new credit agreement. The Company also recorded an extraordinary gain of $41.9 million for the year ended December 31, 1994, related to the conversion of $89.0 million of Convertible Debentures into Common Stock (see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"). The Company recorded an extraordinary loss of $0.4 million for the year ended December 31, 1993, on the write-off of debt issuance costs related to the replacement of the Company's then existing credit agreement with a new credit agreement (see Note 9 to the December 31, 1994 Consolidated Financial Statements). The Company recorded an extraordinary gain on extinguishment of debt of $249.7 million for the ten months ended October 31, 1991, related to its emergence from bankruptcy. (e) The net impact from adoption of SFAS No. 109 (defined herein, see Note 13 to the December 31, 1995, Consolidated Financial Statements) was $0.7 million and is reported as a charge to earnings as the cumulative effect of a change in accounting principle for the year ended December 31, 1993. (f) The completion of the tender offer portion of the Company's Financial Restructuring resulted in the issuance of approximately 22.8 million shares of Common Stock in December 1994 upon the conversion of approximately $89.0 million of Convertible Debentures into Common Stock. In January 1995, the Company issued an additional 16.3 million shares of Common Stock in connection with the consummation of the Rights Offering. The Company issued 4,000,000 shares of Common Stock on October 3, 1995 (see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"). The Company's stock was privately held prior to emergence from bankruptcy on October 31, 1991. (g) The Company's long-term debt was reduced by $89.0 million in December 1994 as a result of the conversion of the Convertible Debentures to Common Stock. During December 1995, the Company repurchased $10.7 million aggregate principal amount of its 10% Senior Notes due 2001 pursuant to a put/call agreement with one of the Company's principal stockholders (see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"). 13 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL RESOURCES AND LIQUIDITY Public Offering. The Company filed a registration statement on Form S-3 relating to the sale of up to 10,004,144 shares of Common Stock which was declared effective on September 28, 1995, and on October 3, 1995, the sale of the stock was completed. Four million shares were sold by the Company and 6,004,144 shares were sold by Motor Coach Industries Limited, a selling stockholder. The Company did not receive any portion of the proceeds from the sale of shares of Common Stock by the selling stockholder. Net proceeds to the Company from the sale of the 4,000,000 shares of Common Stock offered by the Company were $15.4 million. The Company used $9.7 million of the net proceeds it received to repurchase (the "Senior Note Repurchase") $10.7 million aggregate principal amount of its 10% Senior Notes due 2001 (the "Senior Notes") pursuant to a put/call agreement with one of the Company's principal stockholders. The purchase price for the Senior Notes was based on arm's-length negotiations. The Company used the remaining net proceeds from the sale of the Common Stock for general corporate purposes. Pending use, the net proceeds to the Company from the offering were invested in short-term, interest-bearing securities or were used to reduce the borrowings under the New Credit Facility (defined herein). Capital Structure and Leverage. The Company had $172.7 million in long-term debt outstanding (excluding $17.8 million of issued and undrawn standby letters of credit) at December 31, 1995, which primarily consisted of the Company's Senior Notes. Although the Company generally requires significant cash flows to meet its debt and other continuing obligations, the Senior Note Repurchase will reduce these requirements for the near term. After giving effect to the Senior Note Repurchase, the Company's semi-annual interest payments on the Senior Notes will be reduced from $8.2 million to $7.6 million (each January 31 and July 31). The Senior Notes sinking fund requirements for 1996, in the amount of $8.0 million, will be met through the Senior Notes repurchased in 1995 and the $1.7 million of Senior Notes which the Company owned prior to the Senior Note Repurchase. The balance of the Senior Note Repurchase will be applied to the July 1997 sinking fund payment. As a result of the application of the remaining Senior Note Repurchase, the July 1997 sinking fund payment will be reduced from $10.0 million to approximately $5.7 million. The sinking fund payment due July 1998 is $15.0 million and increases annually thereafter. The Company will also require $26.0 million in the aggregate for other debt service, $20.7 million of which is interest (including interest on the Senior Notes) and $36.8 million for bus, real estate and other operating lease obligations during 1996. During February 1995, in connection with the Financial Restructuring (see -- "Financial Restructuring"), the Company pre-paid $12.9 million in bus financing to Motor Coach Industries Acceptance Corporation ("MCIAC"). The pre-payment resulted in the release of liens on 64 buses, which the Company then pledged as collateral under the New Credit Facility (defined herein). Aggregate amounts outstanding to MCIAC were $6.7 million as of December 31, 1995. In July 1995, the Company issued 415,044 shares of Common Stock to participants in the Company sponsored 401(k) cash or deferred retirement plans that cover substantially all of its ongoing salaried, hourly and represented employees. Liquidity. Operating cash flows, together with cash from financing activities, seasonal revolving credit borrowings and sales of assets, historically have been sufficient to fund the Company's operations and investing activities which consist primarily of capital expenditures for new bus acquisitions, systems development costs and, where appropriate, facilities replacements or upgrades. For the year ended December 31, 1995, operating activities provided net cash of $29.5 million. However, during each year, the seasonal fluctuations in the Company's cash flows can be significant. Typically, cash flow for the first quarter of the year is negative, and is not offset until the third and fourth quarters, which typically produce substantial positive cash flows. The net cash required for financing activities, as well as cash required for investing activities, were funded by cash provided by operating activities, proceeds from the issuance of common stock, proceeds received from the Rights Offerings (see -- "Financial Restructuring"), and the sale of surplus assets. At December 31, 1995, 14 17 the Company had cash and cash equivalents of $3.5 million and $34.7 million in available borrowing capacity under the New Credit Facility (defined herein) for general purposes. Additionally, the Company had sufficient unpledged collateral which could be pledged under the terms of the New Credit Facility to increase total available borrowing capacity to $51.7 million. The Company is party to two floating rate interest rate swap agreements. In October 1994, the agreements were amended to lock in future payments under the agreements until maturity in July 1998. The net result of the amendments is that these swaps will not be subject to interest rate risk. Under the amendments, the Company will be required to pay $5.8 million in total from December 31, 1995 through the remaining term of the five-year agreements. The Company has collateralized its payment obligations under the amended agreements with a $1.1 million letter of credit and liens on six pieces of Company-owned real property. The Company is currently in negotiations with the counterparty to reduce collateral requirements for 1996 and beyond. During October 1994 as part of the Financial Restructuring (see -- "Financial Restructuring"), the Company entered into a revolving credit facility (the "Credit Facility") with Foothill Capital Corporation ("Foothill"), which replaced the Company's prior bank facility. At the time of the Financial Restructuring, the Credit Facility provided for revolving loans and letters of credit and/or letter of credit guarantees of up to $35.0 million. In June 1995, the Company renegotiated its Credit Facility (the "New Credit Facility"). The New Credit Facility provides for revolving loans, letters of credit and letter of credit guarantees up to a maximum commitment of $73.5 million. As of December 31, 1995, there were approximately $17.8 million in issued and undrawn standby letters of credit outstanding under the New Credit Facility, and no revolving borrowings outstanding under the New Credit Facility. Syndication commitments under the New Credit Facility, including Foothill's commitment as the lead agent, total $70.0 million at March 1, 1996. Availability under the New Credit Facility is limited to the aggregate of the following: (1) revolving advances of up to $3.5 million based on a formula of certain eligible accounts receivable; (2) revolving advances of up to $44.5 million (the "Fixed Asset Advances") based on the value of certain fixed asset collateral pledged to Foothill; and (3) a bus purchase facility of up to $22.0 million (the "Bus Purchase Facility"). Borrowings under the New Credit Facility mature on May 31, 1998, although availability under the Fixed Asset Advances will be subject to quarterly reductions after April 1996, unless additional collateral is pledged. The New Credit Facility is secured by liens on substantially all the assets of the Company, excluding real estate purchases and new bus purchases that are specifically pledged to support borrowings under the Bus Purchase Facility. The New Credit Facility allows the Company to dispose of certain non-core real estate properties. In addition, non-bus capital expenditures are limited to $25.0 million annually with no spending limitations on bus purchases as long as financed through debt, or operating or capital leases with maturities of no less than five years. The Company is currently completing negotiations to increase the commitments under the New Credit Facility to $80.0 million and extend the agreement to January 15, 1999. The Company expects to successfully complete these negotiations by April 1996. The New Credit Facility is subject to financial covenants, including maintenance of a minimum net worth and an agreed ratio of cash flow to interest expense. At December 31, 1995, the Company was in compliance with these covenants. In addition, the New Credit Facility provides for a reduction in interest rates if certain ratio levels of cash flow to interest expense, in excess of a minimum, are achieved. As of December 31, 1995, the Company had exceeded the first threshold level and, as a result, the applicable interest rate on any borrowings under the New Credit Facility will be reduced from 2.0% above the prime rate to 1.75% above prime effective February 1, 1996. The Company has embarked on an aggressive risk reduction and claims reduction program. Due to a decrease in the pending inventory of claims, certain insurance carriers have reduced their collateral and security requirements for previous years' claims, which resulted in a return of collateral and security to the Company of approximately $8.5 million during April 1995 and approximately $14 million during December 1995. Nevertheless, a decision by the Company's insurers to modify the Company's program substantially, by 15 18 either increasing cost, reducing availability or increasing its collateral requirements, could have a material adverse effect on the future liquidity and operations of the Company. During the Company's bankruptcy in 1990, certain funds were set aside to cover claims arising under the Interstate Commerce Commission (now the DOT) Trust Fund. Those claims have been concluded, and a final distribution has been made to the claimants. The Interstate Commerce Commission Trust Fund was collateralized with a $2.0 million letter of credit which was released to the Company during September 1995. Pension Plan Status. Funding Requirements. The Company has five defined benefit pension plans. The most significant plan is the Greyhound Lines, Inc. Retirement and Disability Trust (the "ATU Plan") which covers approximately 17,000 current and former employees, primarily drivers, fewer than 1,500 of whom are active employees as of December 31, 1995. The ATU Plan was closed to new participants in November 1983 and, as a result, over 79% of the participants are 50 or more years old. For financial reporting and investment planning purposes, the Company uses a mortality table that closely matches the actual experience related to the existing participant population. In December 1994, the Congress passed the General Agreement on Tariffs and Trade ("GATT") legislation. Included in this bill was a specification that Employee Retirement Income Security Act of 1974, as amended ("ERISA") funding requirements for pension plans be calculated using a specific actuarial mortality table ("GATT-specified table"). This GATT-specified table differs significantly from the table the Company has been using to value the pension liabilities for financial reporting purposes. If the Company is required to measure the pension liability, for ERISA funding purposes, utilizing the GATT-specified table, it will be required to begin making contributions to the ATU Plan at some time after 1997 in annual amounts potentially ranging from $2.3 million to $19.8 million. Management believes, however, that the ATU Plan is currently adequately funded to meet the future benefit obligations. If the Company is required to measure ERISA funding requirements using the GATT-specified table, the Company believes that the ATU Plan will be over-funded on an actual basis. Additionally, the ATU Plan documents provide that if the Company is required to make contributions, benefits will be frozen and active participants will not accrue any further benefits for continued service. This freeze could contribute to further over-funding since the earnings on the assets that are normally applied to fund current service accruals would be entirely applied to increase the funding levels of the ATU Plan. If the ATU Plan is over-funded, the excess assets cannot be returned to the Company. The Company is exploring whether it may be able to obtain general or specific relief from this requirement. Pension Plan Accounting Treatment. In addition to the potential impact on the Company's cash flow due to funding requirements, the ATU Plan represents a potential risk to the Company's compliance with the minimum net worth covenant in the New Credit Facility, particularly due to the size of the ATU Plan liabilities ($701.8 million at December 31, 1995) relative to the Company's net worth. Generally accepted accounting principles, which are different from ERISA funding requirements, require that if the liabilities of a pension fund exceeds its assets, a reduction in stockholder's equity be taken for the amount that liabilities exceed assets for any particular pension plan. At December 31, 1995, the ATU Plan's assets exceed the liabilities by $48.3 million, as measured for accounting purposes. A substantial further decline in market interest rates, among other factors, could result in the ATU Plan's liabilities exceeding the ATU Plan's assets as measured for accounting purposes. Additionally, in the event that the ATU Plan's liabilities exceed assets, the prepaid pension asset related to the ATU Plan ($23.8 million at December 31, 1995) would be reversed and stockholder's equity would be reduced by this amount, as well. There is no cash impact of such an event. Although management feels that it is unlikely that events would require the Company to record such a charge to equity, if the Company were required to record a substantial reduction to equity due to the above described pension accounting requirements, it could reduce the Company's net worth below the minimum covenant levels. In such an instance, the Company would seek a waiver for the minimum net worth requirement to the extent that it is caused by a reduction to stockholder's equity related to the ATU Plan. 16 19 The determination of the requirement of a reduction to stockholder's equity is made on a plan by plan basis. Stockholder's equity reflects a reserve of $3.6 million related to the Greyhound Lines, Inc. Salaried Employees' Defined Benefit Plan (the "Salaried Plan"). The related size of the Salaried Plan ($36.7 million in plan liabilities at December 31, 1995) does not present substantial risk to the Company's net worth. Capital Expenditures. The Company's operations require significant annual capital and maintenance expenditures related to the Company's bus fleet, properties and systems software. For the year ended December 31, 1995, the Company's capital expenditures totalled $46.4 million, of which $31.4 million related to the purchase of buses. During June and July 1995, the Company took delivery of 102 new buses from MCII. These buses were initially subject to a month-to-month operating lease but were purchased by the Company during December 1995. The Company intends to sell and lease back these buses during the first half of 1996. The Company also took delivery of and purchased 13 buses from MCII in September 1995, and an additional 10 buses in December 1995. These twenty-three buses were sold and leased back by the Company in December 1995 for net proceeds of $6.2 million. The average age of the bus fleet increased to 6.7 years at December 31, 1995 compared to 6.4 years at December 31, 1994, a change the Company believes is immaterial. As of December 31, 1995, approximately 30% of the Company's bus fleet was more than 10 years old compared to 32% at December 31, 1994. The Company's experience indicates that as the age of its fleet increases, the dependability and quality of service declines, which may make the Company less competitive. While the Company could continue to use older buses, the Company intends, over time, to replace older, less reliable vehicles with new buses. As a result, during 1996 the Company expects to retire 212 buses that are 10 or more years old. To replace these buses and to support the planned increase in the size of the bus fleet, the Company expects to acquire up to 250 new buses in 1996 at an aggregate cost of approximately $62 million. The Company intends to finance these purchases through cash flows from operations, operating leases and vendor financing. Management believes that a continuing significant delay in acquiring these new buses could adversely affect future operations due to the higher operating costs associated with operating older buses and the inability to implement fully the Company's plans to increase total bus miles. The Company's ability to finance these and other capital expenditures and to meet its other financial obligations will depend on the Company's future operating performance, which will be subject to financial, economic, legal and other factors affecting the business and operations of the Company, many of which are beyond its control. Although cash flows from operating activities and the New Credit Facility are expected to be sufficient to make a portion of the Company's planned expenditures, the Company's operating strategy will depend on the availability of additional sources of financing, such as operating and capital lease financing or funds provided through sales of assets or sales of securities. There can be no assurance that the Company will be able to obtain financing on suitable terms for these purposes. Certain Contingencies. The Company is subject to various contingencies that could affect its liquidity position in the future. See "ITEM 3. LEGAL PROCEEDINGS." FINANCIAL RESTRUCTURING During the fall of 1994, the Company initiated a comprehensive change to its capital structure (the "Financial Restructuring"). The Financial Restructuring was completed in January 1995 and consisted of (i) the execution of the Credit Facility; (ii) the conversion of $89.0 million in aggregate principal amount of the Convertible Debentures into shares of Common Stock; and (iii) a rights offering (the "Rights Offering") to the Company's stockholders of the opportunity to subscribe for and purchase 16.3 million new shares of Common Stock for a total consideration of $35.0 million. 1995 AND 1994 RESULTS OF OPERATIONS The Company's business is seasonal in nature and generally follows the pattern of the travel business as a whole, with peaks during the summer months and the Thanksgiving and Christmas holiday periods. Historically, the Company has experienced substantial seasonal variances in its results of operations with the third quarter, which includes the summer peak travel season, providing the largest contribution to the 17 20 Company's annual operating income. The second and fourth quarters generally reflect a net loss or reduced income, and the first quarter is typically a loss period. However, primarily due to weak demand for the Company's passenger service throughout 1994 and certain operating charges, the Company experienced a significant loss during each quarter of that year. The following table presents certain of the Company's consolidated operating statistics for the three and twelve months ended December 31, 1995 and 1994:
THREE MONTHS ENDED TWELVE MONTHS ENDED DECEMBER 31, DECEMBER 31, ---------------------- ------------------------ 1995 1994 1995 1994 --------- --------- ---------- ---------- Regular Service Miles (000)............ 64,691 58,219 256,683 235,786 Total Bus Miles (000).................. 65,338 58,723 259,746 238,457 Passenger Miles (000).................. 1,524,019 1,290,888 5,985,025 5,392,290 Available Seat Miles (000)............. 2,975,786 2,678,074 11,807,418 10,806,690 Passengers Carried (000)(a)............ 4,447 4,006 17,286 15,949 Average Trip Length (miles)(a)......... 343 322 346 338 Load Factor (% of available seats filled).............................. 51.2 48.2 50.7 49.9 Yield (Passenger Revenue Per Passenger Mile) (cents)........................ 9.28 9.44 9.36 9.61 Passenger Revenue Per Regular Service Mile (dollars)....................... 2.19 2.09 2.18 2.20 Total Operating Revenue per Total Bus Mile (dollars)....................... 2.53 2.48 2.53 2.58 Total Operating Expense per Total Bus Mile (dollars)....................... 2.50 3.13 2.49 2.86 Cost per Total Bus Mile (cents): Maintenance.......................... 26.5 32.0 26.4 30.8 Transportation....................... 60.0 57.9 60.4 56.1 Insurance and Safety................. 19.6 62.7 20.3 34.7 Station Costs as a % of Total Revenue(%)........................... 19.8 20.6 19.1 19.4
- --------------- (a) See Operating Revenues for discussion of 1994 restatements Charges to 1994 Results of Operations. The results of operations for the year ended December 31, 1994, include certain operating charges of $61.9 million, an interest expense adjustment of $0.4 million, a tax expense adjustment of $17.0 million and an extraordinary gain of $38.4 million. The inclusion of these items in the 1994 results of operations affects the comparability to the 1995 results of operations. To facilitate comparison, the significant items that comprise these adjustments are discussed in the affected expense categories below. Operating Income (Loss). Operating income for 1995 was $9.4 million compared to an operating loss of $65.5 million for 1994. Operating revenues increased $41.0 million (or 6.7%) for 1995, while operating expenses decreased $33.8 million (or 5.0%) for 1995, compared to 1994. The operating loss for 1994 included $61.9 million of certain operating charges including: write-down to the expected market value of certain real estate assets which were expected to be classified as surplus, charges to reflect the payment of pre-1991 claims that the Bankruptcy Court allowed notwithstanding that those claims previously had been barred by the court, adverse claims development in 1994, certain litigation exposure and costs related to the Company's strategic and operational reorganization. 18 21 Operating Revenues. Passenger service revenues increased $41.8 million (or 8.1%) for the twelve months ended December 31, 1995, compared to the same period in 1994, due to increased ridership. The following chart reflects the increase in Passenger revenues by quarter for 1995 compared to the prior year:
FIRST SECOND THIRD FOURTH FULL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- ------- 1995 Passenger Revenue (000's)....... 109,454 136,663 172,715 141,407 560,239 1994 Passenger Revenue (000's)....... 110,841 126,336 159,359 121,895 518,431 Percentage increase (decrease)....... (1.3)% 8.2% 8.4% 16.0% 8.1%
The number of passengers carried increased 8.4% for 1995 compared to 1994. Management believes the increase in ridership resulted from the introduction of everyday low pricing, improvements in handling customer telephone calls and more convenient bus schedules. Although the short-haul business has increased, the everyday low pricing strategy had a more significant impact on long-distance travel producing a 2.4% increase in average trip length for 1995. The Company expects the trends of increasing ridership and longer average trip lengths to continue in 1996, as well. Also contributing to higher passenger revenues was an improvement in interline activity, which reflects an increase in the number of tickets being sold by other carriers for all or a portion of the travel occurring over the routes of the Company. The Company expects improvements in its interline relationships to continue. The statistical information for 1994 has been restated from that previously published. Package express revenues declined $4.5 million (or 11.3%) in 1995 compared to 1994. Package express revenues continued to decline throughout 1995 reflecting the impact of reductions in routes and terminal hours which were made in 1994. These reductions resulted in decreased convenience and level of service for the package express customers. As a result, many customers discontinued the use of the Company's package express service during late 1994 and early 1995 and began using competitors' services. In an effort to reduce this revenue decline, the Company has made improvements to its service levels in the package express business by increasing hours and providing more convenient schedules to its customers. Other operating revenues increased approximately $4.6 million (or 12.4%) for 1995 compared to 1994 due primarily to an increase in interest income, which comprises 16.8% of other operating revenues. As a result of higher interest rates during 1995, interest earned on the Company's deposits increased. Prepaid ticket order revenue has also increased. Operating Expenses. Total operating expenses decreased $33.8 million (or 5.0%) for 1995 compared to 1994. Regular service miles operated in 1995 compared to 1994 increased by 20.9 million miles (or 8.9%). Operating expenses for 1994 included a total of $60.1 million of the certain operating charges discussed above. Maintenance costs for 1995 decreased $4.9 million to $68.5 million. A primary reason for the decrease compared to 1994 were certain operating charges of $3.8 million taken in 1994, in part, to reserve for the increased costs of environmental remediation. The remainder of the decrease relates to savings realized in building-related costs (repairs, utilities, etc.) due to the closure of several garages in 1994 and the closure of the New York City garage in January 1995. The impact of these savings was to reduce costs, in spite of the increase in miles operated and the slight increase in the average age of the fleet from 6.4 years at December 31, 1994, to 6.7 years at December 31, 1995. As a result, maintenance expenses decreased to 26.4 cents per mile in 1995 versus 30.8 cents per mile in 1994, as reported, or 29.2 cents per mile in 1994, excluding the $3.8 million in certain operating charges. Maintenance costs, on a per mile basis, during the first six months of 1996 may exceed current levels due to the Company's efforts to accelerate engine changes during this off-peak season for buses that are projected to have engine failures during the busy summer period, when seasonal demands require high utilization of the entire bus fleet. Transportation expenses increased $23.1 million (or 17.3%) in 1995 compared to 1994, due in part to an increase of 21.3 million (8.9%) bus miles operated. On a comparable cost-per-mile basis, the added miles represented approximately $11.9 million of the increase. The remainder of the increase is due to increases in the year-over-year cost-per-mile for transportation expenses, which increased from 56.1 cents per mile in 1994 19 22 to 60.4 cents per mile in 1995. The increase in the cost per mile reflects a contractually specified increase in drivers' wages, an increase in room rents due primarily to limited availability of the new New York Dormitory, and increased driver hiring and training due to the greater schedule offerings in 1995. Driver hiring and training contributed $4.9 million to the variance for the year ended December 31, 1995, compared to the same period in 1994. Agents' commissions and station costs increased $6.2 million (or 5.2%) in 1995 compared to 1994. The Company handled 4.8 million (or 25.4%) more telephone calls in 1995 than in 1994. The Company achieved the improved call handling by opening a new telephone center and improving staffing levels in its other center. As a result, telephone information salaries and communication costs reflect $2.9 million of the increase in this expense category. Ticket commission expenses have increased due to the general increase in sales compared to 1994 and the conversion of 65 company-operated facilities to commission agencies. Although the ticket commission expense increased as a result of these conversions, it was offset by a related decrease in payroll, facility costs, utilities and supplies since those became the responsibility of the agent upon conversion. Interline commissions paid have also risen due to an increase in the number of interline tickets honored by the Company in 1995. During 1994, certain operating charges of $1.3 million were recorded in agents' commission and station costs which relate primarily to the writeoff of certain receivables. Marketing, advertising and traffic costs decreased $10.9 million (or 30.0%) in 1995 compared to 1994, due primarily to a planned spending reduction in 1995 in direct advertising expenditures. Management plans an increase in advertising spending in 1996 compared to 1995 principally to cover an increase in advertising rates, as well as, the impact of a full year of advertising in 1996 in contrast to 1995 which reflected very little advertising spending during the first quarter. Insurance and safety costs decreased $30.0 million (or 36.2%) in 1995 compared to 1994. The decrease is primarily due to certain operating charges in 1994 of $30.7 million which related primarily to charges recorded to increase reserve levels for bankruptcy claims previously considered barred and adverse claims development in 1994. Baggage claims expense decreased by $1.7 million in 1995 compared to 1994, due to a new baggage handling policy put into place in October 1994 which has reduced the number of baggage claims and also the payout on baggage claims. The automobile and general liability expense increased due to the additional claims exposure related to the increased miles operated, as well as to the impact of a change in the Company's claims management strategy. A significant component of the claims management strategy is to settle claims more quickly. This strategy is expected to reduce insurance claims expense for automobile and general liability over the longer term. Additionally, the Company has begun the implementation of a safety and loss reduction program that management believes will generate additional savings over the longer term. However, management continues to monitor trends in exposure and to review the adequacy of related reserves in light of any changes in exposure or claims experience. General and administrative expenses increased $0.7 million (or 1.0%) in 1995 compared to 1994, due in part to a $2.3 million accrual for expense related to the Company's management incentive plan in 1995. There was no similar expense recorded during 1994. Also, pension income was $3.6 million (or 62.8%) lower in 1995 than in 1994. Further, accounting salaries increased in 1995 compared to 1994 due to the increased use of temporaries and increased headcounts. Partially offsetting these increases was a decrease in group insurance expenses over 1994 due to a reduction in both the employee- and Company-related portions of these expenses, and a decrease in legal expenses of $3.9 million due to reduced outside counsel fees in 1995. Depreciation and amortization decreased by $5.0 million (or 14.0%) in 1995 compared to 1994, primarily due to an operating charge of $7.0 million taken in 1994 to recognize impairment of certain operating facilities which were less than fully utilized. This favorable variance is partially offset by a full year of depreciation in 1995 on 151 buses purchased in mid-1994. In addition, during the fourth quarter of 1995 a $2.1 million charge was recorded to write down to realizable value some older, high maintenance buses and certain real estate which will be sold. Operating taxes and licenses increased $0.7 million (or 1.5%) in 1995 compared to 1994, in part, as a result of a reserve recorded in the first quarter of 1995 for past sales taxes potentially owed on interstate bus tickets sold in Oklahoma. Payroll-related taxes have increased in 1995 due primarily to increased driver and 20 23 telephone center headcounts. Fuel and oil taxes have increased in 1995 compared to 1994 due to the increase in miles run by the Company. These increases were partially offset by a decrease in real estate taxes due to the closure of the New York City garage in early January 1995, a lower valuation of the Chicago maintenance facility for property tax purposes, and a refund received from New York for a settlement of property taxes. Operating rental expense decreased $0.4 million (or 0.8%) in 1995 compared to 1994, primarily due to the closing of several maintenance facilities. This decrease was partially offset by an increase in station rents, primarily for the New York terminal where the Company pays a portion of its rent based on ticket sales which were up 29.0% over 1994 levels. Casual rents for buses increased $0.9 million due to the increased ridership during peak periods. Operating rental expense for leased buses was $23.7 million for 1995 and $22.7 million for 1994. Other operating expenses decreased $9.9 million (or 60.2%) in 1995 compared to 1994. Included in 1994 are certain operating charges of $11.3 million, which relate to a $4.5 million write-down taken to reflect the expected market value of real estate properties which were not being utilized by the Company and were expected to be sold. Additionally, the Company reevaluated all software and systems on its books. This reevaluation resulted in $2.9 million in charges to write-off certain systems which, due to operational changes in 1994, have limited or no functionality. In late 1994, the Company also discontinued use of the VORAD radar detection system because an extensive investment would have been required to upgrade and maintain its effectiveness. Additionally, other operating expenses in 1995 were reduced by a $1.2 million gain on the repurchase of the Senior Notes. Interest Expense. For the year ended December 31, 1995, interest expense was $26.8 million compared to $33.5 million in 1994. Interest expense included net expense of $0.7 million in 1995 and net savings of $0.7 million in 1994 resulting from the interest rate swap agreements entered into during 1993 (see -- "Capital Resources and Liquidity"). Interest expense decreased $6.6 million (or 19.9%) in 1995 compared to 1994, due to a $7.6 million interest reduction related to the conversion of the Convertible Debentures (see -- "Financial Restructuring"). This reduction was offset by increased expense paid on an installment note relating to bus purchase financing entered into during mid-1994. Also offsetting the reduction is the interest component of a settlement with the Internal Revenue Service for adjustments to the 1987, 1988 and 1989 federal tax returns. The weighted average of the Company's effective interest rates on long-term debt outstanding as of December 31, 1995, was 12.65%. Income Taxes. During the third quarter of 1994, the valuation allowance for the deferred tax asset was increased to reserve for the remaining $17.0 million deferred tax asset. Due to the uncertainty as a result of the restructuring, the Company believed it no longer met the "more likely than not" realization criteria of SFAS No. 109. In 1995, the Company did not record any tax benefit. The income tax expense for 1995 results from the settlement of the 1987 through 1989 IRS audit and state income taxes. At December 31, 1995, the Company's net deferred tax assets total $32.9 million, less a valuation allowance of the same amount. Future use of the deferred tax asset would normally reflect the recognition of tax expense and an equal benefit due to the reversal of the valuation allowance, resulting in no net impact to the Company's net earnings. However, $4.9 million of the deferred tax asset arose prior to the fresh start date and, as a result, the reversal of the related valuation allowance will increase capital in excess of par, rather than reduce tax expense. The Financial Restructuring at December 31, 1994, resulted in an ownership change, as defined under Section 382 of the Internal Revenue Code (the "Code"). The provisions of the Code, as they apply to the Company, require that an annual limitation be placed on the amount of net operating loss ("NOL") existing at December 31, 1994, which may be utilized. Consequently, the Company's NOL carryforwards from 1994 and prior tax years are now subject to an annual limitation of $2.1 million. Any unused portion of the current annual limitation may be carried forward to the following year. As a result, the Company had $31.5 million in NOL carryforwards available at December 31, 1994. The Company estimates a NOL for 1995 of $28.5 million. None of the 1995 NOL is subject to limitation under Section 382. The Company will also carry forward the unused 1995 annual limitation of $2.1 million from the 1994 NOL carryover. The Company now has 21 24 $60.0 million in NOL carryovers to 1996, $29.4 million of which is subject to the annual $2.1 million limitation. Extraordinary Item. The Company recorded an extraordinary loss of $3.2 million during 1994, for the write-off of debt issue costs related to the prior credit facility, and an additional $0.4 million of extraordinary loss for professional fees related to the Financial Restructuring. The extraordinary loss was offset by a $41.9 million extraordinary gain on the conversion of the Convertible Debentures to Common Stock recorded in the fourth quarter of 1994. 