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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004
 OR [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934  Commission file number 1-10841 GREYHOUND LINES, INC. 
 Delaware
    
    86-0572343(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification no.)15110 N. Dallas Parkway, Suite 600Dallas, Texas
    
    75248(Address of principal executive offices)
    
    (Zip code)
 (972) 789-7000
(Registrants telephone number, including area code) None
(Former name, former address and former fiscal year, if changed since
last report)  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the 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 whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). YES [  ]
    
    NO [X]
  As of May 7, 2004, the registrant had 587 shares of Common Stock, $0.01
par value, outstanding all of which are held by the registrants parent
company.(1)
    
    This Form 10-Q is also being filed by the co-registrants specified
under the caption Co-Registrants, each of which is a wholly-owned
subsidiary of Greyhound Lines, Inc. and each of which has met the
conditions set forth in General Instructions H(1)(a) and (b) of Form
10-Q for filing Form 10-Q in a reduced disclosure format.(2)
    
    This Registrant meets the conditions set forth General Instructions
H(1)(a) and (b) of Form 10-Q and is therefore filing this form in a
reduced disclosure format.




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Co-Registrants This Form 10-Q is also being filed by the following entities. Except as set
forth below, each entity has the same principal executive offices, zip code and
telephone number as that set forth for Greyhound Lines, Inc. on the cover of
this report: I.R.S. Employer
    
    JurisdictionCommission
    
    Identification
    
    OfName
    
    File No.
    
    No.
    
    Incorp.Atlantic Greyhound Lines of Virginia, Inc.
    
    333-27267-01
    
    58-0869571
    
    VirginiaGLI Holding Company
    
    333-27267-04
    
    75-2146309
    
    DelawareGreyhound de Mexico, S.A. de C.V.
    
    333-27267-05
    
    None
    
    Republic ofMexicoSistema Internacional de Transporte de
Autobuses, Inc.
802 Commerce Street, 3rd Floor
Dallas, Texas 75201
(214) 849-8616
    
    333-27267-08
    
    75-2548617
    
    DelawareTexas, New Mexico & Oklahoma Coaches, Inc.
1313 13th Street
Lubbock, Texas 79408
(806) 763-5389
    
    333-27267-10
    
    75-0605295
    
    DelawareT.N.M. & O. Tours, Inc.
(Same as Texas, New Mexico & Oklahoma
Coaches, Inc.)
    
    333-27267-11
    
    75-1188694
    
    TexasVermont Transit Co., Inc.
345 Pine Street
Burlington, Vermont 05401
(802) 862-9671
    
    333-27267-12
    
    03-0164980
    
    Vermont
 As of March 31, 2004, Atlantic Greyhound Lines of Virginia, Inc. had 150 shares
of common stock outstanding (at a par value of $50.00 per share); GLI Holding
Company had 1,000 shares of common stock outstanding (at a par value of $0.01
per share); Greyhound de Mexico, S.A. de C.V. had 10,000 shares of common stock
outstanding (at a par value of $0.10 Mexican currency per share); Sistema
Internacional de Transporte de Autobuses, Inc. had 1,000 shares of common stock
outstanding (at a par value of $0.01 per share); Texas, New Mexico & Oklahoma
Coaches, Inc. had 1,000 shares of common stock outstanding (at a par value of
$0.01 per share); T.N.M. & O. Tours, Inc. had 1,000 shares of common stock
outstanding (at a par value of $1.00 per share); and Vermont Transit Co., Inc.
had 505 shares of common stock outstanding (no par value). Each of the above
named co-registrants (1) have filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period such co-registrant was required to file such
reports), and (2) have been subject to such filing requirements for the past 90
days. 2




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GREYHOUND LINES, INC. AND SUBSIDIARIES Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Interim Consolidated Statements of Financial Position as of March 31, 2004 (Unaudited) and December 31, 2003
    
    
    5Interim Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 (Unaudited)
    
    
    6Condensed Interim Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (Unaudited)
    
    
    7Notes to Interim Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 4. Controls and Procedures
    
    
    18PART II. OTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K
    
    
    19SIGNATURES
    
    
    20AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to Section 906
  3




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PART I. FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS 4