1994 AND 1993 RESULTS OF OPERATIONS For 1994, the Company had an operating loss of $65.5 million, which included $61.9 million in certain operating charges, compared to $39.8 million in operating income for 1993. Those charges related to the write-down to the expected market value of certain real estate assets which were expected to be classified as surplus, charges to reflect the payment of pre-1991 claims that the Bankruptcy Court allowed notwithstanding that those claims previously had been barred by the court, adverse claims development in 1994, certain litigation exposure, and costs related to the Company's strategic and operational reorganization. In addition, in the third quarter of 1994, the Company recorded a noncash, non-operating charge when it fully reserved its $17.0 million deferred tax asset. The Company also incurred a $3.6 million extraordinary loss for the write-off of deferred financing charges related to the prior credit agreement, which the Company refinanced in October 1994. That extraordinary loss was offset by a $41.9 million extraordinary gain resulting from the conversion of $89.0 million of Convertible Debentures in the Financial Restructuring. Operating Revenues. Regular route revenues declined $41.5 million (or 7.4%) in 1994 compared to 1993. Overall demand for the Company's passenger service declined as reflected in a decrease in passengers carried of 0.5 million (or 3.0%) in 1994 compared to 1993. In an effort to increase ridership, under previous management, an aggressive advertising campaign offering discounted fares was initiated early in 1994 which continued through the third quarter. Although ridership began to increase, the lower fares resulted in lower yields (revenue per passenger mile) and did not produce revenue equal to the prior year. Package express delivery service revenues declined $7.7 million (or 16.0%) in 1994 compared to 1993. Package express revenues continued to decline in 1994 due to intense competition in the package express delivery service business from overnight carriers and the de-emphasis by the Company of this service. Food services revenues increased $0.4 million (or 1.9%) in 1994 compared to 1993. However, cost of goods sold for food services also increased $0.8 million (or 6.7%) in 1994 compared to 1993. In 1994, the Company opened new locations and closed non-profitable locations. Additionally, in an effort to gain control over the quality of service provided in the terminals, the Company converted 34 locations, during 1992 through 1994, from agent-operated to Company-operated locations. Operating Expenses. Total operating expenses increased by $55.2 million (or 8.8%) in 1994 compared to 1993. Despite a slight increase in regular service miles operated for the year, maintenance costs continued to decline in 1994 as a result of a reduction of fleet age, successful efforts to reduce overhead including downsizing certain garage locations to service islands, and increased training and more efficient use of maintenance personnel. The decrease in maintenance expenses was partially offset by $3.8 million in certain operating charges. Transportation costs showed only a slight increase of $0.5 million in 1994 compared to 1993 due primarily to an increase in drivers' wages. Agents' commissions and station costs decreased $2.8 million primarily due to decreased ticket commissions and salaries. Ticket commissions decreased primarily due to a decrease in ticket sales and the conversion of certain terminals operated by independent contractors to Company-operated terminals during 1993. During 1993, 107 terminals were converted to Company-operated terminals. During 1994, the Company returned 22 of the smaller locations to agent-operated terminals when it was determined that the conversion 22 25 process was no longer profitable at the smaller locations. Also, salaries decreased as a result of the Company's elimination of certain field management positions in a continuing effort to reduce overhead. These decreases in costs were partially offset by $1.3 million in certain charges primarily due to the write-off of certain receivables. Marketing expenses increased $8.0 million in 1994 compared to 1993. Advertising expense for the year ended December 31, 1994, was $24.4 million which was a $5.5 million increase compared to 1993. An aggressive advertising campaign was initiated in the first quarter of 1994 in an effort to improve traffic following the California earthquake and severe winter weather in the Northeast, and in response to the generally weak demand for the Company's passenger services. This advertising campaign continued into the third quarter. Also, communication costs related to TRIPS increased $1.9 million because TRIPS was operational for a full year in 1994 and only on a limited basis in 1993. In addition, approximately 20 manual field locations were converted to TRIPS sites. Insurance and safety costs increased $31.6 million in 1994 compared to 1993. This increase was primarily due to certain operating charges of $30.7 million which adjusted insurance reserves to recognize the pre-bankruptcy claims previously barred by the courts and adverse claims development in 1994. Charges were also included to reflect other potential legal exposures. General and administrative expenses increased $3.2 million in 1994 compared to 1993. This is due to an increase in salaries as a result of severance packages and overall wage increases resulting from moving the Company's accounting center from West Des Moines to Dallas. Additionally, information systems costs have increased as TRIPS was functional for a full year in 1994 and only a partial year in 1993 which increased equipment lease costs and usage fees. Offsetting these increased expenses is a net $3.6 million increase in pension income as compared to 1993. Depreciation and amortization costs increased $2.9 million in 1994 compared to 1993. Excluding charges of $7.0 million, depreciation expense decreased $4.1 million resulting from fewer buses owned than in the prior year due to sale/leaseback transactions. The $7.0 million was recorded to recognize impairment of certain properties which are less than fully utilized. Operating rents increased $3.0 million in 1994 compared to 1993, caused primarily by the increase in leased bus rental expense relating to the sale/leaseback of 319 buses in December 1993 and 125 buses in March 1994. Operating rental expense for leased buses for the years ended December 31, 1994 and 1993, was $22.7 million and $20.0 million, respectively, excluding casual rents and other short-term leases during peak periods. Other operating expenses increased $9.4 million in 1994 compared to 1993 primarily due to certain operating charges. These charges included $4.5 million in write-downs taken to reflect the expected market value of real estate properties which were no longer being utilized by the Company and which were expected to be sold. Additionally, the Company reevaluated all software and systems on its books. This reevaluation resulted in $2.9 million in charges to write-off certain systems which, due to current year operational changes, have limited or no functionality. In late 1994, the Company discontinued use of the VORAD radar detection system because an extensive investment would have been required to upgrade and maintain its effectiveness. Expenses of $2.5 million were recorded during 1994 related to the Company's strategic and operational reorganization. This amount consists primarily of severance costs related to management overhead reductions. Interest Expense. For the year ended December 31, 1994, interest expense was $33.5 million compared to $30.8 million in 1993. Interest expense included net savings of $0.7 million in 1994 and $1.4 million in 1993 resulting from the interest rate swap agreements entered into during 1993. The Company amended its two remaining interest rate swap agreements on October 6, 1994, to lock in the future payments under the agreements until maturity in July 1998. The net result of the amendments is to ensure that these swaps will not be subject to interest rate risk. Consequently, should interest rates increase, the Company's payments under the agreements would not be adversely affected. Conversely, should interest rates decline, the Company would not receive any benefit. 23 26 Income Taxes. For the quarter ended March 31, 1994, the Company recorded an income tax benefit of $10.6 million as a result of its pre-tax loss and increased its deferred tax asset. At that time, projections indicated that it was "more likely than not" that the income tax benefit would be utilized to offset future period income tax expense. At June 30, 1994, projections were revised, and the Company expected to have a net loss for the year, due, in part, to its strategic and operational reorganization. As a result, there was less of a likelihood that the Company would utilize the income tax benefit, recognized during the first quarter and therefore, the income tax benefit recorded for the quarter ended March 31, 1994, was reversed during the second quarter. In addition, as the projected losses continued to grow during the third quarter, the Company concluded that the valuation allowance for the deferred tax asset should be increased to reserve for the remaining $17.0 million asset. Due to the uncertainty as a result of the Financial Restructuring and the ongoing strategic and operational reorganization by the Company, the Company believed it no longer met the "more likely than not" realization criteria of Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"). In addition, the Company did not provide an income tax benefit on the loss for the year ended December 31, 1994. At December 31, 1994, the Company's net deferred tax assets totaled $24.9 million, less a valuation allowance of the same amount. Future use of the deferred tax asset would normally reflect the recognition of tax expense and an equal benefit due to the reversal of the valuation allowance, resulting in no net impact to the Company's net earnings. However, $4.9 million of the deferred tax asset arose prior to the fresh start date, and as a result, the reversal of the related valuation allowance will be used to increase capital in excess of par, rather than reduce tax expense. The Financial Restructuring generated significant amounts of income from discharge of indebtedness ("DOD Income") for income tax purposes. The DOD Income was offset by 1994 losses, thus eliminating the tax exposure created by the Financial Restructuring. The Financial Restructuring also resulted in an ownership change, as defined under Section 382 of the Internal Revenue Code (the "Code"). The provisions of the Code, as they apply to the Company, require that an annual limitation be placed on the amount of net operating loss ("NOL") existing at December 31, 1994, which may be utilized. Consequently, the Company's NOL carryforwards from 1994 are now subject to an annual limitation of $2.1 million. Any unused portion of the current annual limitation may be carried forward to the following year. As a result, the Company had $31.5 million in NOL carryforwards at December 31, 1994. Extraordinary Items. The Company recorded an extraordinary loss of $3.2 million during the third quarter of 1994, for the write-off of debt issue costs related to the prior credit facility, and an additional $0.4 million of extraordinary loss for professional fees related to the Financial Restructuring. The extraordinary loss was offset by a $41.9 million extraordinary gain on the conversion of the Convertible Debentures to Common Stock recorded in the fourth quarter of 1994. 24 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE NO. -------- Management Report on Responsibility for Financial Reporting........................ 26 Report of Independent Public Accountants........................................... 27 Consolidated Statements of Financial Position at December 31, 1995 and 1994........ 28 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993......................................................................... 29 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993.............................................................. 30 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993......................................................................... 31 Notes to Consolidated Financial Statements......................................... 32 Report of Independent Public Accountants on Financial Statement Schedule........... 56 Schedule II -- Valuation and Qualifying Accounts -- For the Years Ended December 31, 1995, 1994 and 1993.......................................................... 57
25 28 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 (other than accounting for income taxes, see Note 13) 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 Arthur Andersen LLP, independent public accountants approved by the Board of Directors. Management has made available to Arthur Andersen LLP 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 Arthur Andersen LLP during its 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 its audits of the Company's consolidated financial statements, Arthur Andersen LLP 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 Arthur Andersen LLP's 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. Steven L. Korby Executive Vice President, Chief Financial Officer and Treasurer Dallas, Texas March 15, 1996 26 29 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Greyhound Lines, Inc.: We have audited the accompanying consolidated statements of financial position of Greyhound Lines, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As explained in Note 13 to the financial statements, effective January 1, 1993, the Company changed its method of accounting for income taxes. ARTHUR ANDERSEN LLP Dallas, Texas February 12, 1996 27 30 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, --------------------- 1995 1994 -------- -------- Current Assets Cash and cash equivalents............................................ $ 3,494 $ 9,454 Accounts receivable, less allowance for doubtful accounts of $217 and $840.............................................................. 29,912 33,584 Stock subscription receivable........................................ -- 15,150 Inventories.......................................................... 3,615 3,779 Prepaid expenses..................................................... 7,353 10,248 Assets held for sale................................................. 4,534 9,526 Other current assets................................................. 8,885 12,859 -------- -------- Total current assets......................................... 57,793 94,600 Prepaid Pension Plans.................................................. 24,299 22,250 Property, Plant and Equipment, net of accumulated depreciation of $84,234 and $68,388.................................................. 300,603 288,250 Investments in Unconsolidated Affiliates............................... 1,367 1,312 Insurance and Security Deposits........................................ 76,586 84,548 Intangible Assets, net of accumulated amortization of $14,901 and $9,644............................................................... 20,000 20,489 -------- -------- Total assets................................................. $480,648 $511,449 ======== ======== Current Liabilities Accounts payable..................................................... $ 18,871 $ 14,916 Accrued liabilities.................................................. 54,305 53,106 Unredeemed tickets................................................... 9,140 10,259 Current portion of reserve for injuries and damages.................. 24,605 26,455 Current maturities of long-term debt................................. 5,259 7,022 -------- -------- Total current liabilities.................................... 112,180 111,758 Reserve for Injuries and Damages....................................... 41,056 45,888 Long-Term Debt......................................................... 172,671 197,125 Deferred Gains......................................................... 920 1,277 Other Liabilities...................................................... 4,059 2,205 -------- -------- Total liabilities............................................ 330,886 358,253 -------- -------- Commitments and Contingencies (Note 17) Stockholders' Equity Preferred stock (10,000,000 shares authorized; par value $.01; none issued) Series A junior preferred stock (500,000 shares authorized; par value $.01; none issued).......................... -- -- Common stock (100,000,000 shares authorized; 58,277,318 and 37,567,744 shares issued as of December 31, 1995 and 1994, respectively; par value $.01)..................................... 583 375 Common stock subscribed (16,279,070 shares as of December 31, 1994)............................................................. -- 163 Capital in excess of par value....................................... 228,422 182,826 Capital in excess of par value, subscribed........................... -- 29,184 Retained deficit..................................................... (74,633) (56,815) Less: Unfunded accumulated pension obligation........................ (3,572) (1,499) Less: Treasury stock, at cost (109,192 shares)....................... (1,038) (1,038) -------- -------- Total stockholders' equity................................... 149,762 153,196 -------- -------- Total liabilities and stockholders' equity................... $480,648 $511,449 ======== ========
The accompanying notes are an integral part of these statements. 28 31 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 -------- --------- -------- Operating Revenues Transportation services Regular route....................................................... $560,239 $ 518,431 $559,883 Package express..................................................... 35,690 40,232 47,905 Food services......................................................... 19,683 20,510 20,130 Other operating revenues.............................................. 41,752 37,158 38,578 -------- --------- -------- Total operating revenues....................................... 657,364 616,331 666,496 -------- --------- -------- Operating Expenses Maintenance........................................................... 68,540 73,469 77,893 Transportation........................................................ 156,878 133,766 133,284 Agents' commissions and station costs................................. 125,650 119,438 122,209 Marketing, advertising and traffic.................................... 25,513 36,445 28,431 Insurance and safety.................................................. 52,820 82,786 51,143 General and administrative............................................ 72,348 71,603 68,378 Depreciation and amortization......................................... 31,010 36,046 33,154 Operating taxes and licenses.......................................... 48,186 47,478 47,114 Operating rents....................................................... 47,884 48,286 45,313 Cost of goods sold -- food services................................... 12,597 13,465 12,617 Other operating expenses.............................................. 6,575 16,502 7,119 Restructuring expenses................................................ -- 2,523 -- -------- --------- -------- Total operating expenses....................................... 648,001 681,807 626,655 -------- --------- -------- Operating Income (Loss)................................................. 9,363 (65,476) 39,841 Gain on Sale of Assets.................................................. -- -- (5,838) Interest Expense........................................................ 26,807 33,456 30,832 -------- --------- -------- Income (Loss) Before Income Taxes, Extraordinary Items and Cumulative Effect of a Change in Accounting Principle............................ (17,444) (98,932) 14,847 Income Tax Provision.................................................... 374 16,862 6,253 -------- --------- -------- Income (Loss) Before Extraordinary Items and Cumulative Effect of a Change in Accounting Principle........................................ (17,818) (115,794) 8,594 Extraordinary Items, net of income tax benefit of $0 and $258........... -- (38,373) 407 Cumulative Effect of a Change in Accounting Principle................... -- -- 690 -------- --------- -------- Net Income (Loss)....................................................... $(17,818) $ (77,421) $ 7,497 ======== ========= ======== Earnings Per Share of Common Stock: Primary Income (loss) before extraordinary items and cumulative effect of a change in accounting principle.................................... $ (0.33) $ (7.58) $ 0.65 Extraordinary items................................................. -- 2.51 (0.03) Cumulative effect of a change in accounting principle............... -- -- (0.05) -------- --------- -------- Net income (loss)................................................... $ (0.33) $ (5.07) $ 0.57 ======== ========= ======== Fully diluted Income (loss) before extraordinary items and cumulative effect of a change in accounting principle.................................... $ (0.33) $ (7.58) $ 0.65 Extraordinary items................................................. -- 2.51 (0.03) Cumulative effect of a change in accounting principle............... -- -- (0.05) -------- --------- -------- Net income (loss)................................................... $ (0.33) $ (5.07) $ 0.57 ======== ========= ========
The accompanying notes are an integral part of these statements. 29 32 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK CAPITAL CAPITAL IN UNFUNDED COMMON STOCK SUBSCRIBED TREASURY STOCK IN EXCESS OF ACCUMULATED RETAINED ------------------- ------------------- ---------------- EXCESS OF PAR VALUE PENSION EARNINGS SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAR VALUE SUBSCRIBED OBLIGATION (DEFICIT) TOTAL ------------ ------ ----------- ------ ------- ------- --------- ---------- ----------- --------- -------- BALANCE, DECEMBER 31, 1992... 10,001,653 $100 -- -- 90,624 $ (363) $ 39,900 $ -- $ (500) $ 13,125 $ 52,262 Issuance of new equity interests.. 4,662,158 47 -- -- -- -- 92,936 -- -- -- 92,983 Exercise of stock options.... 112,255 1 -- -- -- -- 1,177 -- -- -- 1,178 Purchase of treasury stock...... -- -- -- -- 36,242 (778) -- -- -- -- (778) Issuance of treasury stock...... -- -- -- -- (1,954) 39 -- -- -- (16) 23 Adjustment for unfunded accumulated pension obligation. -- -- -- -- -- -- -- -- (999) -- (999) Net income... -- -- -- -- -- -- -- -- -- 7,497 7,497 ---------- ---- ----------- ---- ------- ------- -------- -------- ------- -------- -------- BALANCE, DECEMBER 31, 1993... 14,776,066 148 -- -- 124,912 (1,102) 134,013 -- (1,499) 20,606 152,166 Exercise of stock options.... 1,370 -- -- -- -- -- 13 -- -- -- 13 Issuance of treasury stock...... -- -- -- -- (15,720) 64 28 -- -- -- 92 Tender Offer (see Note 16)........ 22,790,308 227 -- -- -- -- 48,772 -- -- -- 48,999 Rights Offering (see Note 16)........ -- -- 16,279,070 163 -- -- -- 29,184 -- -- 29,347 Net loss..... -- -- -- -- -- -- -- -- -- (77,421) (77,421) ---------- ---- ----------- ---- ------- ------- -------- -------- ------- -------- -------- BALANCE, DECEMBER 31, 1994... 37,567,744 375 16,279,070 163 109,192 (1,038) 182,826 29,184 (1,499) (56,815) 153,196 Rights Offering... 16,279,070 163 (16,279,070) (163) -- -- 29,184 (29,184) -- -- -- Tender of debentures. 6,060 -- -- -- -- -- 75 -- -- -- 75 Issuance of new equity interests in connection with 401(k) match...... 415,044 5 -- -- -- -- 962 -- -- -- 967 Issuance of new equity interests.. 4,000,000 40 -- -- -- -- 15,347 -- -- -- 15,387 Exercise of stock options.... 9,400 -- -- -- -- -- 28 -- -- -- 28 Adjustment for unfunded accumulated pension obligation. -- -- -- -- -- -- -- -- (2,073) -- (2,073) Net loss..... -- -- -- -- -- -- -- -- -- (17,818) (17,818) ---------- ---- ----------- ---- ------- ------- -------- -------- ------- -------- -------- BALANCE, DECEMBER 31, 1995... 58,277,318 $583 -- $ -- 109,192 $(1,038) $228,422 $ -- $(3,572) $(74,633) $149,762 ========== ==== =========== ==== ======= ======= ======== ======== ======= ======== ========
The accompanying notes are an integral part of these statements. 30 33 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 -------- --------- --------- Cash Flows From Operating Activities Net income (loss)............................................................. $(17,818) $ (77,421) $ 7,497 Noncash expenses and gains included in net income Depreciation and amortization............................................... 31,010 36,046 33,154 Amortization of deferred gain............................................... (357) (332) -- Amortization of discount on Senior Notes.................................... 3,037 2,659 2,334 Amortization of debt issuance costs......................................... 925 1,586 440 Net (gain) loss on assets sold.............................................. 515 3,663 (5,065) Unfunded net pension gain................................................... (2,051) (6,179) (1,248) Benefits realized from deferred tax assets.................................. -- -- 6,189 Deferred tax provision...................................................... -- 17,000 -- Cumulative effect of a change in accounting principle....................... -- -- 690 Write-down of surplus property.............................................. -- 4,513 -- Write-off of intangible assets.............................................. -- 806 -- Write-off of debt issuance costs -- prior credit facility................... -- 3,158 -- Extraordinary gain on debt conversion....................................... -- (41,948) -- Gain on Senior Notes Repurchase............................................. (1,166) -- -- Net change in certain operating assets and liabilities Accounts receivable......................................................... 4,129 3,777 (6,154) Inventories................................................................. 164 3,405 (2,075) Prepaid expenses............................................................ 2,895 (1,131) 4,947 Other current assets........................................................ 3,974 (1,401) 1,523 Insurance and security deposits............................................. 7,962 10,759 2,745 Intangible assets........................................................... (5,301) (4,446) (9,104) Accounts payable............................................................ 3,763 (3,162) (3,886) Accrued liabilities......................................................... 5,594 6,135 (2,053) Reserve for injuries and damages............................................ (6,682) 29,444 (2,460) Unredeemed tickets.......................................................... (1,119) (102) (730) -------- -------- ------- Net cash provided by (used for) operating activities ................... 29,474 (13,171) 26,744 -------- -------- ------- Cash Flows From Investing Activities Capital expenditures.......................................................... (46,370) (81,565) (104,998) Proceeds from assets sold..................................................... 12,349 28,646 57,538 Proceeds from termination of interest rate swap............................... -- 1,609 -- Net change in ICC trust fund.................................................. -- -- 1,500 Deposit to collateralize operating leases..................................... -- (7,127) (23,283) Other investing activities.................................................... (55) 208 (25) -------- -------- ------- Net cash used for investing activities.................................. (34,076) (58,229) (69,268) -------- -------- ------- Cash Flows From Financing Activities Payments on debt and capital lease obligations................................ (18,771) (7,548) (15,391) Proceeds from long-term borrowings............................................ -- 31,541 2,309 Net proceeds from Rights Offering............................................. 11,685 17,205 -- Proceeds from issuance of Common Stock........................................ 15,415 13 94,184 Repurchase Senior Notes....................................................... (9,687) -- -- Purchase of treasury stock.................................................... -- -- (778) Net change in revolving credit facility....................................... -- -- (218) -------- -------- ------- Net cash provided by financing activities............................... (1,358) 41,211 80,106 -------- -------- ------- Net Increase (Decrease) in Cash and Cash Equivalents............................ (5,960) (30,189) 37,582 Cash and Cash Equivalents, Beginning of Period.................................. 9,454 39,643 2,061 -------- -------- ------- Cash and Cash Equivalents, End of Period........................................ $ 3,494 $ 9,454 $ 39,643 ======== ======== ======= Supplemental Schedule of Noncash Investing and Financing Activities: Cash capital expenditures..................................................... $(46,370) $ (81,565) $(104,998) Noncash acquisitions (Note 3)................................................. -- -- (9,043) -------- -------- ------- Total capital expenditures.................................................... $(46,370) $ (81,565) $(114,041) ======== ======== =======
The accompanying notes are an integral part of these statements. 31 34 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 1. BACKGROUND AND OPERATING ENVIRONMENT Greyhound Lines, Inc. and subsidiaries (the "Company") is the largest intercity bus carrier in the United States and its primary businesses consist of scheduled passenger service, package express delivery service and food services at certain terminals. The Company's operations include a nationwide network of terminal and maintenance facilities, a fleet of approximately 2,100 buses and approximately 1,500 sales outlets. The Company's operating subsidiaries include Texas, New Mexico & Oklahoma Coaches, Inc. ("TNM&O") and Vermont Transit, Co., Inc. ("VTC"). The Company is subject to regulation by the Department of Transportation (the "DOT") and certain states. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company. Investments in companies that are 25% 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 December 31, 1995, classifications. 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, and cost is determined using the first-in, first-out method. Property, Plant and Equipment Property, plant and equipment, including capitalized leases, are recorded at cost, including interest during construction, if any. Depreciation is provided over their estimated useful lives or lease terms, ranging from 3 to 20 years for structures and improvements, 4 to 12 years for revenue equipment, and 5 to 10 years for all other items, using principally 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. Debt Issuance Costs and Discounts Costs incurred related to the issuance of debt are deferred, and such costs and any related discounts are amortized to interest expense using the straight-line method over the life of the related debt. Software Development Costs The direct costs of internally developed software are capitalized when technological feasibility has been established, and amortization of the software begins when the software is ready for use. The cost of the capitalized software is amortized over a period of five years. 32 35 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. Automobile and general liability insurance coverages are subject to a $1.5 million self-insured retention per occurrence. The Company also maintains property insurance subject to a $0.1 million deductible per occurrence, and maintains workers' compensation insurance, subject to a $1.0 million deductible per occurrence. Successful claims against the Company, which do not exceed the deductible or self-insured retention, are paid out of operating cash flows. A reserve for injuries and damages has been established for these claims payments. This reserve, which also includes an estimate of environmental liabilities, is provided from an assessment of actual claims and claims incurred but not reported ("IBNR") based upon historical experience. Revenue Recognition Transportation revenue is recognized when the service is provided. A liability for tickets sold but not used is recorded. 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 those estimates. Future Accounting Changes The Company plans to adopt Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective January 1, 1996. Under SFAS No. 121, impairment losses are recognized when information indicates the carrying amount of long-lived assets, identifiable intangibles and goodwill related to those assets will not be recovered through future operations or sale. Impairment losses for assets to be held or used in operations will be based on the excess of the carrying amount of the asset over the asset's fair value. Assets held for disposal, except for discontinued operations, will be carried at the lower of carrying amount or fair value less cost to sell. SFAS No. 121 will be applied prospectively from the date of adoption and, based on current circumstances, management does not believe the effect of adoption will be material. The Company also plans to adopt Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," effective January 1, 1996. SFAS No. 123 allows companies adopting the pronouncement to either change the actual accounting methods for stock based compensation in the financial statements or to disclose certain pro forma results of operations as if the pronouncement had been adopted in the financial statements. The Company will elect pro forma disclosure in the footnotes to the financial statements. As a result, the adoption of SFAS 123 will have no effect on the financial statements. 33 36 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Earnings Per Share Primary earnings per common share is calculated by dividing net income by the weighted average shares of common stock of the Company ("Common Stock") and Common Stock equivalents outstanding during the period. Common Stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options. The calculation of fully diluted earnings per share of Common Stock assumes the dilutive effect of the Company's 8.5% Convertible Subordinated Debentures due 2007 (the "Convertible Debentures") converted into Common Stock. For the years ended December 31, 1995, 1994 and 1993, the assumed exercise of outstanding in-the-money stock options and conversion of Convertible Debentures have an antidilutive effect. As a result, these shares are not included in the weighted average shares outstanding at December 31, 1995, 1994 and 1993. The weighted average shares outstanding used in the calculation of earnings per share of Common Stock for the years ended December 31, 1995, 1994 and 1993, are as follows:
YEARS ENDED DECEMBER 31, ---------------------------------------- 1995 1994 1993 ---------- ---------- ---------- Primary........................................ 54,595,377 15,284,050 13,209,869 Fully diluted.................................. 54,595,377 15,284,050 13,209,869
3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES Cash paid for interest was $22.7 million, $25.1 million and $29.3 million for the years ended December 31, 1995, 1994 and 1993, respectively. There were no cash payments for federal income taxes for the years ended December 31, 1995, 1994 and 1993, other than the $0.3 million settlement payment related to the 1987 through 1989 IRS audit. Significant noncash investing and financing activities during 1994 included the conversion of $89.0 million of Convertible Debentures into equity resulting in the issuance of approximately 22.8 million shares of Common Stock. Significant noncash investing and financing activities during the year ended December 31, 1993, included the acquisition of 35 buses with $7.6 million in remaining proceeds from the 1992 sale of inventory to Universal Coach Parts, Inc. ("UCP"), an affiliate of The Dial Corp ("Dial") at that time. Additionally, the Company received a bargain rent leasehold interest in the New York City driver dormitory valued at $1.3 million. Also included in noncash financing and investing activities during the year ended December 31, 1993, was the paydown of the revolving bank loans of $26.3 million with the proceeds of the sale/leaseback of 319 buses. 4. INVENTORIES Inventories consisted of the following (in thousands):
DECEMBER 31, ----------------- 1995 1994 ------ ------ Service parts...................................................... $2,121 $2,178 Fuel............................................................... 381 491 Food service operations............................................ 1,113 1,110 ------ ------ Inventories.............................................. $3,615 $3,779 ====== ======
34 37 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. PREPAID EXPENSES Prepaid expenses consisted of the following (in thousands):
DECEMBER 31, ------------------ 1995 1994 ------ ------- Insurance......................................................... $3,504 $ 4,916 Taxes and licenses................................................ 1,195 2,993 Rents............................................................. 1,292 932 Other............................................................. 1,362 1,407 ------ ------- Prepaid expenses........................................ $7,353 $10,248 ====== =======
Prepaid insurance decreased $1.4 million primarily due to paying for directors' and officers' insurance in January 1996 instead of December 1995. Prepaid taxes and licenses decreased $1.8 million due to paying for licenses for the buses in January 1996 rather than in December 1995. 6. OTHER CURRENT ASSETS Other current assets consisted of the following (in thousands):
DECEMBER 31, ------------------ 1995 1994 ------ ------- Deposits.......................................................... $7,505 $11,713 Other............................................................. 1,380 1,146 ------ ------- Other current assets.................................... $8,885 $12,859 ====== =======
The deposits held as of December 31, 1995 and 1994, are the current portion of insurance deposits that include self-insurance deposits required by the DOT and the Company's primary insurance carrier to cover interstate and certain intrastate claims for bodily injury and property damage liability. As of December 31, 1995, the current portion of the deposit with the Company's primary insurance carrier has decreased by $4.2 million as a result of the return of $22.5 million of collateral deposits in 1995. The magnitude of the current portion of insurance deposits has decreased but the percentage of the current portion has increased due to management's efforts to settle claims more quickly. 7. BENEFIT PLANS Pension Plans The Company has five defined benefit pension plans. The first plan (the "ATU Plan") covers substantially all of the Company's ongoing hourly employees hired before November 1, 1983. The Company's hourly 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. The remaining two plans are held by TNM&O and VTC and cover substantially all of their salaried and hourly personnel. It is the Company's policy to fund the minimum required contribution under existing tax laws. 35 38 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's net periodic pension cost (income) included the following (in thousands):
YEARS ENDED DECEMBER 31, ----------------------------------- 1995 1994 1993 --------- -------- -------- Service cost -- benefits earned during the period.......................................... $ 4,331 $ 6,362 $ 7,260 Interest cost on projected benefit obligations.... 60,041 61,261 64,760 Actual return on plan assets...................... (148,028) 23,474 (99,764) Net amortization and deferral..................... 81,922 (95,805) 26,640 --------- -------- -------- Net periodic pension cost (income)...... $ (1,734) $ (4,708) $ (1,104) ========= ======== ========
The following table sets forth the funded status and amounts recognized in the consolidated statements of financial position for the pension plans (in thousands):
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------------------- ------------------------------- ACCRUED PENSION ACCRUED PENSION PREPAID PLAN PREPAID PLAN PENSION PLANS LIABILITIES PENSION PLANS LIABILITIES ------------- --------------- ------------- --------------- Actuarial present value of benefit obligations Vested benefit obligations..... $ 672,665 $39,078 $ 656,303 $32,207 ========= ======= ========= ======= Accumulated benefit obligations................. $ 696,223 $39,188 $ 685,139 $32,789 ========= ======= ========= ======= Projected benefit obligations.... $ 706,292 $39,767 $ 693,552 $33,553 Plan assets at fair value........ 754,582 36,184 691,764 31,606 --------- ------- --------- ------- Plan assets greater than (less than) projected benefit obligations.................... 48,290 (3,583) (1,788) (1,947) Unrecognized net (gain) loss..... (23,991) 2,481 24,038 51 Adjustment required to recognize minimum liability.............. -- (2,073) -- -- --------- ------- --------- ------- Prepaid (accrued) pension costs....................... $ 24,299 $(3,175) $ 22,250 $(1,896) ========= ======= ========= =======
Statement of Financial Accounting Standards No. 87, "Employers Accounting for Pensions", required the Company to record an additional minimum liability of $2.1 million as of December 31, 1995. This provision was reflected as a reduction of stockholders' equity. In determining the benefit obligations and service costs for the Company's defined benefit pension plans, the following assumptions were used:
DECEMBER 31, ------------------------- 1995 1994 ----------- ----------- Weighted average discount rate............................. 7.25% 8.75% Expected long-term rate of return on plan assets........... 9.00% 9.00% Rate of salary progression................................. 0.00-6.00% 0.00-5.00%
Plan assets consist primarily of government-backed securities, corporate equity securities, guaranteed insurance contracts, annuities and corporate debt obligations. 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 $1.1 million, $1.2 million, and $987,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 36 39 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On October 31, 1991, the Company contributed 500,000 shares of its Common Stock to an employee stock ownership plan ("ESOP") for its employees. Effective December 31, 1994, this plan was amended to merge it into the Company's 401(k) profit sharing plan. An IRS determination letter relating to this merger, while not necessary, was applied for in a timely fashion. The application is pending. 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, 1995, 1994 and 1993, the Company incurred costs of $13.9 million, $15.5 million, and $15.2 million, respectively, related to these plans. No post-retirement health and welfare plans exist. Effective January 1, 1993 the Company implemented a Supplemental Executive Retirement Plan (the "SERP"), a defined benefit plan which covered only key executives of the Company. During 1995, the SERP was converted to a defined contribution plan. 8. PROPERTY, PLANT, AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands):
DECEMBER 31, --------------------- 1995 1994 -------- -------- Land and improvements......................................... $ 72,351 $ 73,171 Structures and improvements Owned....................................................... 82,730 80,093 Capitalized leased assets................................... 650 650 Lease interests............................................. 4,376 4,376 Leasehold improvements...................................... 22,423 19,918 Revenue equipment Owned....................................................... 143,198 119,211 Capitalized leased assets................................... 22,118 22,118 Leasehold improvements...................................... 1,707 7,100 Furniture and fixtures........................................ 25,122 20,959 Vehicles, machinery and equipment............................. 10,162 9,042 -------- -------- Property, plant and equipment............................... 384,837 356,638 Accumulated depreciation................................. (84,234) (68,388) -------- -------- Property, plant and equipment, net.................. $300,603 $288,250 ======== ========
During March 1994, the Company ordered 151 new buses from Motor Coach Industries International, Inc. ("MCII") for an aggregate cost of $34.8 million. The Company had taken delivery of all of the new buses as of September 30, 1994 (see Note 12). During June and July 1995, the Company took delivery of 102 new buses from MCII. These buses were initially subject to a month to month operating lease but were purchased by the Company during December 1995. The Company intends to sell and lease back these buses during the first half of 1996. The Company also took delivery of and purchased 13 buses from MCII in September 1995, and an additional 10 buses in December 1995. These twenty-three buses were sold and leased back by the Company in December 1995 for net proceeds of $6.2 million. 37 40 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Accumulated depreciation of capitalized leased assets amounted to $11.6 million and $8.3 million at December 31, 1995 and 1994, respectively. 9. INSURANCE AND SECURITY DEPOSITS Insurance and security deposits consisted of the following (in thousands):
DECEMBER 31, ------------------- 1995 1994 ------- ------- Insurance deposits............................................... $41,713 $51,411 Security deposits................................................ 34,679 32,894 Other............................................................ 194 243 ------- ------- Insurance and Security Deposits........................ $76,586 $84,548 ======= =======
Insurance deposits are required by the Company's self-insurance authorizations and the Company's primary insurance carrier to cover self-insured interstate and certain intrastate auto liability as well as workers' compensation coverage in certain states. Insurance deposits decreased due to the return of $22.5 million of collateral deposits from the Company's principal liability insurer in 1995. Security deposits at December 31, 1995 and 1994, include a $20.3 million pledge of assets required as a collateral deposit for a $70.1 million sale/leaseback of 319 buses. Also included in security deposits at December 31, 1995 and 1994, was a $2.0 million deposit required by the lessor in conjunction with a separate sale/leaseback of 46 buses. Finally, included in security deposits at December 31, 1995 and 1994 is an $8.1 million deposit required by the lessor in conjunction with another separate sale/leaseback of 125 buses. 10. INTANGIBLE ASSETS Intangible assets consisted of the following (in thousands):
DECEMBER 31, -------------------- 1995 1994 -------- ------- Trademark....................................................... $ 10,198 $10,198 Software........................................................ 21,007 17,086 Covenants not to compete........................................ -- 533 Debt issuance costs............................................. 3,667 2,287 Other........................................................... 29 29 -------- ------- Intangible assets............................................... 34,901 30,133 Accumulated amortization...................................... (14,901) (9,644) -------- ------- Intangible assets, net................................ $ 20,000 $20,489 ======== =======
Trademarks are amortized using the straight-line method over 15 years. Capitalized software costs are being amortized using the straight-line method over the shorter of their useful life or five years. Covenants not to compete were fully amortized as of December 31, 1994 and were written off during 1995. Software increased $3.9 million due to additions to the Company's scheduling, ticketing and transportation planning system ("TRIPS"), the Bus Operations Support System, and a new accounting system. 38 41 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. ACCRUED LIABILITIES Accrued liabilities consisted of the following (in thousands):
DECEMBER 31, ------------------- 1995 1994 ------- ------- Compensation, benefits and payroll-related taxes................. $18,237 $16,037 Bus operating leases and rentals................................. 1,207 1,258 Interest......................................................... 7,468 8,697 Operating, property and income taxes............................. 5,982 4,452 Other expenses................................................... 21,411 22,662 ------- ------- Accrued liabilities............................................ $54,305 $53,106 ======= =======
Compensation, benefits and payroll-related taxes have increased $2.2 million primarily due to the accrual for the Company's management incentive plan. The interest accrual decreased $1.2 million due to the conversion of the Convertible Debentures and also due to the repurchase of the Senior Notes. 12. LONG-TERM DEBT AND INTEREST EXPENSE Long-term debt consisted of the following (in thousands):
DECEMBER 31, --------------------- 1995 1994 -------- -------- Secured Indebtedness Revolving bank loans, prime plus 2.0% (weighted average 10.5% at December 31, 1995 and 1994) due 1998................... $ -- $ -- Other secured indebtedness, 10.75%, due 1995................. -- 805 Capital lease obligations (weighted average 10.82% and 10.75% at December 31, 1995 and 1994, respectively) due through 2001...................................................... 14,494 16,884 Real estate mortgages (ranging from 9.4% to 11.0%) due through 2006.............................................. 2,066 2,437 Note payable, prime plus 1.5%, due 2004...................... 15,588 30,481 Unsecured Indebtedness Senior Notes, 10% stated rate (13.5% imputed rate), due 2001, net of unamortized discount of $17,108 and $20,397 at December 31, 1995 and 1994, respectively.................. 135,561 142,932 Convertible Debentures, 8.5%, due 2007....................... 9,804 9,879 Other long-term debt (weighted average 10.0% at December 31, 1995 and 1994) due through 1996........................... 417 729 -------- -------- Long-term debt................................................. 177,930 204,147 Less current maturities...................................... (5,259) (7,022) -------- -------- Long-term debt, net..................................... $172,671 $197,125 ======== ========
Credit Facility During October 1994 as part of the Financial Restructuring, the Company entered into a revolving credit facility (the "Credit Facility") with Foothill Capital Corporation ("Foothill"), which replaced the Company's prior bank facility. At the time of the Financial Restructuring, the Credit Facility provided for revolving loans and letters of credit and/or letter of credit guarantees of up to $35.0 million. 39 42 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In June 1995, the Company renegotiated its Credit Facility (the "New Credit Facility"). The New Credit Facility provides for revolving loans, letters of credit and letter of credit guarantees up to a maximum commitment of $73.5 million. As of December 31, 1995, there were approximately $17.8 million in issued and undrawn standby letters of credit outstanding under the New Credit Facility, and no revolving borrowings outstanding under the New Credit Facility. Syndication commitments under the New Credit Facility, including Foothill's commitment as the lead agent, total $70.0 million at December 31, 1995. Availability under the New Credit Facility is limited to the aggregate of the following: (1) revolving advances of up to $3.5 million based on a formula of certain eligible accounts receivable; (2) revolving advances of up to $44.5 million (the "Fixed Asset Advances") based on the value of certain fixed asset collateral pledged to Foothill; and (3) a bus purchase facility of up to $22.0 million (the "Bus Purchase Facility"). Borrowings under the New Credit Facility mature on May 31, 1998, although availability under the Fixed Asset Advances will be subject to quarterly reductions after April 1996 unless the Company pledges additional collateral. The New Credit Facility is secured by liens on substantially all the assets of the Company, excluding real estate purchases and new bus purchases unless those buses are specifically pledged to support borrowing under the Bus Purchase Facility. The New Credit Facility allows the Company to dispose of certain non-core real estate properties. In addition, non-bus capital expenditures are limited to $25.0 million annually with no spending limitations on bus purchases as long as financed through debt, or operating or capital leases with maturities of no less than five years. Senior Notes The Company's 10% Senior Notes due 2001 (the "Senior Notes") bear interest at the rate of 10% per annum, payable each January 31 and July 31. The Senior Notes had an original stated principal amount of $165.0 million, of which $1.7 million have been held by the Company prior to December 1995. During December 1995, the Company repurchased (the "Senior Note Repurchase") an additional $10.7 million aggregate principal of its Senior Notes pursuant to a put/call agreement with one of the Company's principal stockholders. The Senior Note Repurchase resulted in a $1.2 million gain which is included in other operating expenses in the Company's Consolidated Statement of Operations for the year ended December 31, 1995. The Senior Notes are reflected net of unamortized discount in the Consolidated Statements of Financial Position to reflect an imputed interest rate of 13.5%, and also net of any Senior Notes held by consolidated subsidiaries. At the Company's option, the Senior Notes may be redeemed at any time as a whole, or from time to time in part, initially at a redemption price equal to 110% of the principal amount thereof, declining ratably on each July 31, commencing July 31, 1992, to 101% of the principal amount thereof on July 31, 2000, in each case together with accrued and unpaid interest to the redemption date. The Senior Notes are subject to mandatory redemption pursuant to a sinking fund commencing July 31, 1996, and on each July 31 thereafter through July 31, 2000, calculated to retire approximately 65% of the original principal amount of the Senior Notes prior to maturity. The 1996 sinking fund payment of $8.0 million will be met through the Senior Note Repurchase and the $1.7 million of Senior Notes which the Company owned prior to the Senior Note Repurchase. The balance of the Senior Note Repurchase, $4.3 million, will be applied to the July 1997 sinking fund payment. In addition, the Senior Notes are subject to mandatory redemption from the proceeds of certain sales of assets not used for capital expenditures or to reduce the obligations under the revolving bank loans. Any Senior Notes not theretofore redeemed mature July 31, 2001. Convertible Debentures During 1992, the Company issued $98.9 million of Convertible Debentures. Interest on the Convertible Debentures is payable semiannually (each March 31 and September 30). The Convertible Debentures are 40 43 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) convertible at the option of the holder at any time prior to maturity, unless previously redeemed, into Common Stock at the conversion price of $12.375 per share (equivalent to a conversion rate of approximately 80.81 shares per $1,000 principal amount of Convertible Debentures), subject to adjustment in certain events. During the fourth quarter of 1994, the Company made an offer (the "Tender Offer") to convert the entire $98.9 million in aggregate principal amount of the Company's Convertible Debentures into shares of Common Stock at a conversion rate of approximately 256 shares of Common Stock for each $1,000 bond. On December 22, 1994, the Company announced the completion of the Tender Offer with approximately $89.0 million, or 90.0%, of the $98.9 million issue being tendered and converted into 22.8 million shares resulting in a $41.9 million extraordinary gain in the accompanying Consolidated Statement of Operations for the year ended December 31, 1994. Other Under the most restrictive provisions of all its debt agreements, the Company may not incur additional indebtedness, is limited on the payment of dividends on its Common Stock, and may not enter into certain mergers, or acquire or dispose of any assets (except in the ordinary course of business). Covenants under the New Credit Facility provide that the Company may not prepay the Convertible Debentures. The New Credit Facility is subject to financial covenants, including maintenance of a minimum net worth and an agreed ratio of cash flow to interest expense. The New Credit Facility also limits the Company's capital expenditures. At December 31, 1995, the Company was in compliance with all covenants. During March 1994, the Company ordered 151 new buses from MCII for an aggregate cost of $34.8 million. The Company had taken delivery of all of the new buses as of September 30, 1994. As delivery was taken, the new buses were 90% financed through a ten-year installment note with MCI, which is secured by the purchased buses and which bears interest at a rate of prime plus 1.5 percent. MCI subsequently transferred the financing for 50 of the buses to another lender and assigned the financing on the remaining 101 buses to MCI Acceptance Corp. ("MCIAC"), a wholly owned subsidiary of MCII. In connection with the Rights Offering, the Company made a prepayment on the amount owed to MCIAC of $12.9 million during February 1995 (see Note 18). During 1993, the Company executed three interest rate swap agreements whereby fixed interest rates were swapped for variable interest rates. The purpose of these agreements was to hedge the interest rates related to the Company's 10% Senior Notes and the 8.5% Convertible Debentures. The five-year swap transactions totalled $150.0 million, and collateral of $10.0 million was provided to secure the transaction. When the Company entered into a previous bank credit facility in December 1993, the deposit was returned to the Company. The net interest expense during 1995 and the net interest expense savings during 1994 resulting from the interest rate swap agreements was $0.7 million and $0.7 million, respectively. During January 1994, the Company terminated a $75.0 million interest rate swap agreement. The gain resulting from the termination was $1.6 million and will be recognized evenly over the remaining term of the five-year agreement. The Company amended its two remaining interest rate swap agreements during October 1994, to lock in the future payments under the agreements until maturity in July 1998. The net result of the amendments is to ensure that these swaps will not be subject to interest rate risk. Consequently, should interest rates increase, the Company's payments under the agreements will not be adversely affected. Conversely, should interest rates decline, the Company would not receive any benefit. Under the amendments, the Company will be required to pay $5.8 million in total from December 31, 1995, through the remaining term of the five-year agreements. The Company has collateralized its payment obligations under the terminated agreements with a $1.1 million letter of credit and liens on six pieces of Company-owned real property. The Company is currently in negotiations with the counterparty to reduce collateral requirements for 1996 and beyond. 41 44 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1995, maturities of long-term debt for the next five fiscal years ending December 31 and all years thereafter, are as follows (in thousands): 1996.............................................................. $ 5,259 1997.............................................................. 10,518 1998.............................................................. 20,167 1999.............................................................. 29,416 2000.............................................................. 55,104 2001 and thereafter............................................... 57,466 -------- $177,930 ========
13. INCOME TAXES Income Tax Provision The income tax provision consisted of the following (in thousands):
YEARS ENDED DECEMBER 31, ------------------------- 1995 1994 1993 ---- ------- ------ Current Federal................................................... $312 $ -- $ -- State..................................................... 62 (138) 75 ---- ------- ------ Total current.......................................... 374 (138) 75 ---- ------- ------ Deferred Federal................................................... -- 17,000 5,482 State..................................................... -- -- 696 ---- ------- ------ Total deferred......................................... -- 17,000 6,178 ---- ------- ------ Income tax provision.............................. $374 $16,862 $6,253 ==== ======= ======
Effective Tax Rate The differences, expressed as a percentage of income before taxes, extraordinary items, and cumulative effect of a change in accounting principle, between the statutory and effective federal income tax rates are as follows:
YEARS ENDED DECEMBER 31, ------------------------- 1995 1994 1993 ----- ----- ---- Statutory tax rate.......................................... (34.0)% (34.0)% 34.0% Amortization of reorganization value in excess of amounts allocable to identifiable assets.......................... -- -- 3.0 Dividends received deduction................................ (0.1) -- (0.3) Non-compliance fees......................................... 0.3 0.1 0.3 State income taxes.......................................... 0.4 (0.1) 5.0 Unrecognized current year benefit........................... 32.4 33.8 -- Reversal of recognition of deferred tax assets.............. -- 17.2 -- Other....................................................... 3.2 -- 0.1 ----- ----- ---- Effective tax rate................................ 2.2% 17.0% 42.1% ===== ===== ====
42 45 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred Tax Assets Significant components of deferred income taxes at December 31, 1995 and 1994, were as follows (in thousands):
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Deferred Tax Assets Federal and state NOL carryforwards...................... $ 23,556 $ 13,239 Reserve for injuries and damages......................... 19,447 21,333 Book over tax depreciation and amortization.............. 1,621 1,262 Other accrued expenses and reserves...................... 5,838 7,318 Other deferred tax assets................................ 666 853 -------- -------- Total deferred tax assets........................ 51,128 44,005 -------- -------- Deferred Tax Liabilities Tax over book depreciation and amortization.............. 10,583 12,641 Pension cost for tax purposes in excess of books......... 7,491 6,176 Other deferred tax liabilities........................... 192 209 -------- -------- Total deferred tax liabilities................... 18,266 19,026 -------- -------- Net deferred tax assets.................................... 32,862 24,979 Valuation allowance........................................ (32,862) (24,979) -------- -------- Deferred tax assets, net of valuation allowance...................................... $ -- $ -- ======== ========
Pursuant to the requirements of SFAS No. 109 (defined herein), a valuation allowance must be provided when it is more likely than not that the deferred income tax asset will not be recognized. As of December 31, 1993, the Company believed that a sufficient history of earnings had been established to make realization of a $17.0 million deferred income tax asset more likely than not. In the third quarter of 1994, due to the uncertainty created by the Financial Restructuring and the ongoing strategic and operational reorganization, the Company increased the valuation allowance to reserve for the $17.0 million deferred income tax asset as the Company believed it no longer met the "more likely than not" realization criteria. The changes in the valuation allowance are as follows (in thousands):
1995 1994 ------ -------- Increase in deferred income tax asset resulting from normal changes in temporary differences............................... $7,883 $ 15,089 Decrease in deferred income tax asset due to a change in assumption of deductibility.................................... -- (11,970) Loss of federal and state NOL's due to financial restructuring... -- (29,655) Deferred tax expense recognized due to a change in estimate of realization of deferred income tax asset....................... -- 17,000 ------ -------- Net change in valuation allowance...................... $7,883 $ (9,536) ====== ========
Future use of the deferred tax asset would normally reflect the recognition of tax expense and an equal benefit due to the reversal of the valuation allowance, resulting in no net impact to the Company's net earnings. However, $4.9 million of the deferred tax asset arose prior to the fresh start date and, as a result, the reversal of the related valuation allowance will be used to increase capital in excess of par, rather than reduce tax expense. 43 46 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Change in Accounting Principle -- Accounting for Income Taxes The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), which requires, among other things, an asset and liability approach for financial accounting and reporting for income taxes. The Company adopted SFAS No. 109 on January 1, 1993. Pursuant to SFAS No. 109, the Company was required to apply purchase method accounting in a different manner than that reflected in the Company's Consolidated Statements of Financial Position prior to January 1, 1993. The net impact from adoption of SFAS No. 109 was $0.7 million and is reported as cumulative effect of a change in accounting principle in the accompanying Consolidated Statement of Operations for the year ended December 31, 1993. Availability and Amount of NOL's The 1994 financial restructuring resulted in an ownership change, as defined under Section 382 of the Internal Revenue Code (the "Code"). The provisions of the Code, as they apply to the Company, require that an annual limitation be placed on the amount of NOL's which may be utilized. Consequently, the Company's NOL carryforwards from 1994 are now subject to an annual limitation of $2.1 million. Any unused portion of the current annual limitation may be carried forward to the following year. The Company estimates a 1995 taxable loss of $28.5 million. None of the 1995 loss is subject to limitation under Section 382. The Company will also carry forward the unused 1995 annual limitation of $2.1 million from the 1994 NOL carryover. As a result, the Company will carryforward available NOL's of $60.0 million, $29.4 million of which is subject to the annual $2.1 million limitation. The NOL carryforwards expire as follows: 2006............................................... $ 3,000 2007............................................... 2,900 2008............................................... 9,700 2009............................................... 15,900 2010............................................... 28,500 ------- $60,000 =======
14. FAIR VALUES OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS No. 107"), 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 the revolving bank loans, the carrying amounts reported in the Consolidated Statements of Financial Position approximate fair value. The fair values of the interest rate swaps, short-term deposits and long-term insurance deposits are based upon quoted market prices at December 31, 1995 and 1994, 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, note payable 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, 1995 and 1994. 44 47 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The carrying amounts and fair values of the Company's financial instruments at December 31, 1995 and 1994, are as follows (in thousands):
DECEMBER 31, 1995 DECEMBER 31, 1994 ----------------------- ----------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE --------- --------- --------- --------- Other current assets Deposits.......................... $ 7,505 $ 7,505 $ 11,713 $ 11,713 Insurance and security deposits Insurance deposits................ 41,713 41,713 51,411 51,411 Security deposits................. 34,679 34,679 32,894 32,894 Long-term debt Interest rate swaps............... (666) (5,346) (34) (5,200) Other secured indebtedness........ -- -- (805) (805) Real estate mortgages............. (2,066) (1,333) (2,437) (1,578) Note payable...................... (15,588) (10,981) (30,481) (20,536) Senior Notes...................... (135,561) (141,980) (142,932) (124,163) Convertible Debentures............ (9,804) (9,118) (9,879) (5,730) Other long-term debt.............. (417) (417) (729) (688)
15. LEASE COMMITMENTS The Company leases buses and terminals from various parties pursuant to capital and operating leases expiring at various dates through 2033. In March 1994, the Company entered into two lease agreements in a $28.0 million sale/leaseback of 125 buses. In December 1995, the Company sold and leased back 23 buses for net proceeds of $6.2 million. At December 31, 1995, scheduled future minimum payments for the next five fiscal years ending December 31, under the capital leases and noncancelable operating leases are as follows (in thousands):
CAPITAL OPERATING LEASES LEASES ------- --------- 1996............................................................ $ 4,098 $ 36,817 1997............................................................ 4,086 30,883 1998............................................................ 4,074 27,345 1999............................................................ 2,994 25,050 2000............................................................ 2,994 22,323 Thereafter...................................................... 454 110,132 ------- -------- Total minimum lease payments.................................. 18,700 $ 252,550 ======= ======== Amounts representing interest.............................. 4,206 ------- Present value of minimum lease payments............... $14,494 =======