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GREYHOUND LINES, INC. AND SUBSIDIARIES 
 INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 (in thousands, except share amounts)
 March 31,
    
    December 31,2004
    
    2003(Unaudited)Current AssetsCash and cash equivalents
    
    $
    9,516
    
    
    $
    18,805Accounts receivable, less allowance for doubtful accounts
of $1,353 and $1,364
    
    
    40,683
    
    
    
    39,170Inventories, less allowance for shrinkage of $310 and $309
    
    
    9,227
    
    
    
    9,428Prepaid expenses
    
    
    8,706
    
    
    
    10,687Other current assets
    
    
    3,350
    
    
    
    2,591Total Current Assets
    
    
    71,482
    
    
    
    80,681Property, plant and equipment, net of accumulated depreciation of
$282,474 and $273,732
    
    
    374,136
    
    
    
    376,021Investments in unconsolidated affiliates
    
    
    15,276
    
    
    
    15,624Insurance and security deposits
    
    
    33,316
    
    
    
    33,394Goodwill
    
    
    3,040
    
    
    
    3,040Intangible assets, net of accumulated amortization of $41,057 and $39,703
    
    
    27,472
    
    
    
    29,439Total Assets
    
    $
    524,722
    
    
    $
    538,199Current LiabilitiesAccounts payable
    
    $
    21,782
    
    
    $
    25,379Accrued liabilities
    
    
    70,125
    
    
    
    59,947Rents payable
    
    
    9,912
    
    
    
    12,852Unredeemed tickets
    
    
    9,291
    
    
    
    12,396Current portion of claims liability
    
    
    28,203
    
    
    
    26,579Current portion of debt
    
    
    39,844
    
    
    
    3,344Total Current Liabilities
    
    
    179,157
    
    
    
    140,497Pension obligation
    
    
    185,326
    
    
    
    180,959Claims liability
    
    
    60,842
    
    
    
    57,697Long-term debt .
    
    
    165,294
    
    
    
    202,349Minority interests
    
    
    3,329
    
    
    
    3,625Other liabilities
    
    
    23,540
    
    
    
    24,814Total Liabilities
    
    
    617,488
    
    
    
    609,941Stockholders DeficitCommon stock (1,000 shares authorized; par value $.01; 587 shares issued)
    
    
    
    
    
    
    Capital in excess of par value
    
    
    370,391
    
    
    
    370,391Retained deficit
    
    
    (240,596
    )
    
    
    (219,485
    )Accumulated other comprehensive loss, net of tax benefit of $28,880
    
    
    (222,561
    )
    
    
    (222,648
    )Total Stockholders Deficit
    
    
    (92,766
    )
    
    
    (71,742
    )Total Liabilities and Stockholders Deficit
    
    $
    524,722
    
    
    $
    538,199
 The accompanying notes are an integral part of these statements. 5




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GREYHOUND LINES, INC. AND SUBSIDIARIES 
 INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands)
 Three Months EndedMarch 31,2004
    
    2003(Unaudited)Operating RevenuesPassenger services
    
    $
    181,865
    
    
    $
    182,290Package express
    
    
    9,690
    
    
    
    9,319Food services
    
    
    8,819
    
    
    
    9,570Other operating revenues
    
    
    19,724
    
    
    
    16,552Total Operating Revenues
    
    
    220,098
    
    
    
    217,731Operating ExpensesMaintenance
    
    
    24,970
    
    
    
    25,221Transportation
    
    
    56,796
    
    
    
    61,266Agents commissions and station costs
    
    
    40,830
    
    
    
    43,007Marketing, advertising and traffic
    
    
    4,560
    
    
    
    6,000Insurance and safety
    
    
    19,778
    
    
    
    17,563General and administrative
    
    
    33,633
    
    
    
    31,587Depreciation and amortization
    
    
    14,038
    
    
    
    12,783Operating taxes and licenses
    
    
    14,488
    
    
    
    14,633Operating rents
    
    
    19,692
    
    
    
    21,102Cost of goods sold  food services
    
    
    5,773
    
    
    
    6,329Other operating expenses
    
    
    793
    
    
    
    671Total Operating Expenses
    
    
    235,351
    
    
    
    240,162Operating Loss
    
    
    (15,253
    )
    
    
    (22,431
    )Interest Expense
    
    
    6,140
    
    
    
    5,895Loss Before Income Taxes and Minority Interests
    
    
    (21,393
    )
    
    
    (28,326
    )Income Tax Provision
    
    
    15
    
    
    
    35Minority Interests
    
    
    (297
    )
    
    
    (306
    )Net Loss
    
    $
    (21,111
    )
    
    $
    (28,055
    )
 The accompanying notes are an integral part of these statements. 6




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GREYHOUND LINES, INC. AND SUBSIDIARIES 
 CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Three Months EndedMarch 31,2004
    
    2003(Unaudited)Cash Flows From Operating ActivitiesNet loss
    
    $
    (21,111
    )
    
    $
    (28,055
    )Non-cash expenses and gains included in net loss
    
    
    18,525
    
    
    
    15,351Net change in certain operating assets and liabilities
    
    
    3,963
    
    
    
    (5,736
    )Net Cash Provided by (Used for) Operating Activities
    
    
    1,377
    
    
    
    (18,440
    )Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (11,126
    )
    
    
    (3,031
    )Proceeds from assets sold
    
    
    539
    
    
    
    4,340Other investing activities
    
    
    624
    
    
    
    Net Cash Provided by (Used for) Investing Activities
    
    
    (9,963
    )
    
    
    1,309Cash Flows From Financing ActivitiesPayments on debt and capital lease obligations
    
    
    (703
    )
    
    
    (1,003
    )Net change in revolving credit facility
    
    
    
    
    
    
    17,635Other financing activities
    
    
    
    
    
    
    (192
    )Net Cash Provided by (Used for) Financing Activities
    
    
    (703
    )
    
    
    16,440Net Decrease in Cash and Cash Equivalents
    
    
    (9,289
    )
    
    
    (691
    )Cash and Cash Equivalents, Beginning of Period
    
    
    18,805
    
    
    
    5,946Cash and Cash Equivalents, End of Period
    
    $
    9,516
    
    
    $
    5,255
 The accompanying notes are an integral part of these statements. 7




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GREYHOUND LINES, INC. AND SUBSIDIARIES 
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited)
 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS The accompanying interim consolidated financial statements of Greyhound Lines,
Inc. and Subsidiaries (Greyhound or the Company) have been prepared in
accordance with accounting principles generally accepted in the United States
for interim reporting and accordingly, do not include all of the disclosures
required for annual financial statements. In the opinion of management, all
adjustments considered necessary for fair presentation have been included. All
such adjustments are of a normal, recurring nature. Additionally, certain
reclassifications have been made to the prior period statements to conform them
to the current period presentation. Due to the seasonality of the Companys
operations, operating results for the three months ended March 31, 2004 and
2003 and cash flows for the three months ended March 31, 2004 and 2003 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 2004. For further information, see the Companys
consolidated financial statements, including the accounting policies and notes
thereto, included in the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2003. On March 16, 1999, the Companys stockholders approved the Agreement and Plan
of Merger with Laidlaw Inc. pursuant to which the Company became a wholly-owned
subsidiary of Laidlaw Inc. (the Merger). The consolidated financial
statements of the Company do not reflect any purchase accounting adjustments
relating to the Merger. On June 28, 2001, Laidlaw Inc. and certain of its affiliates filed voluntary
petitions for reorganization under the U.S. Bankruptcy Code and the Canada
Companies Creditors Arrangement. Neither Greyhound nor any of its
subsidiaries were included in, or made party to, these reorganization filings
and proceedings. Effective June 23, 2003, Laidlaw Inc. emerged from the court-supervised
reorganization process and, in accordance with the Plan of Reorganization,
Laidlaw Inc. completed an internal corporate restructuring, in which Laidlaw
International, Inc. acquired all of the assets of Laidlaw Inc., a Canadian
corporation. Additionally, pursuant to the Plan, Laidlaw International, Inc.
domesticated into the United States as a Delaware corporation. Laidlaw
International, Inc. and its predecessor Laidlaw Inc. are referred to as
Laidlaw. The consolidated financial statements of the Company do not reflect
any fresh start accounting adjustments relating to the reorganization of
Laidlaw. 2. OTHER COMPREHENSIVE INCOME The Company includes unrealized gains and losses on available-for-sale
securities and changes in minimum pension liabilities as other comprehensive
income. For the three months ended March 31, 2004 and 2003, comprehensive loss
was $21.0 million and $27.7 million, respectively. 8