For the years ended December 31, 1995, 1994 and 1993, rental expenses for operating leases (net of sublease rental income of approximately $1.9 million, $1.7 million and $2.6 million, respectively) amounted to $47.8 million, $48.0 million, and $46.0 million, respectively. Rental expenses for bus operating leases, excluding casual rents and other short term leases during peak periods, amounted to $23.7 million in 1995 and are scheduled at $30.3 million for 1996. 45 48 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. STOCKHOLDERS' EQUITY In July 1995, the Company issued 415,044 shares of Common Stock to participants in the Company sponsored 401(k) cash or deferred retirement plans that cover substantially all of its ongoing salaried, hourly and represented employees. The Company filed a registration statement on Form S-3 relating to the sale of up to 10,004,144 shares of Common Stock which was declared effective on September 28, 1995, and on October 3, 1995, the sale of the stock was completed. Four million shares were sold by the Company and 6,004,144 shares were sold by Motor Coach Industries Limited, a selling stockholder. The Company did not receive any portion of the proceeds from the sale of shares of Common Stock by the selling stockholder. Net proceeds to the Company from the sale of the 4,000,000 shares of Common Stock offered by the Company were $15.4 million. The Company used $9.7 million of the net proceeds it received to repurchase (the "Senior Note Repurchase") $10.7 million aggregate principal amount of its 10% Senior Notes due 2001 (the "Senior Notes") pursuant to a put/call agreement with one of the Company's principal stockholders. The purchase price for the Senior Notes was based on arm's-length negotiations. The Company used the remaining net proceeds from the sale of the Common Stock for general corporate purposes. Pending use, the net proceeds to the Company from the offering were invested in short-term, interest-bearing securities or have been used to reduce the borrowings under the New Credit Facility. An amendment to the Company's Certificate of Incorporation was approved at a special meeting of stockholders on December 21, 1994. The amendment increases the number of shares of Common Stock of the Company authorized for issuance from 50,000,000 shares to 100,000,000 shares. The amendment was sought principally to permit the consummation of a financial restructuring of the Company involving an offer (the "Tender Offer") to convert the Company's 8.5% Convertible Subordinated Debentures due March 31, 2007, into Common Stock of the Company at an increased conversion rate and the offer (the "Rights Offering") pursuant to which the existing holders of Common Stock had the right to subscribe for and purchase, in the aggregate, $35 million of Common Stock, as well as to provide for future flexibility to take advantage of business or financial opportunities. On December 22, 1994, the Company announced the successful completion of the Tender Offer for its Convertible Debentures with $89.0 million, or 90.0%, of the outstanding Convertible Debentures being tendered and converted into approximately 22.8 million shares of the Company's Common Stock. At December 31, 1994, the Company's $35 million Rights Offering for approximately 16.3 million shares of Common Stock was fully committed and $19.9 million of the related proceeds had been received. The Company received the balance of the proceeds of the Rights Offering in January 1995. In connection with the Financial Restructuring, the Company incurred approximately $6.8 million in professional fees and prepaid $12.9 million in debt owed to MCIAC (see Note 18). The Company is authorized to issue 10,000,000 shares of $.01 par value preferred stock. The Board of Directors may designate and issue one or more series of preferred stock from the authorized and unissued shares of preferred stock. During 1994, the Company designated 500,000 shares of preferred stock as "Series A" junior preferred stock in connection with the stockholders rights plan discussed below. No preferred stock had been issued as of December 31, 1995. On March 22, 1994, the Company's Board of Directors adopted a stockholder rights plan (the "Rights Plan"). The Rights Plan provides for a dividend distribution of a Preferred Stock Purchase Right (the "Rights") for each share of Common Stock held by stockholders of record at the close of business on April 4, 1994. The Rights will become exercisable only in the event that, with certain exceptions, an acquiring party accumulates 15% or more of the Company's voting stock. The Rights have no voting rights and are not entitled to receive dividends. The Rights will expire on March 22, 2004. Each Right will entitle the holder to buy 1/100th of a share of Series A preferred stock at a price of $35. The Series A preferred stock would also have 46 49 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) one vote, voting together with the Common Stock upon issuance. In addition, upon the occurrence of certain events, holders of the Rights will be entitled to purchase either Common Stock or shares in an acquiring entity at 50% of the market value. The Company will be entitled to redeem the Rights at $.01 per Right at any time through the tenth day following the acquisition of a 15% position in its voting stock. The Company has adopted five stock option plans under which options to purchase up to a total of 7,939,446 shares of Common Stock under the five plans may be granted to officers, key employees and directors of the Company. The following table sets forth option activity for the years ended December 31, 1995, 1994 and 1993:
OPTIONS OUTSTANDING SHARES ------------------------------- AVAILABLE EXERCISE FOR GRANT SHARES PRICE PER SHARE ---------- ---------- ---------------- Balance, December 31, 1992.................. 665,636 698,000 $ 9.81-$11.25 New shares authorized..................... 2,200,000 -- -- Options granted........................... (1,486,500) 1,486,500 $14.44-$20.63 Options exercised......................... -- (112,255) $ 9.81-$14.44 Terminated or cancelled................... 2,000 (2,000) $14.44 --------- --------- Balance, December 31, 1993.................. 1,381,136 2,070,245 $ 9.81-$20.63 New shares authorized..................... 20,000 -- -- Options granted........................... (1,380,700) 1,380,700 $ 2.06-$10.50 Options exercised......................... -- (1,370) $ 9.81 Terminated or cancelled................... 1,537,324 (1,537,324) $ 2.84-$20.63 --------- --------- Balance, December 31, 1994.................. 1,557,760 1,912,251 $ 2.06-$20.63 New shares authorized..................... 4,365,810 -- -- Options granted........................... (3,892,186) 3,892,186 $ 1.66-$ 4.19 Options exercised......................... -- (9,400) $ 2.84 Terminated or cancelled................... 673,650 (683,650) $ 1.66-$20.63 --------- --------- Balance, December 31, 1995.................. 2,705,034 5,111,387 $ 1.66-$20.63 ========= =========
Of the 5,111,387 options outstanding at December 31, 1995, 14,744 have an exercise price of $9.81, 11,057 have an exercise price of $11.20, 15,000 have an exercise price of $11.25, 18,500 have an exercise price of $14.44, 130,000 have an exercise price of $20.63, 60,000 have an exercise price of $10.25, 30,000 have an exercise price of $10.50, 50,000 have an exercise price of $5.44, 25,000 have an exercise price of $2.13, 602,800 have an exercise price of $2.84, 11,100 have an exercise price of $2.16, 400,000 have an exercise price of $2.06, 982,000 have an exercise price of $1.66, 51,666 have an exercise price of $1.84, 600,000 have an exercise price of $2.31, 188,520 have an exercise price of $3.31, 1,666,000 have an exercise price of $3.09, 80,000 have an exercise price of $3.25, and 175,000 have an exercise price of $4.19. Of the 5,111,387 options outstanding at December 31, 1995, 683,986 options were exercisable at December 31, 1995. 17. COMMITMENTS AND CONTINGENCIES LABOR LITIGATION The Amalgamated Transit Union (the "ATU") strike in March 1990 resulted in litigation before the National Labor Relations Board ("NLRB"). In early 1995, a settlement among the ATU, the NLRB and the Company was finalized. The settlement resulted in the dismissal of all litigation between the ATU, the NLRB and the Company, with the exception of one issue related to the Company's granting, in 1990, of experience- 47 50 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) based seniority ("EBS") to drivers hired with previous commercial driving experience. The Company continued to litigate this issue before the NLRB. In September 1994, an Administrative Law Judge ("ALJ") of the NLRB issued a ruling finding that the granting of EBS to drivers with previous commercial driving experience constituted an unfair labor practice by the Company. The Company appealed the ALJ's ruling. In October 1995, the NLRB affirmed the ALJ's ruling. The Company opted not to appeal the NLRB's decision and in December 1995 announced that it would eliminate EBS, effective in January 1996. In June 1995, the Company extended an offer to over 350 post-March 1990 drivers with EBS. Pursuant to the offer, approximately 80% of eligible drivers agreed to relinquish their seniority rights in return for cash payments. In December 1995, a revised offer was made to the post-March 1990 drivers who did not accept the prior buyout. Approximately two-thirds of the remaining drivers accepted the revised offer, leaving, as of March 1, 1996, 21 post-March 1990 drivers who have not released the Company from liability as a result of their loss of EBS seniority. These remaining 21 drivers could sue the Company based on damages allegedly resulting from the loss of EBS, although to date, only one of these remaining drivers has commenced litigation. Based on an assessment of the potential liability it could face from claims by these remaining EBS drivers, the Company does not believe that any such liability exposure is material nor should it materially exceed the amounts recorded. The elimination of EBS also affected drivers hired before March 1990. However, liability to this class of drivers was resolved in the aforementioned settlement. DEPARTMENT OF JUSTICE INVESTIGATION In March 1994, the Antitrust Division of the U.S. Department of Justice (the "DOJ") initiated an antitrust investigation to determine whether there is, has been, or may be a violation by the Company of Sections 1 and 2 of the Sherman Act by conduct or activities constituting a restraint of trade, monopolization or an attempt to monopolize. This investigation principally involved the competitive impact of (i) the Company's computerized reservation system, including the provision of fare and scheduling information via telephone, (ii) the Company's decision to discontinue publishing its bus schedules in an industry publication and (iii) various provisions contained in agreements with bus carriers using the Company's terminals. In April 1995, the Company resumed publishing its schedules in the industry publication. Pursuant to this investigation, the DOJ served a civil investigative demand ("CID") on the Company in March 1994. The CID required the Company to answer various interrogatories and to produce certain documents. In July 1994, the Company completed the production of documents and answered the interrogatories required by the CID. In September 1995, the Company agreed with the DOJ to the entry of a consent decree that would end the investigation. Under the provisions of the consent decree, the Company has agreed not to enforce a provision in its bus terminal lease agreements prohibiting a tenant bus carrier from selling its tickets within 25 miles of the Company's terminal and has agreed not to adopt any comparable provision. The Company rarely enforced this lease provision and recently revised its lease agreements to eliminate the provision. The consent decree was approved by a federal district court on February 28, 1996 and is now final. The consent decree does not constitute an admission by the Company of any violation of the law, liability or wrongdoing. Management of the Company believes that the consent decree will have no material impact on the Company's business, financial condition or results of operations. OKLAHOMA SALES TAX CLAIM In January 1991, the Oklahoma Tax Commission ("OTC") filed a proof of claim with the Bankruptcy Court in connection with the Company's 1990 Chapter 11 bankruptcy case. That claim related to sales taxes which the OTC alleged were due and owing by the Company on interstate bus tickets sold in Oklahoma. The 48 51 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTC claim involved a proposed assessment of approximately $908,000 plus additional interest from the date of the claim. The Company objected to the claim on the basis that the tax the OTC proposed to assess was an improper burden on interstate commerce in violation of the Commerce Clause of the United States Constitution. In February 1993, the Bankruptcy Court denied the OTC's claim in its entirety, finding that the Oklahoma sales tax on interstate travel was unconstitutional. The OTC subsequently appealed the Bankruptcy Court's decision. In April 1995, the United States Supreme Court upheld the constitutionality of a sales tax imposed on interstate bus tickets by the State of Oklahoma in a case involving another bus company. Subsequent to the Supreme Court's decision, the Company's case has been remanded to the Bankruptcy Court where additional proceedings concerning the claim will be heard. In April 1995, the Company began collecting sales taxes from its customers for interstate bus tickets sold in Oklahoma. Additionally, the OTC conducted an audit for the sales taxes due for the period from August 1992 to July 1995. The Company established a reserve during 1995 for its estimate of the liability for the Bankruptcy claim and such audits. Based on an assessment of the potential liability, the Company does not believe that any such liability exposure is material nor should it materially exceed the amounts recorded. Effective as of January 1, 1996, by federal legislation, all states, including Oklahoma, are prohibited from collecting sales, use or similar taxes on interstate bus tickets. SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION Between August and December 1994, seven purported class action lawsuits were filed by purported owners of the Company's Common Stock, Convertible Debentures and Senior Notes against the Company and certain of its former officers and directors. The suits seek unspecified damages for securities law violations as a result of statements made in public reports and press releases and to securities analysts during 1993 and 1994 that are alleged to have been false and misleading. All the purported class action cases referred to above (with the exception of one suit that was dismissed before being served on any defendants) have been transferred to the United States District Court for the Northern District of Texas, the Court in which the first purported class action suit was filed, and are pending under a case styled In re Greyhound Securities Litigation, Civil Action 3-94-CV-1793-G. A joint pretrial order has been entered in the class action litigation which consolidates for pretrial and discovery purposes all of the stockholder actions and, separately, all of the debtholder actions. The joint pretrial order required plaintiffs to file consolidated amended complaints and excused answers to the original complaints. In July 1995, the plaintiffs filed their consolidated amended complaints, naming Greyhound Lines, Inc., Frank J. Schmieder, J. Michael Doyle, Phillip W. Taff, Robert R. Duty, Don T. Seaquist, Charles J. Lee, Charles A. Lynch and Smith Barney Incorporated as defendants. Messrs. Lee and Lynch were subsequently dismissed from the case by the plaintiffs. In September 1995, the various defendants filed motions to dismiss plaintiffs' complaints. Also, in September 1995, plaintiffs filed a motion seeking to certify the class of plaintiffs. Both motions have been fully briefed and are pending for decision before the Court. In November 1994, a shareholder derivative lawsuit was filed by Harvey R. Rice, a purported owner of the Company's Common Stock, against present directors and former officers and directors of the Company and the Company as a nominal defendant. The suit seeks to recover monies obtained by certain defendants by allegedly trading in the Company's securities on the basis of nonpublic information and to recover monies for certain defendants' alleged fraudulent dissemination of false and misleading information concerning the Company's financial condition and future business prospects. The suit, filed in the Delaware Court of Chancery, New Castle County, is styled Harvey R. Rice v. Frank J. Schmieder, J. Michael Doyle, Charles A. Lynch, Richard J. Caley, Thomas F. Meagher, Thomas G. Plaskett, Kenneth R. Norton, Robert B. Gill, Alfred E. Osborne, Jr., J. Patrick Foley, Charles J. Lee and Greyhound Lines, Inc., Civil Action No. 13854. Pursuant to a stipulation, the time for all defendants to answer, move or otherwise plead with respect to the derivative complaint is not yet due. 49 52 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In May 1995, a lawsuit was filed on behalf of two individuals, purported owners of the Company's Common Stock, against the Company and certain of its former officers and directors. The suit seeks unspecified damages for securities law violations as a result of statements made in public reports and press releases and to securities analysts during 1993 and 1994 that are alleged to have been misleading. The suit, filed in the United States District Court for the Northern District of Ohio, is styled James Illius and Teodore J. Krawec v. Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action No. 1-95-CV-1140. The defendants filed a motion to transfer venue seeking to have the case transferred to the Northern District of Texas where the class action litigation is pending. In September 1995, the defendants' motion was granted and pursuant to the joint pretrial order in the class action case, the matter will be consolidated into the litigation pending before the Court in Dallas. Based on a review of the litigation, a limited investigation of the underlying facts and discussions with legal and outside counsel, the Company does not believe that the outcome of this litigation would have a material adverse effect on its business and financial condition. The Company intends to defend against the actions vigorously. To the extent permitted by Delaware law, the Company is obligated to indemnify and bear the cost of defense with respect to lawsuits brought against its officers and directors. The Company maintains directors' and officers' liability insurance that provides certain coverage for itself and its officers and directors against claims of the type asserted in the subject litigation. The Company has notified its insurance carriers of the asserted claims. In January 1995, the Company received notice that the Securities and Exchange Commission (the "SEC") is conducting a formal, non-public investigation into possible securities laws violations allegedly involving the Company and certain of its present and former officers, directors and employees and other persons. The SEC Order of Investigation (the "Order of Investigation") states that the SEC 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 SEC 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 SEC 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 SEC served a document subpoena on the Company requiring the production of documents, most of which the Company voluntarily produced to the SEC in late 1994. The Company is fully cooperating with the SEC's investigation of these matters. The probable outcome of this investigation cannot be predicted at this stage in the proceeding. INSURANCE COVERAGE The Interstate Commerce Commission (now the DOT) has 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. To maintain self-insurance authority, the Company is required to maintain a tangible net worth of $10.0 million (as of December 31, 1995, the Company's tangible net worth was $129.8 million) and to maintain a $15.0 million trust fund (currently fully funded) to provide security for payment of claims. Subsequent to the self-insurance grant by the federal government, thirty-eight states granted the Company the authority to self-insure its intrastate automobile liability exposure. The Company maintains comprehensive automobile liability and general liability insurance to insure its assets and operations subject to a $1.5 million self-insured retention per occurrence. The Company also maintains property insurance subject to a $0.1 million deductible per occurrence, and maintains workers compensation insurance, subject to a $1.0 million deductible per occurrence. Insurance coverage and risk management expense are a key component of the Company's cost structure. The Company has embarked on an aggressive risk reduction and claims reduction program. Due to a decrease 50 53 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) in the pending inventory of claims, certain insurance carriers have reduced their collateral and security requirements for previous years' claims, which resulted in a return of collateral and security to the Company of approximately $8.5 million during April 1995 and approximately $14.0 million during December 1995. A decision by the Company's insurers to modify the Company's program substantially, by either increasing cost, reducing availability or increasing collateral, could have a materially adverse effect on the Company's financial condition. 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 by Company personnel, 74 locations have been identified as sites requiring potential clean-up and/or remediation as of December 31, 1995. The Company has estimated the clean-up and/or remediation costs of these sites to be $4.3 million, of which $0.9 million is indemnifiable by the predecessor owner of the Greyhound domestic bus operations now know as the Dial Corp ("Dial"). The Company has no reason to believe that Dial will not fulfill its indemnification obligations to the Company. However, if Dial does not fulfill such obligations, the Company could have liability with respect to those matters. Additionally, the Company has been designated as a potentially responsible party by the EPA at three Superfund sites where the Company and other 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 the 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 $1.0 million receivable from Dial for the indemnification at December 31, 1995, including costs associated with previously remediated sites. The Company has also recorded a total environmental reserve of $4.2 million at December 31, 1995 for noncapitalizable expenses related to the sites identified for potential clean-up and/or remediation. The reserve amount for the remaining sites is based on discounted cash flows at a discount rate of 8%. Management believes that adequate accruals have been made related to all known environmental matters. At December 31, 1995, clean-up and/or remediation costs under the plan are as follows (in thousands): 1996........................................................................ $2,030 1997........................................................................ 1,209 1998........................................................................ 469 1999........................................................................ 144 Thereafter.................................................................. 438 ------ Total environmental expenditures............................................ 4,290 ====== Amounts representing interest............................................... 73 ------ Reserve for environmental expenditures...................................... $4,217 ======
POTENTIAL PENSION PLAN FUNDING REQUIREMENTS. The most significant of the Company's five defined benefit pension plans is the Greyhound Lines, Inc. Retirement and Disability Trust (the "ATU Plan") which covers approximately 17,000 current and former employees, primarily drivers, fewer than 1,500 of whom are active employees as of December 31, 1995. The ATU Plan was closed to new participants in November 1983 and, as a result, over 79% of the participants are 50 or more years old. For financial reporting and investment planning purposes, the Company uses a mortality table that closely matches the actual experience related to the existing participant population. 51 54 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In December 1994, the Congress passed the General Agreement on Tariffs and Trade ("GATT") legislation. Included in this bill was a specification that Employee Retirement Income Security Act of 1974, as amended ("ERISA") funding requirements for pension plans be calculated using a specific actuarial mortality table ("GATT-specified table"). This GATT-specified table differs significantly from the table the Company has been using to value the pension liabilities for financial reporting purposes. If the Company is required to measure the pension liability, for ERISA funding purposes, utilizing the GATT-specified table, it will be required to begin making contributions to the ATU Plan at some time after 1997 in annual amounts potentially ranging from $2.3 million to $19.8 million. Management believes, however, that the ATU Plan is currently adequately funded to meet the future benefit obligations. If the Company is required to measure ERISA funding requirements using the GATT-specified table, the Company believes that the ATU Plan will be over-funded on an actual basis. Additionally, the ATU Plan documents provide that if the Company is required to make contributions, benefits will be frozen and active participants will not accrue any further benefits for continued service. This freeze could contribute to further over-funding since the earnings on the assets that are normally applied to fund current service accruals would be entirely applied to increase the funding levels of the ATU Plan. If the ATU Plan is over-funded, the excess assets cannot be returned to the Company. The Company is exploring whether it may be able to obtain general or specific relief from this requirement. OTHER LEGAL PROCEEDINGS In addition to the litigation discussed above, the Company is a defendant in various lawsuits arising in the ordinary course of business, primarily cases involving personal injury and property damage claims. Although these lawsuits involve a variety of different facts and theories of recovery, the majority arise from traffic accidents involving buses operated by the Company. The vast majority of these claims are covered by insurance for amounts in excess of the self-retention or deductible portion of the policies. Therefore, based on the Company's assessment of known claims and its historical claims payout pattern and discussion with legal and outside counsel and risk management personnel, management believes that there is no proceeding either threatened or pending against the Company relating to such personal injury and/or property damage claims arising out of the ordinary course of business that, if resolved against the Company, would materially exceed the amounts recorded. 18. RELATED PARTY TRANSACTIONS Motor Coach Industries International, Inc. Transportation Manufacturing Operations, Inc. ("TMO"), a wholly owned subsidiary of MCII, agreed to act as a standby purchaser in the Rights Offering. Motor Coach Industries, Inc. ("MCI"), a subsidiary of TMO, is the Company's principal supplier of new motor coaches. TMO assigned its standby purchase obligations to Motor Coach Industries Limited, which purchased 6,004,144 shares in the Rights Offering. As an inducement to serve as a standby purchaser, the Company paid TMO a commitment fee of approximately $137,000 (representing 1% of TMO's total standby purchase commitment), and a takedown fee of approximately $387,000 (representing 3% of the price paid for the shares actually purchased by TMO pursuant to the standby commitment). In addition, the Company extended the term of the Bus Purchase Requirements Agreement dated March 18, 1987 between the Company, MCI and Transit Bus International, Inc., which also is a subsidiary of MCII, from March 18, 1997 to March 18, 1998. The Company must purchase at least 75% of its new bus requirements, if any, pursuant to that agreement. The Company also has agreed that it would prepay a portion of the "purchase price" to become due and payable under a Conditional Sales Contract and Security Agreement entered into in 1994 between the Company and MCI and assigned to MCI Acceptance Corp. ("MCIAC"), a wholly owned subsidiary of MCII. The Conditional Sales Contract to 52 55 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) be repaid arose out of the financing of 151 intercity coaches purchased by the Company in 1994. The obligations thereunder currently bear interest at the prime rate plus 1.5% per annum and mature over ten years. This pre-payment, in the amount of $12.9 million, was made in February 1995 and resulted in the release of liens on 64 buses which collateral is available for refinancing. In addition, the Company has agreed that it will use its best efforts to refinance, on commercially reasonable terms, all other amounts owed to MCIAC. At December 31, 1995, the aggregate principal amount owed to MCIAC was approximately $6.7 million. As part of the standby purchase agreement, the Company granted TMO two demand registration rights with respect to the shares purchased by it, and agreed to bear all the expenses (other than discounts and commissions, fees and expenses of TMO's counsel) of effecting the registration of those shares. The Company filed a registration statement on Form S-3 relating to the sale of up to 10,004,144 shares of Common Stock which was declared effective on September 28, 1995, and on October 3, 1995, the sale of the stock was completed. Four million shares were sold by the Company and 6,004,144 shares were sold by Motor Coach Industries Limited, a selling stockholder. The Company did not receive any portion of the proceeds from the sale of shares of Common Stock by the selling stockholder. The Company's President and Chief Executive Officer, Craig R. Lentzsch, previously served as Executive Vice President and Chief Financial Officer of MCII where he had been employed from 1992 to November 1994. Universal Coach Parts, Inc. Universal Coach Parts, Inc. ("UCP") is a nationwide distributor of service parts and since December 1992 has provided inventory and inventory management services for the Company. UCP is also a wholly owned subsidiary of MCII. For the years ended December 31, 1995, 1994 and 1993, the Company paid $15.2 million, $11.5 million, and $5.5 million, respectively, to UCP for the purchase of inventory and inventory management services. Additionally, at December 31, 1995 and 1994, the Company included in its Consolidated Statements of Financial Position, net amounts payable to UCP of $1.4 million and $1.5 million, respectively. Connor, Clark & Company, Ltd. Connor, Clark & Company, Ltd. ("Connor Clark"), the Company's largest shareholder, agreed to act as a standby purchaser with respect to up to 650,000 shares, all of which were purchased by it upon the conclusion of the Rights Offering. As an inducement to serve as a Standby Purchaser, the Company paid Connor Clark a commitment fee of approximately $14,000 (representing 1% of Connor Clark's total standby purchase commitment) and a takedown fee of approximately $70,000 (representing 5% of the exercise price) in respect of the New Shares actually purchased by it pursuant to the standby purchase commitment. Connor Clark and certain of its affiliates tendered an aggregate of $1,338,000 principal amount of Convertible Debentures in the Tender Offer on the same basis as the other holders of the Convertible Debentures. Herbert Abramson, Director and Vice President of Connor Clark, served on the Company's Board of Directors from September 21, 1994 until his resignation on October 26, 1995. Snyder Capital Management, Inc. Snyder Capital Management, Inc. ("SCM"), on behalf of 49 accounts managed by it (the "SCM Accounts"), committed to oversubscribe for up to an aggregate of 2,181,977 shares. Because the SCM Accounts exercised their oversubscription privileges, and because there were sufficient unsubscribed shares available, the SCM Accounts received all the shares for which they had oversubscribed before any shares were taken by the standby purchasers. 53 56 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In consideration for the committed oversubscription, the Company paid each SCM Account a commitment fee equal to 1% of the aggregate exercise price for each account's pro rata portion of the committed oversubscription (or approximately $47,000 in the aggregate to the SCM Accounts taken as a whole). In addition, each SCM Account received a fee equal to 5% of the exercise price actually paid for any shares acquired pursuant to the committed oversubscription (or approximately $235,000 in the aggregate to the SCM Accounts taken as a whole). Put/Call Agreement with Certain Shareholder In June 1995, the Company entered into a Put/Call agreement with a certain shareholder in which the shareholder was to purchase, on the market, up to $15.0 million face amount of the Company's Senior Notes. In December 1995, the Company exercised its option to purchase the $10.7 million aggregate principal of its Senior Notes held by the shareholder for the purchase price of $9.7 million, as specified under the terms of the agreement. The completion of this transaction satisfied each party's obligations under the agreement and it has been terminated. Frederick F. Richards Frederick F. Richards, has been engaged by the Company as an independent management consultant on an at will basis since November 1994, supplying consulting services to the Company on a variety of operational and technology issues. Mr. Richards received $160,000 for these services in 1995 from the Company. Mr. Richards is the son-in-law of A. A. Meitz, a director of the Company since November 21, 1995. 54 57 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 19. QUARTERLY FINANCIAL DATA (UNAUDITED) Selected unaudited quarterly financial data for the years ended December 31, 1995 and 1994 are as follows (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH YEAR ENDED DECEMBER 31, 1995 QUARTER QUARTER QUARTER QUARTER ---------------------------------------- -------- -------- -------- -------- Operating revenues...................... $131,793 $161,367 $198,946 $165,258 Operating expenses...................... 143,640 164,211 176,982 163,168 -------- -------- -------- -------- Operating income (loss)................. (11,847) (2,844) 21,964 2,090 Interest expense........................ 6,868 7,013 6,606 6,320 Income tax provision.................... 2 26 25 321 -------- -------- -------- -------- Net income (loss)....................... $(18,717) $ (9,883) $ 15,333 $ (4,551) ======== ======== ======== ======== Net income (loss) per share of Common Stock: Primary............................... $ (0.36) $ (0.18) $ 0.27 $ (0.08) ======== ======== ======== ======== Fully diluted......................... $ (0.36) $ (0.18) $ 0.27 $ (0.08) ======== ======== ======== ======== YEAR ENDED DECEMBER 31, 1994 Operating revenues...................... $133,852 $151,073 $185,736 $145,670 Operating expenses...................... 152,598 178,145 167,074 183,990(a) -------- -------- -------- -------- Operating income (loss)................. (18,746) (27,072) 18,662 (38,320) Interest expense........................ 7,904 7,657 9,033 8,862 Income tax provision (benefit).......... (10,639) 10,656 17,039 (194) -------- -------- -------- -------- Loss before extraordinary items......... (16,011) (45,385) (7,410) (46,988) Extraordinary items..................... -- -- 3,158 (41,531)(b) -------- -------- -------- -------- Net loss................................ $(16,011) $(45,385) $(10,568) $ (5,457) ======== ======== ======== ======== Loss per share of Common Stock: Primary Loss before extraordinary items.... $ (1.09) $ (3.10) $ (.51) $ (2.74) Extraordinary items................ -- -- (.21) 2.42 -------- -------- -------- -------- Net loss........................... $ (1.09) $ (3.10) $ (.72) $ (0.32) ======== ======== ======== ======== Fully diluted Loss before extraordinary items.... $ (1.09) $ (3.10) $ (.51) $ (2.74) Extraordinary items................ -- -- (.21) 2.42 -------- -------- -------- -------- Net loss........................... $ (1.09) $ (3.10) $ (.72) $ (0.32) ======== ======== ======== ========
- --------------- (a) The Company recorded $37.8 million in certain operating charges in the fourth quarter of 1994. Those charges related to the write-down to the expected market value of certain real estate assets which were expected to be classified as surplus, adverse claims development in 1994, certain litigation exposure and costs related to the Company's strategic and operational reorganization. (b) Amount primarily represents a $41.9 million extraordinary gain related to the conversion of the Convertible Debentures to Common Stock. 55 58 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Greyhound Lines, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Greyhound Lines, Inc. and subsidiaries included in this Form 10-K and have issued our reports thereon dated February 12, 1996. 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 are not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state 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 12, 1996 56 59 SCHEDULE II GREYHOUND LINES, INC. AND SUBSIDIARIES (A) VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS)
ADDITIONS ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - ------------------------------------ ---------- ---------- ---------- ---------- ---------- December 31, 1995: Allowance for Doubtful Accounts... $ 840 $ 975 $ (1,011) $ (587)(b) $ 217 Inventory Reserves................ 61 48 -- -- 109 Accumulated Amortization of Intangible Assets.............. 9,644 5,790 (533) -- 14,901 Reserves for Injuries and Damages........................ 72,343 33,788 -- (40,470)(f) 65,661 ------- ------- ------- -------- ------- Total Reserves and Allowances.............. $ 82,888 $ 40,601 $ (1,544) $(41,056) $ 80,889 ======= ======= ======= ======== ======= December 31, 1994: Allowance for Doubtful Accounts... $ 707 $ 926 $ -- $ (793)(b) $ 840 Inventory Reserves................ -- 61 -- -- 61 Accumulated Amortization of Intangible Assets.............. 5,533 4,777 -- (666)(g)(e) 9,644 Reserves for Injuries and Damages........................ 41,770 66,355 -- (35,782)(f) 72,343 ------- ------- ------- -------- ------- Total Reserves and Allowances.............. $ 48,010 $ 72,119 $ -- $(37,241) $ 82,888 ======= ======= ======= ======== ======= December 31, 1993: Allowance for Doubtful Accounts... $ 1,039 $ 298 $ -- $ (630)(b) $ 707 Inventory Reserves................ 100 -- -- (100)(c) -- Accumulated Amortization of Intangible Assets.............. 6,638 4,206 -- (5,311)(d)(e) 5,533 Reserves for Injuries and Damages........................ 44,230 36,738 -- (39,198)(f) 41,770 ------- ------- ------- -------- ------- Total Reserves and Allowances.............. $ 52,007 $ 41,242 $ -- $(45,239) $ 48,010 ======= ======= ======= ======== =======
- --------------- (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 bad debt. (c) Includes book-to-physical inventory adjustments. (d) Write-off of goodwill. (e) Write-off of other assets and deferred costs. (f) Payments of settled claims. (g) Write-off of software. 57 60 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 58 61 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the directors and executive officers of the Company as of March 14, 1996. All executive officers hold office at the pleasure of the Board of Directors.