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3. INDEBTEDNESS Revolving Credit Facility The Company is party to a revolving credit facility (Revolving Credit
Facility) that currently matures on October 24, 2004. Letters of credit or
borrowings are available under the Revolving Credit Facility based upon the
total of 80% of the appraised wholesale value of bus collateral, plus 65% of
the quick sale value of certain real property collateral, minus $20 million,
(which at March 31, 2004, aggregated to $118.4 million) subject to a maximum of
$125 million, inclusive of a $70 million letter of credit sub-facility. As of
March 31, 2004, the Company had no outstanding borrowings under its Revolving
Credit Facility, issued letters of credit of $61.1 million and availability of
$57.3 million. Under the Revolving Credit Facility, the Company is subject to
certain covenants, including a maximum total debt to cash flow ratio, minimum
cash flow to interest expense ratio and minimum cash flow test. As of March
31, 2004, the Company was in compliance with all such covenants and based upon
the Companys financial forecast for the remainder of 2004, management
currently believes that the Company will remain in compliance with all of the
covenants under the Revolving Credit Facility. The Company has entered into discussions to extend the October 24, 2004
maturity date of the Revolving Credit Facility and to modify certain of the
other terms of the agreement. Although the Company has been successful in
obtaining necessary extensions and modifications to the Revolving Credit
Facility in the past, there can be no assurances that the Company will obtain
them in the future or that the cost of any future extensions, modifications or
other changes in the terms of the Revolving Credit Facility would not have a
material effect on the Company. In the event that the parties are unable to
agree on an extension of the facility beyond its current maturity date, and
that modifications suitable to the parties are not obtained, the Company will
be required to seek a replacement for the Revolving Credit Facility from other
financing sources. Should alternate sources of financing not be available,
then the Company may not be able to satisfy its obligations as they become due
and may not be able to continue as a going concern. As a result, the Company
may not be able to realize its assets and settle its liabilities in the normal
course of operations. Laidlaw Subordinated Debt The Company is party to an intercompany loan with Laidlaw that is subordinate
to the Revolving Credit Facility and matures 91 days after the maturity of the
Revolving Credit Facility. Based on the current maturity date of the Revolving
Credit Facility, the Companys debt owed to Laidlaw in the amount of $36.6
million has been classified as a current liability on the Companys Interim
Consolidated Statements of Financial Position at March 31, 2004. The Company
is in discussions with its lenders to extend the maturity date of the Revolving
Credit Facility. In conjunction with any extension of the Revolving Credit
Facility, the maturity date of the Laidlaw debt would likewise be extended. 4. PENSION PLANS The Company has nine defined benefit pension plans. The largest plan (the ATU
Plan) covers approximately 13,500 current and former employees, fewer than 900
of whom are active employees of the Company. The following table provides the
components of net periodic pension cost for the three months ended March 31,
2004 and 2003 (in thousands): Three Months Ended2004
    
    2003Components of Net Periodic Pension CostService Cost
    
    $
    377
    
    
    $
    375Interest Cost
    
    
    10,836
    
    
    
    11,715Expected Return on Assets
    
    
    (10,006
    )
    
    
    (10,027
    )Amortization of Actuarial Losses
    
    
    3,461
    
    
    