NAME AGE OFFICE - ------------------------------ --- --------------------------------------------- Richard J. Caley.............. 69 Director (Class III) Linda Chavez.................. 48 Director (Class III) Craig R. Lentzsch............. 47 Director (Class I); President, and Chief Executive Officer A. A. Meitz................... 58 Director (Class III) Frank L. Nageotte............. 69 Director (Class I) Alfred E. Osborne, Jr......... 51 Director (Class II) Stephen M. Peck............... 61 Director (Class II) Thomas G. Plaskett............ 52 Director (Class I); Chairman of the Board Ernest P. Werlin.............. 51 Director (Class II) Bradley T. Harslem............ 43 Senior Vice President -- Information Services and Chief Information Officer Jack W. Haugsland............. 55 Executive Vice President and Chief Operating Officer J. Floyd Holland.............. 60 Senior Vice President -- Operations Steven L. Korby............... 50 Executive Vice President, Chief Financial Officer and Treasurer
DIRECTORS Richard J. Caley was appointed a Director of the Company on October 31, 1991. From 1978 to 1982, Mr. Caley served as President of Wilson Sporting Goods Co., a division of PepsiCo Inc., and Chairman of the Board and Chief Executive Officer of North American Van Lines. From 1971 to 1978, Mr. Caley served as President of the PepsiCo Transportation Division. Mr. Caley retired in 1982, although from May 15, 1989, to November 15, 1989, Mr. Caley served as President, Chief Operating Officer and Director of HEM Pharmaceuticals. Linda Chavez was elected to the Board of Directors on November 21, 1995. Ms. Chavez has been President of the Center for Equal Opportunity since 1995. From 1988 to 1995, Ms. Chavez was a Senior Fellow at the Manhattan Institute for Policy Research. Ms. Chavez, a political commentator, writes a weekly column for USA Today and has contributed articles to the Wall Street Journal, The New Republic and the Washington Post. Ms. Chavez has appeared on The McLaughlin Group and NewsHour with Jim Lehrer. In 1985, Ms. Chavez was appointed Director of the Office of Public Liaison for the White House and from 1983 to 1985 was Director of the U.S. Commission on Civil Rights. Craig R. Lentzsch was elected to the Board of Directors on August 26, 1994. Effective November 15, 1994, Mr. Lentzsch became President and Chief Executive Officer of the Company. Mr. Lentzsch also served as Chief Financial Officer of the Company from November 22, 1994 to April 10, 1995. Mr. Lentzsch previously served as Executive Vice President and Chief Financial Officer of Motor Coach Industries International, Inc. where he had been employed from 1992 to 1994; as President and Chief Executive Officer of Continental Asset Services, Inc. from 1991 to 1992; as a private consultant to, and investor in, Storehouse, Inc. from 1983 to 1991 and Communications Partners, Ltd. from 1989 to 1991; as Vice Chairman, Executive Vice President and a Director of the Company from March 1987 to December 1989; and as Co-founder and President of BusLease, Inc. from 1980 to 1989. Mr. Lentzsch also serves as a director of Hastings Books, Records and Tapes and Enginetech, Inc. 59 62 A.A. Meitz was elected to the Board of Directors on November 21, 1995. Mr. Meitz is a retired Senior Vice President of Booz Allen & Hamilton where he was employed from 1965 to 1994. From 1981 to 1983 Mr. Meitz served as a member of that firm's board of directors. Mr. Meitz also serves as a director of: Banctec, Inc., Associated Materials Corporation, and Northern Trust Bank of Texas. He is a member of the Executive Board of the Cox School of Business at Southern Methodist University. Mr. Meitz was also the Chairman of the Texas Senate Advisory Committee on Business, Technology and Education from 1984 to 1985. Frank L. Nageotte was elected to the Board of Directors on February 27, 1995. Mr. Nageotte was a director of Motor Coach Industries International, Inc. from 1993 to 1995, and Greyhound Lines, Inc. from 1987 to 1990 and currently serves as a director of Citizens Auto Stages. From 1982 to 1987 Mr. Nageotte served as President and Chief Operating Officer of The Greyhound Corporation, where he was the Chief Executive Officer of the Company's predecessor from 1978 to 1982. Mr. Nageotte worked for the Company's predecessor for 40 years. Alfred E. Osborne, Jr. was elected to the Board of Directors on May 10, 1994. Since 1987, Dr. Osborne has served as Director of the Entrepreneurial Studies Center and Associate Professor of Business Economics of the John E. Anderson Graduate School of Management at the University of California at Los Angeles. Dr. Osborne formerly served as Director of the MBA Program, Assistant Dean and Associate Dean at UCLA. Dr. Osborne is also an independent general partner of Technology Funding Venture Partners V and a director of First Interstate Bank of California, Nordstrom, Inc., Readicare Inc., Seda Specialty Packaging Corporation, The Times Mirror Company and United States Filter Corporation. Stephen M. Peck was elected to the Board of Directors on May 31, 1995. Mr. Peck is currently a private investor. From March 1989 to December 1994, Mr. Peck was a General Partner of SMP Associates, L.P., an investment partnership. Formerly he was a Managing and Special Partner of Weiss, Peck & Greer and participated in its founding in 1970. From 1986 to mid-1988 he served as Chief Investment Officer and a director of Reliance Insurance Company. From May 1985 to January 1988, Mr. Peck served as a director of Tiger International. He was elected a Governor of the New York Stock Exchange, Inc. in 1969, served as Vice Chairman of the Board of Governors from May 1971 to July 1972, and served as Chairman of its Surveillance Committee from December 1974 to May 1978. Mr. Peck served as a member of the Audit Committee of the City of New York from February 1979 to February 1981. Mr. Peck is currently Chairman of the Boards of Trustees of the Mount Sinai Hospital and School of Medicine, a member of the Board of Trustees of the Manhattan Institute for Policy Research, and a member of the Board of the Jewish Theological Seminary of America. Thomas G. Plaskett was elected to the Board of Directors on May 10, 1994. From August 9, 1994, to November 14, 1994, Mr. Plaskett served as Interim President and Chief Executive Officer of the Company, and from October 19, 1994 to November 22, 1994, served as Acting Chief Financial Officer of the Company. On February 27, 1995, Mr. Plaskett was elected as the Company's Chairman of the Board. Since 1991, Mr. Plaskett has served as Managing Director of Fox Run Capital Associates, an investment concern. Previously, Mr. Plaskett served as President and Chief Executive Officer of Pan Am Corporation from 1988 to 1991 and as President and Chief Executive Officer of Continental Airlines from 1986 to 1987. Mr. Plaskett also serves as a director of Tandy Corporation, Neostar Retail Group and Smart and Final, Inc. Ernest P. Werlin was elected to the Board of Directors on May 31, 1995. Mr. Werlin is currently President of High View Capital. He has also served as Chairman of the Board of Directors of Jamesway Corporation since March 1995. From 1992 to March 1995, Mr. Werlin was employed by Steinhardt Management. From April 1990 to 1992, Mr. Werlin was a private investor. From January 1989 to April 1990, Mr. Werlin was Managing Director of Stamford Capital. From August 1988 to December 1988, Mr. Werlin was an Associate Managing Director of Bear, Stearns & Company. He was employed by Morgan Stanley & Company from April 1980 to May 1988 as the Chairman of the Fixed Income New Product Development Committee and as Managing Director, Manager of Corporate Bond Trading desk and Special Situations. From April 1978 to April 1980, Mr. Werlin served as Co-Manager of the Corporate Bond Department of Donaldson, Lufkin & Jenrette. He also served as Senior Administrator to the President of Lehman Brothers 60 63 from June 1976 to April 1978. Additionally, from July 1991 to June 1992, Mr. Werlin was a director of Todd Shipyards. The Restated Certificate of Incorporation of the Company currently provides that the Board of Directors shall consist of nine directors, divided into three classes. The term of office of the Class II directors expires at the 1996 annual meeting of stockholders, the term of those in Class III expires at the 1997 annual meeting of stockholders and the term of those in Class I expires at the 1998 annual meeting of stockholders. At each annual meeting of stockholders, directors in the class to be elected at such meeting will be elected for three- year terms to succeed those directors whose terms are expiring. The Board of Directors has established an Executive Committee consisting of Messrs. Plaskett (Chairman), Lentzsch and Nageotte, which committee possesses the powers and discharges the duties of the Board of Directors during interim periods between meetings of the full board. The Board of Directors also has established an Audit Committee consisting of Mr. Osborne (Chairman), Ms. Chavez and Messrs. Nageotte and Werlin; an Organization and Compensation Committee consisting of Messrs. Caley (Chairman), Meitz, Osborne, Peck and Werlin; a Committee on Directors consisting of Messrs. Lentzsch (Chairman), Caley, Peck and Plaskett. Messrs. Caley, Lentzsch, Osborne and Plaskett served as members of the Finance Committee until the Finance Committee was dissolved on May 31, 1995. It is the Board's intent to periodically modify committee assignments and chairmanships. EXECUTIVE OFFICERS In addition to Craig R. Lentzsch, the other executive officers of the Company are as set forth below. Bradley T. Harslem joined the Company in December 1993 and serves as Senior Vice President -- Information Services and Chief Information Officer. He is responsible for all of the Company's computer systems and for the operation of the telephone sales centers. Prior to joining the Company, Mr. Harslem worked for American Airlines, Inc. for 18 years in various engineering, finance, planning, marketing and technology roles. He served as Vice President -- Sabre Travel Information Network from 1991 to 1993; as Vice President -- Sabre Computer Services from 1988 to 1991 and as Managing Director -- Marketing Administration from 1987 to 1988. Jack W. Haugsland joined the Company on May 15, 1995 as Executive Vice President and Chief Operating Officer. From 1992 to 1995 Mr. Haugsland was President and Chief Executive Officer of Gray Line Worldwide. From 1990 to 1992 Mr. Haugsland held the position of Senior Vice President of Operations for the Company; and from 1986 to 1990 Mr. Haugsland served as President of Greyhound Travel Services, Inc., a former subsidiary of the Company. Mr. Haugsland began employment with the Company's predecessor in 1964. J. Floyd Holland has served as Senior Vice President -- Operations since September 1994 and is responsible for equipment maintenance, engineering, driver and bus operations and customer service. From October 1992 to September 1994, he served as Vice President -- Maintenance of the Company. From July 1987 to September 1992, he was Vice President -- Fleet Operations and was responsible for fleet planning and allocation. From October 1979 to July 1987, Mr. Holland served as Vice President of Operations and Transportation of Trailways. Mr. Holland held various management positions with predecessor companies since he began employment in 1958 with Trailways. Mr. Holland has been a member of the Board of Directors and Executive Committee of the National Bus Traffic Association since 1991. Steven L. Korby joined the Company as Executive Vice President, Chief Financial Officer and Treasurer effective April 13, 1995. Prior to joining the Company, Mr. Korby was President of Armstrong Capital Corporation from 1994 to 1995 and served as Executive Vice President, Chief Financial Officer and Chief Technology Officer of Neodata Corporation and its predecessors from 1983 to 1993. There is no family relationship between any of the directors or nominees for director and executive officers of the Company. 61 64 SECTION 16(A) DELINQUENT FILER DISCLOSURE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than 10% of the Company's Common Stock, to file with the Securities and Exchange Commission (the "SEC") initial reports of beneficial ownership and reports of changes in beneficial ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10% beneficial owners of the Company are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with for the year ended December 31, 1995, except that: (a) Frank L. Nageotte, a director, filed a late Form 3 and a late Form 4 after being appointed to the Board of Directors in February 1995; (b) Steven L. Korby, Executive Vice President, Chief Financial Officer and Treasurer, filed an amended Form 3 after joining the Company in April 1995; (c) Stephen M. Peck, a director, filed a late Form 3 after being elected to the Board of Directors in May 1995; and (d) Ernest P. Werlin, a director, filed a late Form 3 after being elected to the Board of Directors in May 1995. ITEM 11. EXECUTIVE COMPENSATION "Executive Compensation" in the definitive proxy statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT "Security Ownership of Certain Beneficial Owners and Management" in the definitive proxy statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Motor Coach Industries International, Inc. Transportation Manufacturing Operations, Inc. ("TMO"), a wholly owned subsidiary of MCII, agreed to act as a standby purchaser in the Rights Offering. Motor Coach Industries, Inc. ("MCI"), a subsidiary of TMO, is the Company's principal supplier of new motor coaches. TMO assigned its standby purchase obligations to Motor Coach Industries Limited, which purchased 6,004,144 shares in the Rights Offering. As an inducement to serve as a standby purchaser, the Company paid TMO a commitment fee of approximately $137,000 (representing 1% of TMO's total standby purchase commitment), and a takedown fee of approximately $387,000 (representing 3% of the price paid for the shares actually purchased by TMO pursuant to the standby commitment). In addition, the Company extended the term of the Bus Purchase Requirements Agreement dated March 18, 1987 between the Company, MCI and Transit Bus International, Inc., which also is a subsidiary of MCII, from March 18, 1997 to March 18, 1998. The Company must purchase at least 75% of its new bus requirements, if any, pursuant to that agreement. The Company also has agreed that it would prepay a portion of the "purchase price" to become due and payable under a Conditional Sales Contract and Security Agreement entered into in 1994 between the Company and MCI and assigned to MCI Acceptance Corp. ("MCIAC"), a wholly owned subsidiary of MCII. The Conditional Sales Contract to be repaid arose out of the financing of 151 intercity coaches purchased by the Company in 1994. The obligations thereunder currently bear interest at the prime rate plus 1.5% per annum and mature over ten years. This pre-payment in the amount of $12.9 million was made in February 1995 and resulted in the release of liens on 64 buses which collateral is available for refinancing. In addition, the Company has agreed that it will use its best efforts to refinance, on commercially reasonable terms, all other amounts owed to MCIAC. At December 31, 1995, the aggregate principal amount owed to MCIAC was approximately $6.7 million. As part of the standby purchase agreement, the Company granted TMO two demand registration rights with respect to the shares purchased by it, and agreed to bear all the expenses (other than discounts and commissions and fees and expenses of TMO's counsel) of effecting the registration of those shares. The 62 65 Company filed a registration statement on Form S-3 relating to the sale of up to 10,004,144 shares of Common Stock which was declared effective on September 28, 1995, and on October 3, 1995, the sale of the stock was completed. Four million shares were sold by the Company and 6,004,144 shares were sold by Motor Coach Industries Limited, a selling stockholder. The Company did not receive any portion of the proceeds from the sale of shares of Common Stock by the selling stockholder. The Company's President and Chief Executive Officer, Craig R. Lentzsch, previously served as Executive Vice President and Chief Financial Officer of MCII where he had been employed from 1992 to November 1994. Universal Coach Parts, Inc. Universal Coach Parts, Inc. ("UCP") is a nationwide distributor of service parts and since December 1992 has provided inventory and inventory management services for the Company. UCP is also a wholly owned subsidiary of MCII. For the years ended December 31, 1995, 1994 and 1993, the Company paid $15.2 million, $11.5 million and $5.5 million, respectively, to UCP for the purchase of inventory and inventory management services. Additionally, at December 31, 1995 and 1994, the Company included in its Consolidated Statements of Financial Position, net amounts payable to UCP of $1.4 million and $1.5 million, respectively. Connor, Clark & Company, Ltd. Connor, Clark & Company, Ltd. ("Connor Clark"), the Company's largest shareholder, agreed to act as a standby purchaser with respect to up to 650,000 shares, all of which were purchased by it upon the conclusion of the Rights Offering. As an inducement to serve as a Standby Purchaser, the Company paid Connor Clark a commitment fee of approximately $14,000 (representing 1% of Connor Clark's total standby purchase commitment) and a takedown fee of approximately $70,000 (representing 5% of the exercise price) in respect of the New Shares actually purchased by it pursuant to the standby purchase commitment. Connor Clark and certain of its affiliates tendered an aggregate of $1,338,000 principal amount of Convertible Debentures in the Tender Offer on the same basis as the other holders of the Convertible Debentures. Herbert Abramson, Director and Vice President of Connor Clark, served on the Company's Board of Directors from September 21, 1994 until his resignation on October 26, 1995. Snyder Capital Management, Inc. Snyder Capital Management, Inc. ("SCM"), on behalf of 49 accounts managed by it (the "SCM Accounts"), committed to oversubscribe for up to an aggregate of 2,181,977 shares. Because the SCM Accounts exercised their oversubscription privileges, and because there were sufficient unsubscribed shares available, the SCM Accounts received all the shares for which they had oversubscribed before any shares were taken by the standby purchasers. In consideration for the committed oversubscription, the Company paid each SCM Account a commitment fee equal to 1% of the aggregate exercise price for each account's pro rata portion of the committed oversubscription (or approximately $47,000 in the aggregate to the SCM Accounts taken as a whole). In addition, each SCM Account received a fee equal to 5% of the exercise price actually paid for any shares acquired pursuant to the committed oversubscription (or approximately $235,000 in the aggregate to the SCM Accounts taken as a whole). Put/Call Agreement with Certain Shareholder In June 1995, the Company entered into a Put/Call agreement with a certain shareholder in which the shareholder was to purchase, on the market, up to $15.0 million face amount of the Company's Senior Notes. In December 1995, the Company exercised its option to purchase the $10.7 million aggregate principal of its Senior Notes held by the shareholder for the purchase price of $9.7 million, as specified under the terms of the agreement. The completion of this transaction satisfied each party's obligations under the agreement and it has been terminated. 63 66 Frederick F. Richards Frederick F. Richards, has been engaged by the Company as an independent management consultant on an at will basis since November 1994, supplying consulting services to the Company on a variety of operational and technology issues. Mr. Richards received $160,000 for these services in 1995 from the Company. Mr. Richards is the son-in-law of A. A. Meitz, a Director of the Company since November 21, 1995. 64 67 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 statements schedules are set forth in Item 8 of the Form 10-K Annual Report. Financial Statement Schedules not included in this Form 10-K Annual Report have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 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................ 26 Report of Independent Public Accountants................................... 27 Consolidated Statements of Financial Position at December 31, 1995 and 1994..................................................................... 28 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993...................................................... 29 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993......................................... 30 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993...................................................... 31 Notes to Consolidated Financial Statements................................. 32 Report of Independent Public Accountants on Financial Statement Schedule... 56 Schedule II -- Valuation and Qualifying Accounts........................... 57
3. EXHIBITS 3.1 -- Restated Certificate of Incorporation of Greyhound Lines, Inc.(4) 3.2 -- Restated Bylaws of Greyhound Lines, Inc.(4) 3.3 -- Article Fourth of the Restated Certificate of Incorporation of the Registrant relating to its capital stock.(7) 3.4 -- Certificate of Amendment in the Restated Certificate of Incorporation of the Registrant amending Article Fourth thereof.(8) 3.5 -- Certificate of Amendment in the Restated Certificate of Incorporation of the Registrant amending Article Eighth thereof.(13) 3.6 -- Certificate of Designations of Series A Junior Preferred Stock of the Registrant.(13) 3.7 -- Form of Certificate of Amendment to Certificate of Incorporation.(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.(5) 4.2 -- Indenture, dated October 31, 1991, between the Registrant and LaSalle National Bank, as Trustee, with respect to $165,000,000 principal amount of 10% Senior Notes due 2001, including form of 10% Senior Notes Due 2001.(2) 4.3 -- First Supplemental Indenture to the Indenture between the Registrant and LaSalle National Bank, as Trustee.(5) 4.4 -- Form of First Supplemental Indenture to the Indenture between the Registrant and Shawmut Bank Connecticut, N.A., as Trustee.(16)
65 68 4.5 -- Rights Agreement, dated as of March 22, 1994, between the Registrant and Mellon Securities Trust Company, as Rights Agent.(11) 4.6 -- Form of Promissory Note issued to holders of priority tax claims against the Registrant, including a schedule of holders of such notes and principal amounts thereof.(4) 4.7 -- Amended and Restated Loan and Security Agreement dated as of October 13, 1994 by and between Greyhound Lines, Inc. and Foothill Capital Corporation.(15) 4.8 -- Amendment Number One to Amended and Restated Loan and Security Agreement dated March 27, 1995 by and between Greyhound Lines, Inc. and Foothill Capital Corporation.(17) 4.9 -- Second Amended and Restated Loan and Security Agreement dated as of June 5, 1995 by and between Greyhound Lines, Inc. and Foothill Capital Corporation.(19) 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 -- Trademark License Agreement dated March 18, 1987, between The Greyhound Corporation, GLI Holding Company and the Registrant.(1) 10.7 -- Assignment of Exhibit B Trademarks dated March 18, 1987, executed by The Greyhound Corporation.(1) 10.8 -- Bus Purchase Requirements Agreement dated March 18, 1987, among the Registrant, Greyhound Lines, Inc., Transportation Manufacturing Corporation and Motor Coach Industries, Inc.(1) 10.9 -- Amendment to Bus Purchase Requirements Agreement.(21) 10.10 -- Master Lease dated March 18, 1987, between Greyhound Lines, Inc. and GLI Realty Company.(1) 10.11 -- Trust Agreement dated as of October 31, 1991, between the Registrant and Bank One, Texas, N.A., as trustee for Registrant's Employee Stock Ownership Plan.(4) 10.12 -- 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.(4) 10.13 -- 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.(4) 10.14 -- Coach Purchase Agreement, dated December 23, 1992, between the Registrant and Motor Coach Industries, Inc.(6)
66 69 10.15 -- Amendment No. 1 to the 1993 Coach Purchase Agreement, dated as of February 4, 1993, by and among Greyhound Lines, Inc. and Motor Coach Industries, Inc.(9) 10.16 -- Amendment No. 2 to the 1993 Coach Purchase Agreement, dated as of June 25, 1993, by and among Greyhound Lines, Inc. and Motor Coach Industries, Inc.(9) 10.17 -- Memorandum of Agreement, dated as of June 4, 1993, between Greyhound Lines, Inc. and the International Association of Machinists and Aerospace Workers.(9) 10.18 -- Interest Rate Swap Transaction Confirmations dated as of July 12, 1993, between the Registrant and Bankers Trust Company.(9) 10.19 -- Memorandum of Agreement, dated as of May 25, 1993, between the Registrant and the Amalgamated Council of Greyhound Local Unions.(10) 10.20 -- Lease Agreement No. 1, dated as of December 29, 1993, between Wilmington Trust Company and the Registrant.(10) 10.21 -- Lease Agreement No. 2, dated as of December 29, 1993, between Wilmington Trust Company and the Registrant.(10) 10.22 -- Lease Agreement No. 3, dated as of December 29, 1993, between Wilmington Trust Company and the Registrant.(10) 10.23 -- Lease Supplement No. 1-1, dated as of December 30, 1993, between Wilmington Trust Company and the Registrant.(10) 10.24 -- Lease Supplement No. 2-1, dated as of December 30, 1993, between Wilmington Trust Company and the Registrant.(10) 10.25 -- Lease Supplement No. 3-1, dated as of December 30, 1993, between Wilmington Trust Company and the Registrant.(10) 10.26 -- Tax Indemnification Agreement, dated as of December 29, 1993, between Nationsbanc Lease Investments, Inc. and the Registrant.(10) 10.27 -- Pledge Agreement, dated as of December 29, 1993, among the Registrant, Wilmington Trust Company and Nationsbanc Lease Investments, Inc.(10) 10.28 -- Participation Agreement, dated as of December 29, 1993, among Nationsbanc Lease Investments, Inc. and the Registrant.(10) 10.29 -- Greyhound Lines, Inc. 1991 Management Incentive Stock Option Plan.(4) 10.30 -- Greyhound Lines, Inc. 1993 Management Incentive Stock Option Plan.(8) 10.31 -- Greyhound Lines, Inc. 1993 Non-Employee Director Stock Option Plan.(10) 10.32 -- Greyhound Lines, Inc. Supplemental Executive Retirement Plan.(21) 10.33 -- Coach Purchase Agreement, dated as of December 31, 1993, between the Registrant and Motor Coach Industries, Inc.(12) 10.34 -- Conditional Sale Contract and Security Agreement, dated as of May 10, 1994, between the Registrant and Motor Coach Industries, Inc.(13) 10.35 -- Lease Agreement, dated as of March 28, 1994, between Wilmington Trust Company and the Registrant.(12) 10.36 -- Lease Supplement No. 1, dated as of March 28, 1994, between Wilmington Trust Company and the Registrant.(12) 10.37 -- Pledge Agreement, dated as of March 28, 1994, among the Registrant, Wilmington Trust Company and Cargill Leasing Corporation.(12) 10.38 -- Participation Agreement, dated as of March 28, 1994, among Cargill Leasing Corporation and the Registrant.(12) 10.39 -- Bill of Sale, dated as of March 28, 1994, between the Registrant and Wilmington Trust Company.(12)
67 70 10.40 -- Tax Indemnification Agreement, dated as of March 28, 1994, between Cargill Leasing Corporation and the Registrant.(12) 10.41 -- Lease Agreement, dated as of March 29, 1994, between Wilmington Trust Company and the Registrant.(12) 10.42 -- Lease Supplement No. 1, dated as of March 29, 1994, between Wilmington Trust Company and the Registrant.(12) 10.43 -- Pledge Agreement, dated as of March 29, 1994, among the Registrant, Wilmington Trust Company and Cargill Leasing Corporation.(12) 10.44 -- Participation Agreement, dated as of March 29, 1994, among Cargill Leasing Corporation and the Registrant.(12) 10.45 -- Bill of Sale, dated as of March 29, 1994, between the Registrant and Wilmington Trust Company.(12) 10.46 -- Tax Indemnification Agreement, dated as of March 29, 1994, between Cargill Leasing Corporation and the Registrant.(12) 10.47 -- Conditional Sale Contract and Security Agreement, dated as of June 28, 1994, between the Registrant and Motor Coach Industries, Inc.(14) 10.48 -- First Amendment to the Registrant 1993 Non-Employee Director Stock Option Plan.(14) 10.49 -- Amendments to Interest Rate Swap Agreement, dated as of October 6, 1994 between the Registrant and Bankers Trust Company.(14) 10.50 -- Form of Letter Agreements with various holders of Convertible Debentures relating to, among other things, the Conversion.(16) 10.51 -- Employment Agreement dated November 15, 1994, between Registrant and Craig R. Lentzsch.(17) 10.52 -- Amendment Number Two to Bus Purchase Requirements Agreement dated December 21, 1994 by and between Greyhound Lines, Inc. and Motor Coach Industries.(17) 10.53 -- Second Amendment to Greyhound Lines, Inc. 1993 Non-Employee Director Stock Option Plan.(18) 10.54 -- Greyhound Lines, Inc. 1995 Long Term Stock Incentive Plan.(19) 10.55 -- Greyhound Lines, Inc. 1995 Director's Stock Incentive Plan.(19) 10.56 -- Employment Agreement dated July 25, 1995 between Registrant and Steven L. Korby.(19) 10.57 -- Employment Agreement dated September 18, 1995 between Registrant and John Werner Haugsland.(20) 10.58 -- 1995 Bus Purchase Agreement.(21) 11 -- Computation of Registrant's earnings per share for the year ended December 31, 1993.(15) 11.1 -- Computation of Registrant's earnings per share for the year ended December 31, 1994.(17) 11.2 -- Computation of Registrant's earnings per share for the year ended December 31, 1995.(21) 22 -- Subsidiaries of the Registrant.(21) 23.1 -- Consent of Arthur Andersen LLP.(21) 27 -- Financial Data Schedule as of and for the year ended December 31, 1995.(21)