    472Net Periodic Pension Cost
    
    $
    4,668
    
    
    $
    2,535
 9




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4. PENSION PLANS (Continued) Plan Contributions and Potential Funding Requirements Laidlaw, collectively with all of its wholly-owned U.S. subsidiaries, including
Greyhound (the Laidlaw Group), is party to an agreement with the Pension
Benefit Guaranty Corporation regarding the funding levels of the Companys
pension plans (the PBGC Agreement). Under the PBGC Agreement 3.8 million
shares of common stock of Laidlaw were issued to a trust formed for the benefit
of the pension plans (the Pension Plan Trust). The trustee of the Pension
Plan Trust is to sell the stock at Laidlaws direction, but in no event later
than the end of 2004, with all net proceeds from the stock sales being
contributed directly to the pension plans. If the net proceeds from the stock
sales exceed $50 million, the excess amount may be credited against any future
required minimum funding obligations. If the net proceeds from the stock sales
are less than $50 million, the Laidlaw Group will be required to contribute the
amount of the shortfall in cash to the pension plans at the end of 2004.
Further, the Laidlaw Group must contribute an additional $50 million in cash to
the pension plans by June 30, 2004. These contributions and transfers will be
in addition to the minimum funding obligations to the pension plans, if any,
required under current regulations. At March 31, 2004, all 3.8 million shares of Laidlaw common stock remained in
the Pension Plan Trust and no dividends had been received from Laidlaw on these
shares. Based upon the closing price of the Laidlaw stock on the New York
Stock Exchange on May 11, 2004, the shares had an aggregate market value of
$49.1 million. In addition to the cash contributions to the pension plans pursuant to the PBGC
Agreement described above, the Company expects to contribute $3.3 million to
all plans other than the ATU Plan, for which there is no funding requirement in
2004. During the quarter ended March 31, 2004, the Company contributed $0.3
million to the plans. The ATU Plan represents approximately 90% of the total obligations of the
pension plans. Based upon current regulations and plan asset values at March
31, 2004, and assuming annual investment returns exceed 3% and that the
contributions required under the PBGC Agreement are made in accordance with the
timing specified in the PBGC Agreement, the Company does not anticipate any
significant additional minimum funding requirements for the ATU Plan until
2007. However, there is no assurance that the ATU Plan will be able to earn
the assumed rate of return, that new regulations may not result in changes in
the prescribed actuarial mortality table and discount rates, or that there will
be market driven changes in the discount rates, any of which could result in
the Company being required to make contributions in the future that differ
significantly from the current estimates. 5. CONTINGENCIES Environmental Matters The Companys operations are subject to numerous environmental laws,
regulations and guidelines adopted by various governmental authorities in the
jurisdictions in which the Company operates. Liabilities are recorded when
environmental liabilities are either known or considered probable and can be
reasonably estimated. On an ongoing basis, management assesses and evaluates
environmental risk and, when necessary, conducts appropriate corrective
measures. The Company provides for environmental liabilities using its best
estimates. Actual environmental liabilities could differ significantly from
these estimates. Legal Proceedings The Company is a defendant in various lawsuits arising in the ordinary course
of business, primarily cases involving personal injury and property damage
claims and employment related claims. Based on the Companys assessment of
known claims and the historical claims payout pattern and discussion with
internal and outside legal counsel and risk management personnel, management
believes that there is no proceeding either threatened or pending against the
Company relating to such claims arising out of the ordinary course of business
that, if resolved against the Company, would have a materially adverse effect
upon the Companys consolidated financial position or results of operations. 10




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5. CONTINGENCIES (Continued) Insurance Coverage The predecessor agency to the Surface Transportation Board granted the Company
authority to self-insure its automobile liability exposure for interstate
passenger service up to a maximum level of $5.0 million per occurrence, which
has been continued by the Department of Transportation (DOT). To maintain
self-insurance authority, the Company is required to provide periodic financial
information and claims reports, maintain a satisfactory safety rating by the
DOT, a tangible net worth of $10.0 million and a $15.0 million trust fund to
provide security for payment of claims. At December 31, 2002, and continuing
to date, the Companys tangible net worth has fallen below the minimum required
by the DOT to maintain self-insurance authority. On July 25, 2003, the DOT
granted a waiver of the tangible net worth requirement through December 31,
2004 and, as a condition of the waiver, the Company was required to increase
the self-insurance trust fund by $2.7 million. On May 4, 2004, the DOT issued
a ruling reaffirming both the Companys self-insurance authority and the
temporary waiver of the tangible net worth requirement through December 31,
2004. However, the new ruling now requires that the trust be evaluated
quarterly and funded to the greater of $17.7 million or 110% of the estimated
unpaid liability for self-insured claims. As a result, during the second
quarter of 2004, the Company will be required to make additional contributions
to the self-insurance trust fund in the amount of $13.6 million. The Companys
self-insurance authority will continue to be subject to periodic review by the
DOT. Insurance coverage and related administrative expenses are key components of
the Companys cost structure. Additionally, the Company is required by the DOT,
some states and some of its insurance carriers to maintain collateral deposits
or provide other security pursuant to its insurance program. At March 31,
2004, the Company maintained $25.5 million of collateral deposits (including
the DOT trust fund) and had issued $53.7 million of letters of credit in
support of these programs. The loss or further modification of self-insurance
authority from the DOT or a decision by the Companys insurers to modify the
Companys program substantially, by either increasing cost, reducing
availability or increasing collateral, could have a material adverse effect on
the Companys liquidity, financial condition and results of operations. 6. RELATED PARTY TRANSACTIONS Included in accounts receivable on the Companys Interim Consolidated
Statements of Financial Position at March 31, 2004 and December 31, 2003, are
amounts due from Laidlaw or one of Laidlaws subsidiaries of $4.1 million and
$3.6 million, respectively. Included in accounts payable at March 31, 2004 and
December 31, 2003, are amounts due to Laidlaw or one of Laidlaws subsidiaries
of $1.0 million and $1.1 million, respectively. Included in current portion of debt on the Companys Interim Consolidated
Statements of Financial Position at March 31, 2004 is the Companys
subordinated debt to Laidlaw in the amount of $36.6 million. The maturity date
of the debt is 91 days following the final maturity of the Revolving Credit
Facility. The Company is in discussions with its lenders to extend the
maturity date of the Revolving Credit Facility. In conjunction with any
extension of the Revolving Credit Facility, the maturity date of the Laidlaw
debt would likewise be extended. 11




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS Business Overview Greyhound is the only nationwide provider of scheduled intercity bus
transportation services in the United States. The Company operates as one
business segment with the primary business consisting of scheduled passenger
service, package express service and food service at certain terminals. The
Companys operations include a nationwide network of terminal and maintenance
facilities utilizing a fleet of approximately 2,800 buses. The Company uses a
network of approximately 1,700 sales locations, which offers the customer the
ability to travel to more than 2,600 destinations in North America. The Companys business is seasonal in nature and generally follows the travel
industry as a whole, with peaks during the summer months and the Thanksgiving
and Christmas holiday periods. As a result, the Companys operating cash flows
are also seasonal with a disproportionate amount of the Companys annual
operating cash flows being generated during the peak travel periods. The day
of the week on which certain holidays occur, the length of certain holiday
periods, and the date on which certain holidays occur within the fiscal
quarter, may also affect the Companys quarterly results of operations. The following discussion and analysis presents factors which affected the
Companys consolidated results of operations for the quarter ended March 31,
2004 and the Companys consolidated financial position at March 31, 2004. The
following information should be read in conjunction with the Consolidated
Financial Statements and Notes included in this Form 10-Q as well as the
Companys Form 10-K for the year ended December 31, 2003. Overview of the First Quarter of 2004 The Company continues to experience positive results from the pricing and cost
reduction actions implemented during the third and fourth quarters of 2003, and
during the first quarter of 2004 management implemented additional price
increases and cost containment initiatives. As a result, during the quarter
ended March 31, 2004, revenue improved by $2.4 million or 1.1%, expenses
declined by $4.8 million or 2.0% and, accordingly, the Companys operating loss
declined from $22.4 million as of March 31, 2003, to $15.3 million as of March
31, 2004, an improvement of $7.1 million. During the first quarter of 2004, yield on passenger tickets increased by 8.1%
principally as a result of a change in the mix of passengers caused by a
decline in passenger miles in the long haul markets. This decline resulted
from higher pricing on seasonal promotions, additional restrictions and higher
pricing on the advance purchase discount program, and strategic price increases
on certain routes in certain geographic regions. Additionally, the Company
implemented further across the board price increases affecting all mileage
bands. Although the price increases resulted in a decline in passengers and
passenger miles, these declines were almost completely offset by the effects of
the increased ticket prices, such that passenger revenue was only slightly
down, 0.2%, compared to prior year. The slight decline in passenger revenue
was more than offset by increased revenue from package shipments as a result of
a price increase and expanded transportation services to cruise lines. Additionally, anticipating the passenger miles decline, the Company continued
to aggressively reduce bus miles. As a result, revenue per mile improved by
8.2%. Since approximately 76% of the Companys wages are variable with bus and
passenger miles, the reduction in expenses during the quarter is largely due to
managements actions to reduce bus miles. In addition, costs declined as a
result of the January closure of one of the Companys telephone information
centers, the continued effects of the 2003 reductions in force, and other cost
decreases resulting from lower business volumes and resource needs. These cost
reductions more than offset increases in wages, fuel, insurance and pension
during the quarter. On a per mile basis, costs increased 4.9%, which was less
than the increase in revenue per mile. 12