68 71 - --------------- (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 Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991. (3) Incorporated by reference to the Company's Registration Statement on Form 10 (File No. 1-10841) relating to the Common Stock and Senior Notes. (4) 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. (5) 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. (6) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. (7) Incorporated by reference from the Company's Registrant Statement on Form S-3 (File No. 33-61044). (8) Incorporated by reference from the Company's Registrant Statement on Form S-8 (File No. 33-63506) regarding the Registrant's 1991 and 1993 Management Stock Option Plans. (9) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993. (10) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. (11) Incorporated by reference from the Registrant's Quarterly Report on Form 8-K regarding the Rights Agreement dated March 22, 1994. (12) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. (13) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994. (14) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994. (15) Incorporated by reference from the Registration Statement on Form S-1 (File No. 33-56131) regarding the Registrant's Common Stock. (16) Incorporated herein by reference from the Registrant's Issuer Tender Offer Statement on Schedule 13E-4 (File No. 5-41800). (17) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. (18) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. (19) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (20) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. (21) Filed herewith. (B) REPORTS ON FORM 8-K The Company filed no current reports on Form 8-K with the Securities and Exchange Commission during the quarter ended December 31, 1995, nor was it required to do so. 69 72 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 15, 1996. 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/ THOMAS G. PLASKETT Chairman of the Board March 15, 1996 - --------------------------------------------- of Directors Thomas G. Plaskett /s/ RICHARD J. CALEY Director March 15, 1996 - --------------------------------------------- Richard J. Caley /s/ LINDA CHAVEZ Director March 15, 1996 - --------------------------------------------- Linda Chavez /s/ CRAIG R. LENTZSCH Director, President and March 15, 1996 - --------------------------------------------- Chief Executive Officer Craig R. Lentzsch /s/ A. A. MEITZ Director March 15, 1996 - --------------------------------------------- A. A. Meitz /s/ FRANK L. NAGEOTTE Director March 15, 1996 - --------------------------------------------- Frank L. Nageotte /s/ ALFRED E. OSBORNE, JR. Director March 15, 1996 - --------------------------------------------- Alfred E. Osborne, Jr. /s/ STEPHEN M. PECK Director March 15, 1996 - --------------------------------------------- Stephen M. Peck /s/ ERNEST P. WERLIN Director March 15, 1996 - --------------------------------------------- Ernest P. Werlin /s/ STEVEN L. KORBY Executive Vice President, March 15, 1996 - --------------------------------------------- Chief Financial Officer Steven L. Korby and Treasurer (Principal Financial and Accounting Officer)
70 73 Index to Exhibits Exhibit No. Description ___________ ___________ 10.9 -- Amendment to Bus Purchase Requirements Agreement. 10.32 -- Greyhound Lines, Inc. Supplemental Executive Retirement Plan. 10.58 -- 1995 Bus Purchase Agreement. 11.2 -- Computation of Registrant's earnings per share for the year ended December 31, 1995. 22 -- Subsidiaries of the Registrant. 23.1 -- Consent of Arthur Andersen LLP. 27 -- Financial Data Schedule as of and for the year ended December 31, 1995.
EX-10.9 2 AMENDMENT TO BUS PURCHASE REQUIREMENTS AGREEMENT 1 EXHIBIT 10.9 AMENDMENT TO BUS PURCHASE REQUIREMENTS AGREEMENT This Amendment to Bus Purchase Requirements Agreement (the "Amendment") is made and entered into as of June 30, 1988, by and among Greyhound Lines, Inc., a Delaware corporation formerly known as GLI Operating Company ("Lines"), Transportation Leasing Co., a California corporation formerly known as Greyhound Lines, Inc. ("Transportation"), Transportation Manufacturing Corporation, a Delaware corporation ("TMC"), Motor Coach Industries, Inc., a Delaware corporation ("MCI") (Lines, Transportation, TMC, and MCI, collectively, being called herein the "Parties"), Texas, New Mexico & Oklahoma Coaches, Inc., a Texas corporation (the "Texas Carrier"), T.N.M.&O. Tours, Inc., a Texas corporation, and Vermont Transit Co., Inc, a Vermont corporation (the "Vermont Carrier"). W I T N E S S E T H: WHEREAS, the Parties entered into that certain Bus Purchase Requirements Agreement (the "Requirements Agreement") dated March 18, 1987, the term of which was extended by that certain letter agreement (the "Letter Agreement") dated June 15, 1987, executed by GLI Holding Company, a Delaware corporation ("GLI Holding"), and The Greyhound Corporation, an Arizona corporation 2 ("Greyhound") (the Letter Agreement and the Requirements Agreement, collectively, being called herein the "Agreement"); WHEREAS, GLI Holding, T & V Holding Company, a Delaware corporation ("T&V"), TNMO Acquisition, Inc., a Texas corporation (the "Texas GLI Sub"), Greyhound, and the Texas Carrier have entered into that certain Acquisition Agreement (the "Texas Acquisition Agreement") dated as of June 27, 1988, pursuant to which the Texas GLI Sub will be merged with and into the Texas Carrier; WHEREAS, GLI Holding, T&V, VT Acquisition, Inc., a Vermont corporation (the "Vermont GLI Sub"), Greyhound, and the Vermont Carrier have entered into that certain Acquisition Agreement (the "Vermont Acquisition Agreement") dated as of June 27, 1988, pursuant to which the Vermont GLI Sub will be merged with and into the Vermont Carrier; WHEREAS, the Texas Acquisition Agreement and the Vermont Acquisition Agreement are conditioned upon the amendment of the Agreement to provide for the obligation of the Texas Carrier, the Texas Carrier's subsidiary, and the Vermont Carrier (the "New Parties") to purchase 75% of their motor coaches from TMC or MCI on the same terms and conditions as provided for in the Agreement; 2 3 NOW,THEREFORE, the undersigned hereby agree that the Agreement is amended as follows: Parties. The first paragraph of the Agreement is amended to add the following before the period at the end of the first sentence thereof: , Texas,New Mexico & Oklahoma Coaches, Inc., a Texas corporation ("TNMO"), T.N.M.O. Tours, Inc., a Texas corporation (" Tours"), and Vermont Transit Co., Inc., a Vermont corporation ("Vermont") (with TNMO, Tours, and Vermont being referred to herein collectively as the "New GLI Entities" and GLI Operating and the New GLI Entities being referred to herein collectively as the "GLI Entities") Section 1. Section 1 of the Agreement is amended to add the following at the end thereof: For calendar years 1988 through 1992, the New GLI Entities shall purchase pursuant to the terms of this Agreement not less than 75% of their aggregate motor coaches for each such year of the type manufactured by TMC or MCI as of August 1 of each of the preceding years or planned to be manufactured by TMC or MCI in such year (not including vans and the like made by 3 4 major manufacturers) which shall be manufactured by TMC or MCI (which buses shall be included in the term "Buses"). For purposes of determining compliance with the minimum purchase requirements of this Agreement, Buses purchased by the New GLI Entities during 1988, whether before or after June 30, 1988, shall be included. TMC and MCI agree to sell to each of the New GLI Entities Buses on the terms set forth herein. Section 3. The term "GLI Operating" appearing in second sentence of Section 3 of the Agreement is amended to read "any GLI Entity." Section 4. The second, third, and fourth sentences of Section 4 of the Agreement are hereby amended to read in their entirety as follows: The initial amount paid by any GLI Entity or used to ascertain lease rental amounts shall be based on their aggregate annual requirements estimate of all GLI Entities. For the purposes of calculating the discount, such estimate shall include buses ordered under the Bus Purchase Agreement but shall not include Buses 4 5 purchased by the New GLI Entities during 1988 before June 30, 1988. If at the end of any calendar year, the GLI Entities have purchased and leased in the aggregate more or less than the estimated number of Buses, then the purchase price for all Buses purchased during such calendar year shall be appropriately adjusted in accordance with the foregoing table, and TMC and/or MCI or the appropriate GLI Entity, as the case may be, shall promptly pay any difference to the other(s) for Buses purchased or, for Buses leased, Seller or an affiliate of Seller shall make appropriate adjustment to the lease rental amounts, retroactively to the inception of the lease. Section 5. The first three sentences of Section 5 of the Agreement are hereby amended to read in their entirety as follows: The GLI Entities shall provide TMC with their best estimate for Buses during each calendar year for which they are to purchase Buses hereunder. Such estimate for 1988, 1989, 1990, 1991, and 1992 shall be delivered no later than June 1 of the year prior to such year; provided, however that the estimate with respect to 1988 need not have included Buses to be purchased by 5 6 the New GLI Entities and the estimate for 1989 need not be given prior to August 1, 1988. The GLI Entities shall provide TMC with a firm order no later than August 1 of the prior year, which order shall include the specifications (including options and accessories) of the Buses to be purchased. Section 6. Section 6 of the Agreement is hereby amended to read in its entirety as follows: 6. Buses. Each GLI Entity reserves the right to request that TMC incorporate minor modifications in the options and accessories requesting in the firm order with respect to the Buses by written notice to TMC within a reasonable time for implementing such modifications. The appropriate GLI Entity will bear the cost of making such modifications. Sections 7 and 8. Sections 7 and 8 of the Agreement are hereby amended so that the term "GLI Operating" appearing therein is replaced with the term "each GLI Entity" in each instance. Section 9. Section 9 of the Agreement is hereby amended so that the term "GLI Operating" appearing therein is replaced with the term "any GLI Entity." 6 7 Section 15. Section 15 of the Agreement is hereby amended so that the term "GLI Operating" appearing therein is replaced with the term "any GLI Entity" and the address shown for GLI Operating has added, at the beginning thereof, the term "c/o Greyhound Lines, Inc." IN WITNESS WHEREOF, this Amendment has been executed by the undersigned on this 30th day of June, 1988. TRANSPORTATION LEASING CO. GREYHOUND LINES, INC. By: /s/ RICHARD C. STEPHAN BY: /s/ L. J. MCCABE ------------------------------- ------------------------------- Richard C. Stephan L. J. McCabe Vice President Vice President TRANSPORTATION MANUFACTURING MOTOR COACH INDUSTRIES, INC. CORPORATION By: /s/ RONALD G. NELSON By: /s/ RONALD G. NELSON ------------------------------- ------------------------------- Ronald G. Nelson Ronald G. Nelson Treasurer Treasurer TEXAS, NEW MEXICO & OKLAHOMA VERMONT TRANSIT CO., INC. COACHES, INC. By: /s/ RONALD G. NELSON By: /s/ RONALD G. NELSON ------------------------------- ------------------------------- Ronald G. Nelson Ronald G. Nelson Vice President Vice President 8 T. N. M. &O. TOURS, INC. By: ------------------------------ EX-10.32 3 GREYHOUND LINES, INC. SUPP. EXEC. RETIREMENT PLAN 1 EXHIBIT 10.32 GREYHOUND LINES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (JANUARY 1, 1994 RESTATEMENT) 2 GREYHOUND LINES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (JANUARY 1, 1994 RESTATEMENT) TABLE OF CONTENTS
Page ---- Article I. Establishment and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Article II. Definitions and Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Article III. Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.1 Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Duration of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Article IV. Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.1 Determination of Vested Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Article V. Benefits Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.1 Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.2 Form and Timing of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.3 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.4 Pre-Retirement Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.5 Termination for Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.6 Non-compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.7 Change in Control Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Article VI. Amount of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.1 Calculation of Plan Benefit Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.2 Prior Plan Account Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 6.3 Investment Earnings Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Article VII. Administration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.1 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.2 Compensation and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7.3 Rules; Claims Review Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7.4 Finality of Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 7.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Article VIII. Trust Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 8.1 Trust Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3 Article IX. Amendment; Termination; Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 9.1 Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 9.2 Merger, Consolidation, or Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Article X. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10.1 Nonalienation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10.2 Incompetency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10.3 Effect of Mistake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10.4 Effect on other Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10.5 Plan Not an Employment Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 10.7 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 APPENDIX A Initial Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4 1 GREYHOUND LINES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (January 1, 1994 Restatement) ARTICLE I. ESTABLISHMENT AND PURPOSE 1.1 Establishment. Effective January 1, 1993, Greyhound Lines, Inc. ("Sponsor") established the Greyhound Lines, Inc. Supplemental Executive Retirement Plan (the "Prior Plan"). Effective January 1, 1994 with respect to individuals who were Employees on or after February 1, 1995, the Sponsor hereby restates the Prior Plan in its entirety, to provide as set forth herein (as herein restated, hereafter referred to as the "Plan"). The restated Plan as embodied herein shall not apply to any individual who was a participant in the Prior Plan and whose employment with the Sponsor terminated prior to February 1, 1995; instead, the benefit, if any, payable to such an individual shall be determined under the provisions of the Prior Plan. 1.2 Purpose. The purpose of the Plan is to provide unfunded deferred compensation benefits to a select group of management or highly compensated employees within the meaning of Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended. ARTICLE II. DEFINITIONS AND CONSTRUCTION 2.1 Definitions. Whenever used in the Plan, the following words and phrases shall have the meanings set forth below unless a different meaning is plainly required by the context. (a) "Accounts" shall mean the separate accounts maintained to record the contributions and earnings credits of Participants under the Plan. The following terms designate the Accounts under the Plan and are defined as provided below in this Section 2.1. (i) "Employer Contribution Account" shall mean the separate bookkeeping account of a Participant consisting of credits to reflect the Employer Contributions credited by the Employer pursuant to Section 6.1. (ii) "Prior Plan Account" shall mean the separate bookkeeping account of a Participant reflecting credit for the accrued benefit under the Prior Plan, together with income, gains and losses allocated thereto and less distributions made therefrom. (b) "Annual Base Salary" shall mean a Participant's base salary actually 5 earned by a Participant for services performed for the Sponsor or its affiliates for a calendar year. Base salary shall include any amounts excluded from gross income of an Employee under Code Sections 125, 401(k), 402(a) (8), or 402(h). Base salary will not include bonuses, incentives, fringe benefits or other perquisites. (c) "Beneficiary" or "Beneficiaries" means the person or persons to whom a benefit is payable following the death of the Participant pursuant to Section 5.4. Such person (including a trust or an estate) shall be designated by the Participant, who may name contingent or successive Beneficiaries. Each designation will revoke all prior designations by the Participant. All designations shall be made in the form and manner prescribed by the Committee. If no Beneficiary is designated or if no Beneficiary survives the Participant, the death benefit shall be paid to the Participant's surviving spouse. If the Participant is not survived by a spouse, the death benefit shall be paid to the Participant's estate. (d) "Board of Directors" means the Board of Directors of the Sponsor. (e) "Change in Control" means (i) the acquisition by any person (defined for the purposes of this Section to mean any person within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder as from time to time amended (the "Exchange Act"), other than the Sponsor or an employee benefit plan created by the Board of Directors for the benefit of Employees of the Sponsor, either directly or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the Regulations promulgated by the SEC under Section 13(d) of the Exchange Act) of securities issued by the Sponsor having 30% or more of the voting power of all the voting securities issued by the Sponsor in the election of directors at the next meeting of the holders of voting securities to be held for such purpose; (ii) the election of a majority of the directors elected at any meeting of the holders of voting securities of the Sponsor who are persons who were not nominated for such election by the Board of Directors or a duly constituted committee of the Board of Directors having authority in such matters; (iii) the approval by the stockholders of the Sponsor of the merger or consolidation with another person, other than a merger or consolidation in which the holders of the Sponsor's voting securities issued and outstanding immediately before such merger or consolidation continue to hold voting securities in the surviving or resulting corporation (in the same relative proportions to each other as existed before such event) comprising 80% or more of the voting power for all purposes of the surviving or resulting corporation; or (iv) the approval by the stockholders of the Sponsor of a transfer of substantially all of the assets of the Sponsor to another person other than a transfer to a transferee, 80% or more of the voting power of which is owned or controlled by the Sponsor or by the holders of the Sponsor's voting securities issued and outstanding immediately before such transfer in the same relative proportions to each other as existed before such event. (f) "Committee" means the Compensation Committee of the Board of Directors, or such other committee as the Board of Directors shall appoint to administer the Plan. (g) "Employee" means a person who is employed by the Sponsor, its affiliates or subsidiaries. (h) "Normal Retirement Age" means age 60. 2 6 (i) "Participant" means an Employee who has been designated as a Participant under the Plan by the Committee. (j) "Plan" means the Greyhound Lines, Inc. Supplemental Executive Retirement Plan, as restated effective January 1, 1994 with respect to individuals who were Employees on or after February 1, 1995 and as set forth herein, and as it may be amended from time to time. (k) "Plan Year" means the calendar year. (l) "Service" means an Employee's employment with the Sponsor or its affiliates or subsidiaries, measured in completed months from his Service Start Date. (m) "Service Start Date" means a Participant's date of hire or other date established by the Committee as the start date for computing a Participant's Service. Each Participant's Service Start date shall be reflected in Appendix A. (n) "Sponsor" means Greyhound Lines, Inc. or any successor thereto. (o) "Trust" means one or more trusts which may be established by the Sponsor for the purpose of meeting its obligations under the Plan, but subject to the claims of general creditors of the Sponsor upon the Sponsor's bankruptcy or insolvency. (p) "Trust Agreement" means any agreement in the nature of a trust (or in the nature of a custodial agreement) between the Sponsor and the Trustee that may be established to form part of the Plan to receive, hold, invest, and dispose of Trust assets. (q) "Trustee" means the individuals or entity acting as trustee or custodian under any Trust Agreement at any time of reference. Where there is more than one Trustee serving at any time, the term "Trustee" shall mean all such Trustees. The Trustee shall be a fiduciary under the Trust Agreement. (r) "Valuation Date" shall mean the last day of each calendar quarter. (s) "Year of Service" means 12 months of Service, whether or not consecutive. 2.2 Gender and Number. Except when otherwise indicated by the context, any masculine terminology when used in the Plan shall also include the feminine gender, and the definition of any term in the singular shall also include the plural. 3 7 ARTICLE III. PARTICIPATION 3.1 Participants. Participation in the Plan shall be extended to such executives and other key management Employees as the Committee, in its discretion, shall designate from time to time. The initial Participants in this Plan, and their applicable Service Start Dates are set forth in Appendix A hereto. The Committee shall designate, in writing, any other Employees who are to become Participants in the Plan, and Appendix A shall be amended to reflect the participation and Service Start Date of any such participants. The Committee shall have the power to terminate future accrual of additional Plan benefit credits; provided, however, that except as provided in Sections 5.5 and 5.6, no such termination of future benefit credits shall reduce the amount already credited to a Participant; and provided further, that except in cases where the provisions of Section 5.5 or 5.6 apply, a Participant whose future benefit credit accrual is terminated shall continue to earn Years of Service as long as he continues to be an Employee. 3.2 Duration of Participation. Each Participant shall continue as a Participant under the Plan until the final payment is made under the Plan. ARTICLE IV. VESTING 4.1 Determination of Vested Percentage. A Participant shall have a vested interest in his Account under the Plan in accordance with the following schedule:
Years of Service Vested Percentage ---------------- ----------------- less than 5 0% 5 or more 100%
Notwithstanding the foregoing, a Participant who is actively employed by the Sponsor, an affiliate or subsidiary shall have a fully-vested interest in his Account upon the earlier of (i) attainment of Normal Retirement Age while actively employed by the Sponsor, an affiliate or a subsidiary, (ii) qualification for a Disability Benefit as described in Section 5.3 of the Plan, (iii) qualification for a Pre-Retirement Death Benefit as described in Section 5.4 of the Plan, (iv) entitlement to a Change in Control benefit pursuant to Section 5.7, or (v) satisfaction prior to February, 1995 of the vesting requirements under the Prior Plan. Subject to Sections 5.5 and 5.6 of the Plan, once a Participant satisfies the vesting requirements of the Plan or the Prior Plan, he shall always be considered vested under the Plan. 4 8 ARTICLE V. BENEFITS ELIGIBILITY 5.1 Termination Benefit. Subject to the provisions of Sections 5.5 and 5.6 of the Plan, a Participant shall be entitled to the payment of a benefit equal to the vested portion of his Account balance if his employment with the Sponsor and its affiliates and subsidiaries is terminated, whether voluntarily or involuntarily. Subject to the provisions of Sections 5.3, 5.4 and 5.7, if a Participant's employment with the Sponsor or an affiliate or subsidiary is terminated prior to the Participant becoming vested in his Plan Account, no benefits shall be payable under the Plan. 5.2 Form and Timing of Payment. All payments of benefits pursuant to the Plan will made in the form of a single lump sum within 60 days following entitlement to benefit payments under the Plan. The value of a Participant's Account shall be determined as of the Valuation Date immediately preceding payment to the Participant. In the event a Participant dies after becoming entitled to a Termination Benefit described in Section 5.1 but before such benefit is paid to him, such benefit shall be paid to his Beneficiary. 5.3 Disability Benefit. A Participant who becomes disabled while actively employed by the Sponsor, an affiliate or a subsidiary shall receive a distribution of his Account balance. For purposes of this Section 5.3, a Participant shall be considered to be disabled if the Committee determines that the Participant suffers from a condition, due to injury or sickness, that prevents the Participant from performing each of the material duties of the Participant's regular occupation. 5.4 Pre-Retirement Death Benefit. If a Participant dies before a payment of benefits has been made under the Plan and while he is actively employed by the Sponsor or an affiliate or subsidiary, his Account balance shall be paid to his Beneficiary. 5.5 Termination for Cause. Notwithstanding any other provision of this Plan, if the Committee determines that the Participant engaged in any act of fraud or dishonesty against the Sponsor or its affiliates or subsidiaries which, in the opinion of the Committee, would constitute a felony involving a breach of trust (such as theft or embezzlement) under the Federal law or the laws of the State of Texas, or which, in the opinion of the Committee, is injurious to the business or financial condition of the Sponsor, then all rights which the Participant or his Beneficiaries have under this Plan, other than a right to Change in Control Benefits under Section 5.7, shall be forfeited, and any liability of the Sponsor for payment of benefits hereunder shall terminate. 5.6 Non-compete. Notwithstanding any other provision of this Plan, if the Participant enters into a business or employment which the Committee in its sole discretion determines to be detrimentally competitive to the Sponsor's (or an affiliate's or a subsidiary's) business or substantially injurious to the Sponsor's (or an affiliate's or a subsidiary's) financial interests, then all rights which the Participant or his Beneficiaries have under this Plan, other than a right to Change in Control Benefits under Sections 5.7, shall be forfeited and any liability of the Sponsor for payment of benefits hereunder shall terminate. 5.7 Change in Control Benefits. Following a Change in Control, as defined in Section 2.1 (e) of the Plan, a Participant whose benefits under the Plan have not commenced as of the date of the Change in Control shall be entitled to a fully vested and non-forfeitable 5 9 Change in Control Benefit if (i) the Participant's employment with the Sponsor or its affiliates or subsidiaries is terminated involuntarily within the two year period following the Change in Control, or (ii) the Participant's professional duties or authority are substantially diminished (other than at the Participant's request) within the two year period following the Change in Control, or (iii) the Participant's total available compensation payable by the Sponsor and its affiliates or subsidiaries to the Participant is reduced (other than with the written consent of the Participant) within the two year period following the Change in Control and the Participant at any time thereafter (either before or after the expiration of such two year period) terminates employment (either voluntarily or involuntarily) with the Sponsor and its affiliates. For purposes of (iii) above, a Participant's total available compensation shall be considered to have been reduced if: (a) the Participant's total available monthly compensation falls below the level which was available to the Participant during the last full calendar month immediately preceding the Change in Control; provided, however, that (A) any previously deferred compensation that was available for payment to the Participant during such calendar month shall be disregarded, and provided further that (B) any bonus or other extraordinary item of compensation that was available for payment to the Participant during such calendar month shall be disregarded; or (b) the Participant's total compensation (exclusive of previously deferred compensation but inclusive of bonuses and other extraordinary items of income) available for payment to the Participant during the twelve month period immediately following the Change in Control is less than such compensation (exclusive of previously deferred compensation but inclusive of bonuses and other extraordinary items of income) available for payment to the Participant during the twelve month period immediately preceding the Change in Control. The amount of the Change in Control Benefit shall equal an amount determined under Sections 6.1 and 6.2 of the Plan, as of the date of the Change in Control. A Participant who becomes entitled to a Change in Control Benefit shall be entitled to receive payment of such benefit following termination of employment with the Sponsor and its affiliates and subsidiaries. Such payment shall be made in accordance with Section 5.2. To the extent a Participant continues in employment with the Sponsor or its affiliates following a Change in Control and subsequently becomes entitled to a benefit under the provisions of the Plan other than this Section 5.7, such Participant shall be entitled to the benefit which produces the greatest benefit at the Participant's actual retirement or other separation from service. ARTICLE VI. AMOUNT OF BENEFITS 6.1 Calculation of Plan Benefit Credits. The annual amount credited to the Employer Contribution Account of a Participant as of the last day of each Plan Year shall equal the Participant's Annual Base Salary for such Plan Year multiplied by a percentage, which percentage shall be: (a) 20 percent in the case of the President and Chief Executive Officer, Chief Financial Officer, or Chief Operating Officer of the Sponsor; 6 10 (b) 20 percent for the individuals who, as of January 1, 1995, held the positions of Senior Vice President Operations, Vice President Customer Satisfaction, and Vice President Network Operations of the Sponsor, but only for so long as such individuals hold these specifically enumerated positions with the Sponsor; and (c) 10 percent for all other Participants. Notwithstanding the foregoing, prior to the beginning of each Plan Year, the Committee may establish in writing minimum levels of financial or operating performance that must be achieved for the Plan Year if a Participant is to be credited with an amount for such Plan Year. 6.2 Prior Plan Account Benefit. In addition to the benefit credits described in Section 6.1, the amount credited to the Prior Plan Account of a Participant shall equal: (a) For a Participant in the Prior Plan who satisfied the requirements under the Prior Plan for a vested benefit, an amount equal to the greater of (i) the net present value as of December 31, 1994 of the benefit accrued under the Prior Plan, or (ii) the amount that would be credited to such Participant's Account under the provisions of Section 6.1 of this Plan, taking into account Annual Base Salary from the effective date of commencement of Participation in the Prior Plan until December 31, 1994; and (b) For a Participant who was a Participant in the Prior Plan but who failed to satisfy the requirements under the Prior Plan for a vested benefit on or prior to December 31, 1994, an amount equal to the amount that would be credited to such Participant's Account under the provisions of Section 6.1 of this Plan, taking into account Annual Base Salary from the effective date of commencement of Participation in the Prior Plan until December 31, 1994. 6.3 Investment Earnings Credit. In the event that a Trust is established to assist the Sponsor in meeting its obligations to pay benefits under the Plan, Accounts will be credited with an allocable portion of earnings or losses of such Trust as of each Valuation Date. If or to the extent amounts accrued as benefit credits under the Plan are not set aside in a Trust, Accounts shall be credited as of each Valuation Date with an amount representing an investment return rate on 10-year Treasury notes determined as of the Valuation Date, or such other rate as is determined from time to time by the Sponsor. ARTICLE VII. ADMINISTRATION OF THE PLAN 7.1 Administration. The Plan shall be administered by the Committee. A majority of the members of the Committee shall constitute a quorum and the acts of a majority of the members present, or acts approved in writing by a majority of the members without a meeting, shall be the acts of the Committee. The Committee shall have that authority which is expressly stated in the Plan as vested in the Committee, and authority to make rules to administer and interpret the Plan to decide questions arising under the Plan, and to take such other action as may be appropriate to carry out the purposes of the Plan. 7 11 7.2 Compensation and Expenses. (a) Compensation. No additional compensation shall be paid to a member of the Committee for service on the Committee. Any member of the Committee may receive reimbursement by the Sponsor of expenses properly and actually incurred. (b) Expenses. All expenses of the Committee shall be paid by the Sponsor. Such expenses shall include any expenses incident to the functioning of the Committee, including but not limited to, fees of actuaries, accountants, counsel, and other specialists, and other costs of administering the Plan. 7.3 Rules; Claims Review Procedures. (a) General. The Committee shall adopt and establish such rules and regulations with respect to the administration of the Plan as it deems necessary and appropriate. The Committee shall also prescribe such administrative forms as it deems necessary to carry out the provisions of the Plan. All determinations with respect to a Participant's right to any benefit under the Plan shall be made by the Committee. (b) Denial of Claim. If a claim for benefits is wholly or partially denied, the claimant shall be given notice in writing of the denial within a reasonable time after the receipt of the claim, but not later the 90 days after the receipt of the claim. However if special circumstances require an extension, written notice of the extension shall be furnished to the claimant before the termination of the 90 day period. In no event shall the extension exceed a period of 90 days after the expiration of the initial 90 day period. The notice of the denial shall contain the following information: (1) the specific reasons for the denial, (2) specific reference to pertinent Plan provisions on which the denial is based, (3) a description of any additional material or information necessary for the claimant to perfect his claim and an explanation of why such material or Information is necessary. (4) an explanation that a full and fair review by the Committee of the denial may be requested by the claimant or his authorized representative by filing a written request for a review with the Committee within 60 days after the notice of the denial is received, and (5) if a request for review is filed, the claimant or his authorized representative may review pertinent documents and submit issues and comments in writing within the 60- day period described in paragraph (4) above. (c) Decision after review. The decision of the Committee with the respect of the review of the denial shall be made promptly, but not later than 60 days after the Committee receives the request for review. However, if special circumstances require an extension of time, a decision shall be rendered not later than 120 days after the receipt of the 8 12 request for review. A written notice of the extension shall be furnished to the claimant prior to the expiration of the initial 60-day period. The claimant shall be given a copy of the decision, which shall state, in a manner calculated to be understood by the claimant, the specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. 7.4 Finality of Determinations. Subject to Section 7.3, all determinations of the Committee as to any matter arising under the Plan, including questions of construction and interpretation shall be final, binding and conclusive upon all interested parties. 7.5 Indemnification. To the extent permitted by law and the Sponsor's by-laws, the members of the Committee, its agents, and the officers, directors and employees of the Sponsor shall be indemnified and held harmless by the Sponsor against and from any and all loss, cost, liability, or expense that may be imposed upon or may be reasonably incurred by them in connection with or resulting from any claim, action, suit, or proceeding to which they may be a party or in which they may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by them in settlement (with the Sponsor's written approval) or paid by them in satisfaction of a judgment in any such action, suit or preceding. The foregoing provision shall not be applicable to any person if the loss, cost liability or expense is due to such person's willful misconduct. ARTICLE VIII. TRUST PAYMENTS 8.1 Trust Payments. (a) General. Any obligation of the Sponsor to pay benefits hereunder shall be an unsecured promise and any right to enforce such obligation shall be solely as a general creditor of the Sponsor. For the convenience and benefit of the Sponsor and to the extent not inconsistent with the foregoing sentence, the Sponsor may establish one or more irrevocable trusts to hold assets to meet its obligations under the Plan to Participants. However, in the event of a Change in Control as defined in Section 2.1(e) of the Plan, the Sponsor shall immediately transfer such amounts to a Trust as are necessary to pay all Plan benefits, and shall continue to transfer such additional amounts as become necessary to pay Plan benefits following the Change in Control. (b) Trust Assets. The property comprising the assets of a Trust established under subsection (a) shall, at all times, remain the property of the Trust. The Trustee shall distribute the assets comprising the Trust in accordance with the provisions of the Plan and Trust as instructed by the Committee, but in no event shall the Trustee distribute the assets of the Trust to or for the benefit of the Sponsor, except as provided in the Trust in the case of insolvency or bankruptcy of the Sponsor or after the satisfaction of all the Sponsor's obligations under the Plan to the Participants. 9 13 ARTICLE IX. AMENDMENT; TERMINATION; MERGER 9.1 Amendment and Termination. The Board of Directors or the Committee acting on behalf of such Board, may amend, modify or terminate the Plan at any time and in any manner; provided, however that, that no such amendment, modification or termination shall, without the express written consent of each affected Participant, eliminate, reduce or adversely affect the form or timing of payment of any benefit which the Participant (or a Beneficiary) was entitled to receive under the provisions of the Plan immediately prior to the date of the amendment or termination. Any such protected benefit shall continue to be an obligation of the Sponsor and shall be paid as scheduled. Notwithstanding the provisions of Section 4.1, the Account of a Participant shall become fully vested upon the termination of the Plan. 9.2 Merger, Consolidation, or Acquisition. In the event of a merger, consolidation or acquisition where the Sponsor is not the surviving corporation (and a Change in Control has not occurred), if the successor or acquiring corporation elects to terminate the Plan, the provisions of Section 9.1 relating to Plan termination shall be applicable. In the event of a merger, consolidation or acquisition that results in a Change in Control, the provisions of Section 5.7 shall be applicable. ARTICLE X. GENERAL PROVISIONS 10.1 Nonalienation. Neither the Participant nor his Beneficiary may sell, assign, pledge, transfer, or otherwise convey the right to receive any payments under, or interest in, this Plan. 10.2 Incompetency. Every person receiving or claiming benefits under the Plan shall be conclusively presumed to be mentally competent until the date on which the Committee receives a written notice, in a form and manner acceptable to it, that such person is incompetent. In the event a guardian of the estate of any person receiving or claiming benefits under the Plan shall be appointed by a court of competent jurisdiction, benefit payments shall be made to such guardian provided that proper proof of appointment and continuing qualification is furnished in a form and manner acceptable to the Committee. Any such payment so made shall be a complete discharge of any liability therefor under the Plan. 10.3 Effect of Mistake. In the event of a mistake or misstatement as to the eligibility or compensation or participation of a Participant, or the amount of benefit payments made or to be made to or with respect to a Participant, the Committee shall cause an adjustment to be made so as to correct such mistake and provide for the correct amount of benefit payments with respect to such Participant, to the extent allowed by law. 10.4 Effect on other Plans. Amounts accrued or paid under the Plan shall not be considered as part of a Participant's compensation for the purpose of any other benefit plan maintained by the Sponsor. 10.5 Plan Not an Employment Contract. The Plan is not an employment contract. It does not give to any person the right to be continued in employment, and all Employees remain subject to change of salary, transfer, change of job, discipline, layoff, discharge or any other change of employment status. 10 14 10.6 Severability. In the event any provision of the Plan shall be held invalid or illegal for any reason, any illegality or invalidity shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced as if the illegal or invalid provision had never been inserted, and the Sponsor shall have the privilege and opportunity to correct and remedy such questions of illegality or invalidity by amendment as provided in the Plan. 10.7 Applicable Law. The Plan shall be governed and construed in accordance with the laws of the State of Texas, except to the extent such laws are preempted by an applicable Federal law. IN WITNESS WHEREOF, the Sponsor has caused this instrument to be executed by its duly authorized officers effective as of January 1, 1994 with respect to individuals who were Employees on or after January 1, 1995. GREYHOUND LINES, INC. By: /s/ CRAIG LENTZSCH ------------------------------------ Title: --------------------------------- ATTEST: By: -------------------------------------- Title: ----------------------------------- 11 15 APPENDIX A INITIAL PARTICIPANTS FOR REVISED PLAN EFFECTIVE JANUARY 1, 1994 The Employees listed below have been designated by the Board of Directors as the initial Participant's under the revised SERP Plan as of January 1, 1994:
=================================================================================== SERVICE COMPANY CONTRIBUTION PARTICIPANT NAME START DATE CONTRIBUTION EFFECTIVE DATE - ----------------------------------------------------------------------------------- Craig Lentzsch 2/7/80 20% 11/15/94 - ----------------------------------------------------------------------------------- Floyd Holland 11/25/58 20% 1/1/94 - ----------------------------------------------------------------------------------- Ralph Borland 6/18/72 20% 1/1/94 - ----------------------------------------------------------------------------------- John Taylor 12/27/88 20% 1/1/94 - ----------------------------------------------------------------------------------- Brad Harslem 12/6/93 10% 1/1/94 - ----------------------------------------------------------------------------------- Stuart Robinson 11/15/94 10% 11/15/94 - ----------------------------------------------------------------------------------- Martha Smither 5/16/94 10% 5/16/94 - ----------------------------------------------------------------------------------- Mark Southerst 7/1/88 10% 1/24/95 - ----------------------------------------------------------------------------------- Dan Weston 2/1/94 10% 2/1/94 ===================================================================================
12 EX-10.58 4 1995 BUS PURCHASE AGREEMENT 1 EXHIBIT 10.58 [MOTOR COACH INDUSTRIES LOGO] September 26, 1995 Mr. Steven L. Korby Executive Vice President and CFO Greyhound Lines, Inc. 15110 North Dallas Parkway Dallas, Texas 75248 Re: 1995 Bus Order -- Amendment #2 Dear Steve: Reference is made to that certain letter from George Aucott to you dated May 31, 1995 respecting the 1995 Bus Order, as amended ("Letter") and the New Coach Lease (GLI-1995) between Greyhound Lines, Inc., as Lessee, and MCI Acceptance Corp., as Lessor, ("Lease"). All initially capitalized terms used in this Amendment #2 without definition have the same meaning herein as in the Letter or the Lease, as applicable. We have agreed that anything contained in the Letter or the Lease to the contrary notwithstanding, effective as of May 31, 1995, we will amend the Letter and the Lease as follows: 1. As to each Coach, the Initial Term of the Lease will commence on the date Lessee takes delivery of the Coach and will end on December 31, 1995, and the Basic Term of the Lease will commence on January 1, 1996 and will end on December 31, 2002. 2. Lessee will pay interest during the Interim Term as follows: (a) Prime Rate through September 30, 1995, and (b) Prime Rate plus 1-1/2 percent from October 1, 1995 through December 31, 1995. The 102nd Coach will not be assessed interest during the Interim Term. 3. Lessee will pay a rental rate of $3,425.00 per Coach per month ($3,352.64 per Coach per month if GLI orders during 1995 for purchase and/or lease at least 151 coaches that are eligible for discount under the Requirements Agreement). 4. The Lease is assignable by Lessor on or after January 1, 1996 (but not before such date) without GLI's consent. 5. Lessee may elect anytime on or before December 31, 1995 to purchase some or all of the Coaches or to have some or all of the Coaches purchased on its behalf rather 2 than to lease them. The purchase price will be the Gross Purchase Price of $257,862.00 per Coach, less any discount allowed under the Requirements Agreement. The purchase price must be paid in cash on or before the purchase date. The discount allowed under the Requirements Agreement shall be based on 151 coaches (including the purchase of 50 coaches currently being negotiated by the parties) provided GLI orders during 1995, for purchase and/or lease at least 151 coaches (subject to adjustment in the event GLI does not actually purchase and/or lease all 151 coaches). 6. Lessor may require GLI to purchase up to 50 Coaches at anytime on or between October 1, 1995 and December 31, 1995 by giving GLI at least seven days advance written notice. The number of requests to purchase and the number of Coaches per request is entirely at Lessor's discretion. The purchase price will be paid in cash on the purchase date and will be the same as is set forth in Item 5, above; provided, however, it is understood that in the event Coaches are purchased, any discount applicable under the Requirements Agreement to Coaches being purchased will be applied against the Gross Purchase Price of those Coaches, and any discount applicable to Coaches remaining under lease will be pro rated over the term of the Lease. 7. For purposes of calculating the Discounted Future Payment described in Section 3 of the Lease, the rent will be the actual rent owed for the applicable Coach and will be discounted back from December 31, 2002. If you agree that this letter states the understanding of the parties, please so acknowledge in the space provided below and return an originally executed copy of this Amendment #2 to me. Sincerely, /s/ ALBERT J. ABRAM Albert J. Abram Treasurer Motor Coach Industries, Inc. MCI Acceptance Corp. ACKNOWLEDGED AND ACCEPTED as of May 31, 1995 By: /s/ STEVEN L. KORBY --------------------------------- Steven L. Korby Executive Vice President and CFO Greyhound Lines, Inc. 3 [MCII LOGO] TM Motor Coach Industries International, Inc. John R. Nasi President & Chief Operating Officer July 11, 1995 Mr. Craig Lentzsch President Greyhound Lines, Inc. 15110 North Dallas Parkway Dallas, TX 75248 Re: 1995 Bus Order - Amendment #1 - Rev. Dear Craig: Reference is made to that certain letter from George W. Aucott to you dated May 31, 1995 respecting the 1995 Bus Order ("Letter") and the New Coach Lease (GLI-1995) between Greyhound Lines, Inc., as Lessee, and MCI Acceptance Corp. as Lessor ("Lease"). We have agreed that effective May 31, 1995 the warranty term on the Coaches (as defined in the Letter and the Lease) is "24 months or 200,000 miles, whichever come first, beginning on the date of delivery of each [C]oach, as stated in Specification #0512, Revised April 5, 1995 (as referenced in the Letter) and not "twenty-four (24) months, unlimited mileage" (as stated in Attachment B to the Lease). If you agree that this letter states the understanding of the parties, please so acknowledge in the space provided below and return originally executed copy of this letter agreement to me. Sincerely, /s/ JOHN R. NASI ------------------------------- President Motor Coach Industries, Inc. MCI Acceptance Corp. ACKNOWLEDGED AND ACCEPTED as of May 31, 1995 By: /s/ CRAIG LENTZSCH ---------------------------- Craig Lentzsch President Greyhound Lines, Inc. Approved as to form By MES ------------ Attorney 4 [MCII LOGO] TM Motor Coach Industries International, Inc. John R. Nasi President & Chief Operating Officer June 21, 1995 Mr. Craig Lentzsch President Greyhound Lines, Inc. 15110 North Dallas Parkway Dallas, TX 75248 Re: 1995 Bus Order - Amendment #1 Dear Craig: Reference is made to that certain letter from George W. Aucott to you dated May 31, 1995 respecting the 1995 Bus Order ("Letter") and the New Coach Lease (GLI-1995) between Greyhound Lines, Inc., as Lessee, and MCI Acceptance Corp. as Lessor ("Lease"). We have agreed that effective May 31, 1995 the warranty term on the Coaches (as defined in the Letter and the Lease) is "12 months or 200,000 miles, whichever come first, beginning on the date of delivery of each [C]oach," as stated in Specification #0512, Revised April 5, 1995 (as referenced in the Letter) and not "twenty-four (24) months, unlimited mileage" (as stated in Attachment B to the Lease. If you agree that this letter states the understanding of the parties, please so acknowledge in the space provided below and return originally executed copy of this letter agreement to me. Sincerely, /s/ JOHN R. NASI ----------------------------- President Motor Coach Industries, Inc. MCI Acceptance Corp. ACKNOWLEDGED AND ACCEPTED as of May 31, 1995 By: /s/ CRAIG LENTZSCH ------------------------ Craig Lentzsch President Greyhound Lines, Inc. 5 [MCII LOGO] TM Motor Coach Industries International, Inc. George W. Aucott May 31, 1995 Chairman & Chief Executive Officer Mr. Craig Lentzsch President Greyhound Lines, Inc 15110 N. Dallas Parkway Dallas, Texas 75248 Re: 1995 Bus Order Dear Craig: Motor Coach Industries, Inc. ("MCI") understands our agreement for the lease or purchase (as the case may be) of new coaches as follows: In consideration of MCI's manufacturing 102 new 1995 MCI MC-12 motor coaches ("Coach" or "Coaches"), Greyhound Lines, Inc. ("GLI") agrees to lease the Coaches from MCI or its designee, and MCI agrees to lease the Coaches to GLI, as follows: 1. The Coaches will meet Specification #0512, Revised April 5, 1995. 2. MCI will deliver the first 50 Coaches on or before June 24, 1995, and will deliver the remaining 52 Coaches on or before July 17, 1995. MCI acknowledges that the summer months constitute GLI's prime business season and that time is of the essence respecting timely delivery of the Coaches. MCI will inform GLI if it believes deliveries will be delayed and, in such event (without limiting GLI's remedies hereunder or under the lease) will help GLI locate temporary substitute units. 3. Coach bus numbers will run consecutively beginning with number 2606. 4. Prior to delivery of the first Coach, GLI will execute a lease agreement substantially in the form of Exhibit 1, attached hereto and hereby made a part hereof, which will become effective as to each Coach upon delivery of the Coach to GLI and will provide that GLI will lease the Coaches for an Initial Term beginning at delivery, plus a Basic Term of 84 months beginning October 1, 1995 at a rental rate of $3425.00 per month per Coach payable monthly in advance. In addition, upon delivery of each of the 102 Coaches the last three months' rent of the Basic Term will be pre-paid together with the first month's rent of the Basic 6 Term, all to be held by the lessor without interest ("Pre-paid Rent"). The lessor may, in its sole discretion, elect to lease the Coaches to GLI under one lease or a series of leases, each of which will be assignable on or after October 1, 1995 by the lessor without GLI's consent. 5. In the event GLI decides prior to October 1, 1995 to purchase some or all of the Coaches or to have some or all of the Coaches purchased on its behalf rather than to lease them, GLI or its designated purchaser will pay the lessor under the lease described in Item 4, above, $257,862 per Coach ("Gross Purchase Price"), less any discount allowed under the Bus Purchase Requirements Agreement entered into as of March 18, 1987, as amended ("Requirements Agreement"), ("Net Purchase Price") on or before September 30, 1995. In the event of such a purchase, the purchaser will execute and deliver standard purchase documents for up to 101 Coaches and such other documents as may be reasonably requested under the circumstances. At such time as GLI purchases 101 Coaches, the 102nd Coach will be transferred to and owned by GLI in consideration of purchasing 101 Coaches and without further consideration. In the event GLI elects to purchase the Coaches or have the Coaches purchased on its behalf, all Pre-paid Rent for the Basic Term, but not interest from the Initial Term, will be applied to payment of the purchase price of those Coaches which are purchased. If GLI purchases 101 Coaches, prepaid rent on the 102nd Coach will be applied towards the Net Purchase Price of the 101st Coach. 6. MCI's Limited Warranty will be assigned to GLI or its designated purchaser. This letter agreement is binding on and will inure to the benefit of the parties and their respective successors and assigns. Notwithstanding the foregoing, GLI may not assign all or any part of this letter agreement without the prior written consent of MCI, in its sole discretion; provided, however, that no consent will be required in connection with the financing of the purchase price of the Coaches in accordance with Item 5, above, respecting purchase of the Coaches or the warranty provisions of Item 6, above. Except as provided herein, any attempt by GLI to assign any obligations under this letter agreement without the prior written consent of MCI will be null and void. This letter agreement must be assumed by any corporation resulting from a merger or consolidation with GLI, or any person or entity which acquires or succeeds to a majority of the stock or assets of GLI, in each such event whether by contract, operation of law or otherwise. This letter agreement will be interpreted and enforced in accordance with the laws (except those respecting choice of law) of the State of North Dakota. GLI and MCI each agree to submit to the personal jurisdiction of the State and Federal courts of the State of North Dakota. The Coaches leased or purchased hereunder apply against GLI's obligations for 1995 under the Requirements Agreement; provided, however, in the event that any provision of the Requirements Agreement is determined to be void, voidable or unenforceable, this letter agreement will remain in full force and effect. 7 GLI understands that MCI must manufacture the Coaches and intends that MCI rely on this letter agreement in proceeding to order parts and material and to manufacture the Coaches so that they can be delivered for leasing in accordance with this letter agreement. If the above states your understanding and agreement, please acknowledge in the space provided below and return an originally executed duplicate copy of this letter agreement to me. Sincerely, /s/ GEORGE W. AUCOTT George W. Aucott Chairman Motor Coach Industries, Inc. Acknowledged and Agreed: GREYHOUND LINES, INC. /s/ CRAIG R. LENTZSCH - ---------------------------- Name: Craig R. Lentzsch Title: President and CEO Date: 8 EXHIBIT 1 NEW COACH LEASE (GLI - 1995) MCI Acceptance Corp, having its principal office at Dallas, Texas, (Lessor) and Greyhound Lines, Inc., having its principal office at Dallas, Texas (Lessee) hereby agree as follows: 1. Lease of Equipment. Lessor hereby leases to Lessee, and Lessee hereby hires from Lessor, for the term and upon the terms and conditions hereinafter set forth in this New Coach Lease ("Lease"), 102 new 1995 MCI MC-12 model motor coaches as shown on Attachment "A" to this Lease ("Equipment," "Coach" or "Coaches"), less any Coaches when purchased pursuant to Section 3, below. 2. Acceptance. Lessee represents that it is knowledgeable about the Equipment herein leased and maintains a staff competent to place and keep said Equipment in working order. Lessor agrees that Lessee was given an opportunity to inspect the Equipment as fully as Lessee desired, prior to its acceptance by Lessee. Removal of the Equipment by Lessee from the manufacturer's plant shall be conclusive evidence of its acceptance by Lessee in condition satisfactory to Lessee under this Lease. Upon acceptance, this Lease becomes noncancelable, except as expressly provided hereinafter. Lessor shall have no liability for any delivery, installation, or testing of the Equipment. LESSOR NO EXPRESSED OR IMPLIED WARRANTY OR UNDERTAKING WITH RESPECT TO SUITABILITY, DURABILITY, FITNESS FOR USE OR MERCHANTABILITY OF THE EQUIPMENT, FOR THE PURPOSES AND USES OF THE LESSEE OR OTHERWISE. Lessor represents that the Equipment is covered by the manufacturer's warranty set forth on Attachment "B" to this Lease for a warranty period beginning as respects each Coach on the date Lessee takes delivery of the Coach and ending as provided in the warranty. Lessor will assist Lessee in making any warranty claims against the Equipment manufacturer. Lessee shall be entitled to no remedy against Lessor (unless Lessor is the manufacturer) regarding the manufacture or delivery of the Coaches. In no event may Lessee terminate this Lease or withhold rentals due in respect to a claim concerning the condition of the Equipment. 3. Term. As respects each Coach, the term of this Lease shall commence on the date Lessee takes delivery of the Coach, as shown on Attachment "A," and end on September 30, 2002 (with the period prior to October 1, 1995 being the "Initial Term," and the period from October 1, 1995 to September 30, 2002 being the "Basic Term.") unless sooner terminated as hereinafter provided. Lessee may elect at any time during the Initial Term of this Lease to terminate the Lease as to some or all of the Coaches by paying (or causing its financing party to pay) Lessor cash upon termination for each such Coach in accordance with that certain letter agreement dated May 31, 1995 from George W. Aucott to Craig Lentzsch respecting the "1995 Bus Order" ("Letter Agreement"). Promptly after receipt of payment, Lessor will provide Lessee (or its financing party) title documents for each such Coach transferring ownership "AS IS - WHERE IS" and "WITH ALL FAULTS," but free of all liens and encumbrances caused by Lessor. As long as Lessor has not sold or assigned this Lease during the Basic Term, Lessee may prepay (in whole but not in part) the entire rent and other amounts due and to become due under the Lease, including residual, calculated using an assumed discount rate of ten percent as follows: (a) the 1 9 present value of (i) $3,425 rent per Coach for each month remaining on the Lease term, plus (ii) $73,153.11 residual value per Coach discounted back from September 30, 2002 to the pre-payment date described in Section 4 of this Lease, multiplied by (b) one, plus one percent for each year remaining on the Lease term ("Discounted Future Payment"). As long as MCI Acceptance Corp. is the Lessor, the prepayment penalty will be the actual prepayment penalty incurred by MCI Acceptance Corp. with respect to the applicable Coaches rather than the prepayment penalty described in Part (b) of the Discounted Future Payment formula in this Section. For the purpose of calculating the number of years remaining on the Lease term, each consecutive twelve month period will be counted as one year, and any remaining period of less than twelve months will be counted as an additional year. By Way of Example [(a)(1), which is the Discounted Future Rents + (ii), which is the Discounted Residual] x [(b), which is one plus the applicable Prepayment Penalty Percentage] = Discounted Future Payment. As long as MCI Acceptance Corp. is the Lessor, the prepayment penalty will be the actual prepayment penalty incurred by MCI Acceptance Corp. with respect to the applicable Coaches rather than the prepayment penalty described in Part (b) of the Discounted Future Payment formula in this Section.
Years and Partial Year Remaining Prepayment Penalty Percentage on Lease Term ----------------------------- ------------- 7% 7 6% 6 5% 5 4% 4 3% 3 2% 2 1% 1
ONCE THIS LEASE HAS BEEN SOLD OR ASSIGNED THERE IS NO FURTHER PREPAYMENT OPTION. 4. Coach Rental. During the Basic Term Lessee will pay Lessor $3,425 per month in advance as rent for each Coach. Lessor and Lessee acknowledge that the rent for the Coaches for the first month and the last three months of the Basic Term will be pre-paid upon delivery of each Coach. Lessee will not pay rent during the Interim Term; provided, however, during the Interim Term Lessee Will pay interest as follows: A. Lessee will pay monthly in arrears on the last day of each month, for each Coach delivered, the "Prime Rate" divided by 360, times the Net Purchase Price (as defined in the Letter Agreement) for each of the first 101 Coaches delivered, for each day from the delivery date of the Coach through the 2 10 earlier of September 15, 1995 or the date the Coach's purchase price is paid in full. The 102nd Coach will not be assessed interest during the Interim Term. B. Lessee will pay on September 30, 1995, for each Coach delivered, the "Prime Rate" plus 4.5% divided by 360, times the Net Purchase Price (as defined in the Letter Agreement) for each of the first 101 Coaches delivered, for each day from and including September 16, 1995 through the earlier of September 30, 1995 or the date the Coach's purchase price is paid in full. The 102nd Coach will not be assessed interest during the Interim Term. As used herein "Prime Rate" means the Prime Rate quoted in The Wall Street Journal, as it may change from day to day; and in the event it is no longer so quoted, such similar annual percentage rate as is generally accepted by the financial community for such purposes. The foregoing notwithstanding, Lessee will pre-pay the rent for 102 Coaches for the first month of the Basic Term and the last three months of the Basic Term upon receipt of delivery of each Coach, in accordance with the Letter Agreement. 5. Excess Mileage Charges. None. 6. Tires. Prior to the date required by the Coach manufacturer Lessee shall provide tires for each Coach to the manufacturer for installation on the Coach. The tires shall be of correct size, and in good and roadworthy condition, and meet all federal and state motor vehicle safety standards. Lessee shall be responsible for all repair or replacement of tires during the Lease term. Upon Lessee's return of the Equipment to Lessor, Lessor will, at its option (a) keep the tires and compensate the owner of the tires at their fair market value, or (b) return the tires to Lessee, freight collect, within 30 days. 7. Security Deposit. None. 8. Payment Terms. All sums payable by Lessee hereunder shall be paid on or before the due date at 1250 Slocum Street, Dallas, Texas 75207, or such other place as Lessor may designate from time to time. Any sum payable hereunder on an unspecified due date shall be payable on demand without the right of setoff. 9. Indemnification. Lessee assumes all risk for the use, operation, and storage of the Equipment, and agrees to assume liability for, and to indemnify and hold Lessor harmless from and against, and agrees to defend Lessor against, any and all losses, damages, claims, costs, penalties, liabilities, and expenses, including, but not limited to, court costs and attorney's fees, for injuries to or deaths of persons and damage to property, howsoever arising from, incident to, or incurred because of the Equipment or the selection, use, operation, storage, maintenance, repair, leasing, possession, or ownership thereof, whether such persons be agents or employees of Lessee, Lessor or of other persons and whether such damage be to property of Lessee, Lessor, or of other persons; provided, however, if Lessor is the manufacturer of the Equipment, Lessee does 3 11 not hereby agree to indemnify, defend or hold Lessor harmless from its negligence, acts or omissions as such manufacturer. Anything contained in this indemnity provision to the contrary notwithstanding, Lessee will not be required to indemnify Lessor for any loss or liability with respect to any Equipment arising from acts or events which occur after the Equipment has been returned to Lessor in accordance with this Lease, or loss or liability resulting from the negligence of Lessor while inspecting the Equipment or Lessee's books and records whether on Lessee's premises or otherwise. The indemnities contained herein will survive the expiration or termination of this Lease. To secure performance hereunder, Lessee shall, at its sole expense, keep the Equipment in good repair, insure the Equipment and otherwise observe, at Lessee's sole expense, its covenants elsewhere contained in the Lease. Further, Lessee hereby authorizes Lessor to pay, at Lessor's election, any insurer, tax authority, repairman (including its own staff) or other person any sum or expense which Lessee is required to pay or absorb hereunder and which is paid by Lessor in good faith to secure itself with respect to Lessee's undertaking in this Lease to indemnify Lessor, and Lessee will reimburse Lessor on demand for any such payment. 10. Insurance. Lessee represents and warrants that it now has in force, and covenants that it will keep in force with insurers reasonably satisfactory to Lessor (i) comprehensive general liability insurance (including contractual liability) and comprehensive automobile liability insurance against claims for personal injury and property damage to the extent of at least $5,000,000.00, and (ii) catastrophic property insurance insuring the Coaches against those risks covered by fine and extended coverage insurance to the extent of at least the replacement cost of the Coaches. The deductible under the comprehensive insurance will not be greater than $1,500,000 per occurrence and the deductible under the property insurance will not be greater than $250,000 per occurrence. Lessee will obtain and deliver to Lessor, current certificates of insurance evidencing the above and will cause its liability insurers to name Lessor in its insurance policies as an additional insured party and/or loss payee, as applicable, (entitled also to 30 day notice of cancellation) without Lessor thereby incurring any liability for payment of premiums therefor. The parties herein agree that naming of Lessor as an insured or loss payee shall not affect in any way any recovery to which Lessor would be entitled under the policy or policies were it not so named. Lessee agrees to cause the aforementioned insurance coverage to continue in effect from the time of delivery and acceptance of the Equipment by Lessee until the safe return of the Equipment to Lessor. Subject only to the limitation that Lessor act in good faith, Lessor may hereafter, by notice, require Lessee to provide other or additional insurance with insurers in form and amount reasonably satisfactory to Lessor; provided, however, that such other or additional insurance shall not be inconsistent with that maintained on other buses and coaches in Lessee's fleet. Notwithstanding the foregoing, Lessee shall be entitled to self-insure the foregoing coverage to the extent permitted by the United States Interstate Commerce Commission ("ICC") or any federal or state agency that may succeed the ICC with respect to jurisdiction over motor coach common carriers and applicable state authorities. 11. Lessee's Miscellaneous Covenants. The Lessee shall, at its own expense: A. Obtain any and all license plates, tags, and permits required for the acceptance, use and operation by Lessee of the Equipment; 4 12 B. Keep the Equipment and all its parts and components free and clear of all liens and encumbrances and, in particular, pay any and all taxes or government charges now or hereafter imposed on or in respect to the Equipment or its use or otherwise in connection with the Lease, except for taxes based on Lessor's net income; C. Furnish all fuel, oil, replacement tires, consumables, parts and supplies in connection with the operation and maintenance of the Equipment; D. (i) Mark the Equipment in accordance with applicable law to indicate that it is operated by and in the service of Lessee and leased from the Lessor, and (ii) only mark the equipment (whether pursuant to Section 11.D.(i) or otherwise) with pressure sensitive decals; provided, however, Lessee shall not make any alteration or addition to, or affix any accessory to, the Equipment (including without limitation the application of pressure sensitive decals) that could impair the originally intended function of the Equipment or that is not readily removable without causing damage to the Equipment without the prior written consent of Lessor, all such additions or accessories remaining the property of Lessee if removed prior to returning the Equipment to Lessor; E. Hold and use the Equipment in a safe and careful manner and in all cases following the manufacturer's recommended standards of care and maintenance, comply with all applicable laws regarding its use and possession, and permit the Equipment to be operated only by safe, competent, qualified licensed drivers, and under no circumstances shall Lessee operate, maintain or store the Equipment with less care than Lessee applies to its other leased or owned coaches; F. Keep and maintain the Equipment and all equipment thereon in good repair, condition and working order, and in all cases following the manufacturer's recommended standards of care and maintenance and the standards set forth on Attachment "C" [it being understood that Lessee may change the standards set forth on Attachment C from time to time so long as the changes are not inconsistent with reasonably prudent industry practice, the changes are applicable to all buses and coaches in Lessee's fleet, no material reduction in preventive maintenance is made without Lessor's consent (which may not be unreasonably withheld), and Lessor is given prompt notice of all changes]; G. Maintain exclusive control over the Equipment (subject to the right to pool or operate the Equipment under and pursuant to the terms of any "Through Service Agreements" entered into by Lessee in the ordinary and customary course of its business, so long as (i) Lessee remains responsible for and complies with all of its obligations under this Lease, and (ii) such Through 5 13 Service Agreements are applicable to a substantial portion of Lessee's fleet, and not just to the Equipment), use the Equipment only in the ordinary course of Lessee's business and in strict compliance with any insurance policies and manufacturer's warranties (if applicable); not lend, sublease, sell or make assignment of the Equipment or assign any rights or duties respecting the Equipment or the Lease, and keep the Equipment at all times within the limits of the Continental United States, Canada and Mexico; H. Promptly advise Lessor of any materially defective Equipment and the nature of the defect; I. Promptly advise Lessor of any accident involving the Equipment, and of all correspondence, notices and documents received by Lessee in connection with any claim or demand involving or relating to the Equipment and charging any or all of Lessee, Lessor, Motor Coach Industries, Inc. or Motor Coach Industries International, Inc. with liability; J. Record and maintain complete and accurate records of all maintenance, preventative maintenance and warranty work, and of all other matters normally kept by coach operators, and permit Lessor to inspect and copy such records at any reasonable time; K. Acknowledging that Lessor is entitled to and will conduct periodic inspections of the Equipment and Lessee's records concerning the Equipment and this Lease, garage the Equipment at periodic intervals at Lessee's facilities in the United States and, on reasonable demand by Lessor, cause the Coaches to be returned to such facility/facilities at reasonable intervals to facilitate or permit repossession or periodic inspection by Lessor (Lessor being hereby authorized to enter freely upon Lessee's premises for such purposes); L. Promptly notify Lessor of any change in the principal business office of Lessee, and upon Lessor's request provide Lessor with a list of the locations of the facilities where the Equipment is garaged; M. Immediately upon Lessor's request, Lessee will provide its most recent public 10-Q and 10-K reports or, if Lessee is not required to file 10-Q or 10-K reports then Lessee will provide consolidated income statements, balance sheets, cash flow statements and stockholders equity statements, all in reasonable detail and with corresponding prior period numbers, certified by the Chief Financial Officer for all quarterly statements and additionally, audited, for each fiscal year end, by an independent accounting firm acceptable to the Lessor which independent accounting firm has given an unqualified opinion. 10-Q's or quarterly financial statements shall be received by the Lessor within 60 days of the first three fiscal quarter ends 6 14 and 10-K's or annual audited statements shall be received by the Lessor within 100 days of the fiscal year end. In the event Lessee is in default hereunder or under any agreement or document referred to in Section 15(d) hereof, immediately upon Lessor's request Lessee will provide the most recent, and, if requested, within ten days after the end of such calendar month Lessee will provide such month's, consolidated and consolidating balance sheets of Lessee and its subsidiaries as at the end of the applicable month and the related consolidated and consolidating statements of income and cash flows. The covenants set forth above are material conditions of this Lease. Lessee's breach of any covenant is a material breach of this Lease. Lessor's failure at any time to require strict performance by Lessee of any of the provisions herein shall not waive or diminish Lessor's right thereafter to demand strict compliance with that or any other provision. Waiver of any default shall not waive any other default. Lessor's rights hereunder are cumulative and not alternative. 12. Loss and Damage. Lessee hereby assumes and shall bear the entire risk of loss, theft, destruction or damage to the Equipment from any and every cause whatsoever. Lessee shall notify Lessor immediately upon the occurrence of any such event. In the event of damage, Lessee shall immediately repair the Equipment to good working order and condition. In the event of irreparable damage, loss, theft, or destruction to the Equipment, Lessee shall either (a) purchase the Equipment within ten days of the destruction or damage in its then condition for an amount equal to the Discounted Future Payment (except that the residual value per Coach will be discounted back to the actual payment date; and as long as MCI Acceptance Corp. is the Lessor, the prepayment penalty will be the actual prepayment penalty incurred by MCI Acceptance Corp. with respect to the applicable Coaches rather than the prepayment penalty described in Part (b) of the Discounted Future Payment formula set forth in Section 3 of this Lease) or for the fair market value, whichever is greater, or (b) within ten days of the damage or destruction replace the Equipment with Equipment of the same or a comparable model of the same or a later year which is in proper working order with no damage and only with normal wear and tear. 13. Return and Repossession. Upon expiration, termination or other event requiring Lessee to return the Equipment, Lessee will return the Equipment in as good a condition as received, less normal wear and tear. Lessee shall arrange for, prepay and absorb the costs of returning the Equipment to the nearest facility/facilities of Hausman Bus Sales, Inc. or to any reasonable place Lessor may designate. LESSEE WAIVES ANY RIGHTS LESSEE MAY HAVE TO PRIOR NOTICE OR OPPORTUNITY TO BE HEARD IN COURT REGARDING LESSOR'S RIGHT TO REPOSSESS THE EQUIPMENT FROM LESSEE, and in the event that Lessor's repossession should for any reason prove wrongful as to Lessee, Lessee's sole remedy shall be the right to terminate the Lease as of the date of such wrongful repossession and/or to recover damages. 14. Late Charges and Interest. Lessor shall be entitled to a late charge on each rental payment not received within one week of the due date in the amount of eighteen percent 7 15 per annum or the highest-rate allowed by law, if less, prorated on a daily basis, from the due date until paid. 15. Default. The following are events of default hereunder: (a) (i) nonpayment of any rent or other amount due Lessor hereunder within ten days after receipt by Lessee of written notice of default; (a) (ii) nonperformance under any other provision herein within twenty days after Lessor has made written demand therefore; (b) Lessee's bankruptcy, receivership, insolvency, assignment for the benefit of creditors or similar action or condition relating to Lessee or Lessee's property which causes Lessor in good faith to deem itself insecure with respect to the collection of the total rent for the unexpired term of the Lease; (c) without Lessor's prior written consent, Lessee attempts to remove or sell or transfer or encumber or sublet or part with possession of the Equipment; or (d) Lessee is in default under any agreement, sub-lease or lease agreement with or any note payable to Motor Coach Industries International, Inc. ("MCII") or any of its subsidiaries or affiliates, or is more than 60 days in arrears of payment for any trade items (except good faith disputes) purchased from MCII or any of its subsidiaries or affiliates; provided, however, with respect to the Bus Purchase Requirements Agreement entered into as of March 18, 1987, as amended, Lessee will not be deemed to be in default thereunder for purposes of this Lease unless and until either (i) a judgment against Lessee has been rendered by a court of competent jurisdiction, or (ii) Lessee has agreed in writing that it is in default under such Agreement and to terms of settlement of such default, and the judgment or settlement amount is not satisfied within 30 days or such later date as may be required or agreed to. 16. Remedies on Default. Whenever an event of default has occurred or is continuing, Lessor or its agents shall have the right, but not the obligation, to exercise, by way of example and not by way of limitation, one or more of the following remedies: A. to declare due and payable an amount equal to the Discounted Future Payment (except that the residual value per Coach will be discounted back to the actual payment date; and as long as MCI Acceptance Corp. is the Lessor, the prepayment penalty will be the actual prepayment penalty incurred by MCI Acceptance Corp. with respect to the applicable Coaches rather than the prepayment penalty described in Part (b) of the Discounted Future Payment formula set forth in Section 3 of this Lease), and to sue for and recover same from Lessee; B. to take possession of the Equipment, wherever located, without demand or notice and without any court order or other legal or administrative process; C. to lease or to sell the Equipment; D. to sue for and/or otherwise recover from Lessee all costs of taking possession, storing, repairing and selling the Equipment; E. to sue for and recover damages incurred by Lessor as a result of Lessee's default; 8 16 F. to sue for and/or otherwise recover after sale of Equipment an amount equal to the Discounted Future Payment (except that the residual value per Coach will be discounted back to the actual payment date; and as long as MCI Acceptance Corp. is the Lessor, the prepayment penalty will be the actual prepayment penalty incurred by MCI Acceptance Corp. with respect to the applicable Coaches rather than the prepayment penalty described in Part (b) of the Discounted Future Payment formula set forth in Section 3 of this Lease) less the net proceeds of such sale; G. to terminate the Lease as to the Equipment, take such Equipment into Lessor's inventory and sue for or otherwise recover actual damages; and H. to pursue any other remedy now or hereafter existing at law or in equity by reason for Lessee's default(s). 17. Notices. Notices shall be addressed as follows: to Lessor at 1250 Slocum Street, Dallas, Texas 75207; to Lessee, attention Contract Administration Department, at 15110 North Dallas Parkway, Dallas, Texas 75248; or to such other place as either designate by written notice. Notices shall be in writing and their delivery may be given (i) in person or by expedited courier service or (ii) by mailing same First Class, Postage Prepaid, in which case notice shall be deemed to have been received 48 hours after the Post Office stamp date. 18. Law. The Lease shall be governed by and construed in accordance with the laws of the State of North Dakota. Lessor and Lessee each agree to submit to the personal jurisdiction of the state and federal courts of the State of North Dakota. If any provision of the Lease shall be found by a court of competent jurisdiction to be void or unenforceable, in that it imposes a restraint upon the Lessee more extensive than the legitimate interests of the Lessor sought to be protected, the Lessor waives such provision, but only to the extent that such provision is found by such court to be void or unenforceable. The Lessor and the Lessee agree that such provision may and should be modified by such court so that it becomes reasonable and enforceable and, as modified, will be enforced as any other provision hereof, all the other provisions hereof continuing in full force and effect. Such a modification, however, will be effective only in the legal proceeding of which it is a part and only on the facts to which it is applied; all provisions herein will be applied as written, to the extent enforceable, in any other legal proceeding or on any other facts. 19. Power/Authority/Consent of Signer and Lessee. The undersigned officer of Lessee on behalf of Lessee represents and warrants that Lessee has statutory and corporate power and authority, and has obtained all government or other consents, necessary and desirable, to enter into and perform under this Lease. 20. Assignment by Lessee. This Lease is binding on and will inure to the benefit of the parties and their respective successors and assigns. Notwithstanding the foregoing, Lessee may not assign all or any part of this Lease without the prior written consent of Lessor, in its sole 9 17 discretion. Any attempt by Lessee to assign any obligations under this Lease without prior written consent of Lessor will be null and void. This Lease must be assumed by any corporation resulting from a merger or consolidation with Lessee, or any person or entity which acquires or succeeds to a majority of the stock or assets of Lessee in each such event whether by contract, operation of law or otherwise. 21. Assignment by Lessor. Lessor may assign this Lease at any time during the Basic Term without Lessee's prior written consent; provided, however, if Lessor is the manufacturer of the Equipment, no such assignment will relieve Lessor of its obligations under the manufacturer's Limited Warranty. If Lessor sells, assigns or otherwise transfers the Lease to any third party in such a manner that such third party becomes entitled to only a portion of the rent owed hereunder ("Reduced Rent") and Lessor is entitled to the remainder of such rent, then Lessor and Lessee will enter into good faith negotiations intended to provide Lessee with some benefit of the Reduced Rent. 22. Entire Agreement. This Lease, plus any attachments, riders or other documents specifically referred to herein, constitutes the entire agreement between the parties. Any change, amendment or modification shall not be effective unless executed in writing by both parties. LESSEE: GREYHOUND LINES, INC. LESSOR: MCI ACCEPTANCE CORP. By: /s/ CRAIG LENTZSCH By: /s/ ALBERT J. ABRAM ------------------------ ------------------------ Name: Name: Albert J. Abram Title: Title: Treasurer 10 EX-11.2 5 COMPUTATION OF REGISTRANTS EARNINGS PER SHARE 1 EXHIBIT 11.2 PAGE 1 OF 1 GREYHOUND LINES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED DECEMBER 31, 1995 -------------------- PRIMARY LOSS PER SHARE Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,818,000) ============== Shares Weighted average number of common shares issued . . . . . . . . . . . . . . . . 54,704,569 Less weighted average treasury stock . . . . . . . . . . . . . . . . . . . . . . (109,192) Assuming exercise of options reduced by the number of common shares which could have been purchased with the proceeds from exercise of such options . . --- * -------------- Weighted average number of common shares outstanding, as adjusted . . . . . . . 54,595,377 -------------- Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.33) ============== FULLY DILUTED LOSS PER SHARE Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,818,000) Plus interest expense on Convertible Debentures . . . . . . . . . . . . . . . . . . --- ** -------------- Adjusted net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,818,000) ============== Shares Weighted average number of common shares issued . . . . . . . . . . . . . . . . 54,704,569 Less weighted average treasury stock . . . . . . . . . . . . . . . . . . . . . . (109,192) Assuming exercise of options reduced by the number of common shares which could have been purchased with the proceeds from exercise of such options . . --- * Assuming conversion of Convertible Debentures into shares of Common Stock . . . --- ** -------------- Weighted average number of common shares outstanding, as adjusted . . . . . . . 54,595,377 -------------- Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.33) ==============
* Option exercises not considered in calculation as exercise would not have a dilutive effect. ** Not used in calculation of weighted average number of common shares due to the antidilutive effect of the assumed conversion of the Convertible Debentures. EX-22 6 SUDSIDIARIES OF THE REGISTRANT 1 EXHIBIT 22
C O N F I D E N T I A L August 1, 1995 --------------------- GREYHOUND LINES, INC. --------------------- - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------- -------------- ------------------- ------------------- ------------------- AMARILLO TRAILWAYS AZABACHE, INC. EAGLE BUS GREYHOUND DE MEXICO WILMINGTON UNION BUS COMPANY CENTER, MANUFACTURING, INC. S.A. DE. C.V. BUS STATION INC. (75%) (99.96%) CORPORATION (24.6%) - ------------------- -------------- ------------------- ------------------- ------------------- ------------------ ---------------- ----------- ------------------ ATLANTIC GREYHOUND CONTINENTAL GLI HOLDING UNION BUS STATION LINES OF VIRGINIA, PANHANDLE LINES, COMPANY OF OKLAHOMA CITY, INC. INC. (50%) OKLAHOMA (40%) ------------------ ---------------- ----------- ------------------ -------------------- FCA INSURANCE LIMITED -------------------- -------------------- T & V HOLDING COMPANY -------------------- -------------------- TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC. -------------------- ---------------------- T.N.M.&.O. TOURS, INC. ---------------------- -------------------- VERMONT TRANSIT CO., INC. --------------------
EX-23.1 7 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 No. 33-63506 and No. 33-63507. Dallas, Texas March 14, 1996 EX-27 8 FINANCIAL DATA SCHEDULE
5 ART. 5 FDS FOR YEAR 10-K 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 3,494 0 30,129 217 3,615 57,793 384,837 84,234 480,648 112,180 172,671 583 0 0 149,179 480,648 0 657,364 0 459,735 0 0 26,807 (17,444) 374 (17,818) 0 0 0 (17,818) (0.33) (0.33)
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