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##### Table of Contents



Additionally, during the quarter, the membership of the Amalgamated Transit
Union Local 1700, representing all of the Companys drivers and half of the
mechanics, ratified a new collective bargaining agreement that expires on
January 31, 2007. Although the agreement provides for one wage increase and an
increase in benefits, these increases are almost completely offset by other
contract modifications. In summary the projected impacts of the ongoing improvements in results as well
as the terms of the new collective bargaining agreement indicate that the
Company will meet its debt covenants for the remainder of 2004. Additionally,
the Company can now focus on longer term initiatives and further improvements
as substantial needs for capital expenditures and debt service requirements
mandate that the Company continue to significantly improve operations and
financial results. Results of Operations The following table sets forth the Companys results of operations as a
percentage of total operating revenue for the quarters ended March 31, 2004 and
2003: Three Months EndedMarch 31,2004
    
    2003Operating RevenuesPassenger services
    
    
    82.6
    %
    
    
    83.7
    %Package express
    
    
    4.4
    
    
    
    4.3Food services
    
    
    4.0
    
    
    
    4.4Other operating revenues
    
    
    9.0
    
    
    
    7.6Total Operating Revenues
    
    
    100.0
    
    
    
    100.0Operating ExpensesMaintenance
    
    
    11.3
    
    
    
    11.6Transportation
    
    
    25.8
    
    
    
    28.1Agents commissions and station costs
    
    
    18.5
    
    
    
    19.7Marketing, advertising and traffic
    
    
    2.1
    
    
    
    2.8Insurance and safety
    
    
    9.0
    
    
    
    8.1General and administrative
    
    
    15.3
    
    
    
    14.5Depreciation and amortization
    
    
    6.4
    
    
    
    5.9Operating taxes and licenses
    
    
    6.6
    
    
    
    6.7Operating rents
    
    
    8.9
    
    
    
    9.7Cost of goods sold  food services
    
    
    2.6
    
    
    
    2.9Other operating expenses
    
    
    0.4
    
    
    
    0.3Total Operating Expenses
    
    
    106.9
    
    
    
    110.3Operating Loss
    
    
    (6.9
    )
    
    
    (10.3
    )Interest Expense
    
    
    2.8
    
    
    
    2.7Income Tax Provision
    
    
    0.0
    
    
    
    0.0Minority Interests
    
    
    (0.1
    )
    
    
    (0.1
    )Net Loss
    
    
    (9.6
    )%
    
    
    (12.9
    )%
 13




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The following table sets forth certain key operating data used by management in
assessing the Companys performance during the quarters ended March 31, 2004
and 2003. Certain statistics have been adjusted and restated from those
previously published to provide consistent comparisons. Three Months EndedMarch 31,
    
    Percentage2004
    
    2003
    
    ChangeRegular Service Miles (000s)
    
    
    67,362
    
    
    
    72,419
    
    
    
    (7.0
    %)Total Bus Miles (000s)
    
    
    69,966
    
    
    
    74,884
    
    
    
    (6.6
    %)Passenger Miles (000s)

    
    
    1,658,978
    
    
    
    1,797,633
    
    
    
    (7.7
    %)Passengers Carried (000s)
    
    
    4,854
    
    
    
    4,967
    
    
    
    (2.3
    %)Average Trip Length (passenger miles/passengers carried)
    
    
    342
    
    
    
    362
    
    
    
    (5.5
    %)Load (avg. number of passengers per regular service mile)
    
    
    24.6
    
    
    
    24.8
    
    
    
    (0.8
    %)Load Factor (% of available seats filled)
    
    
    48.5
    %
    
    
    49.1
    %
    
    
    (1.2
    %)Yield (passenger services revenue/passenger miles)
    
    $
    0.1096
    
    
    $
    0.1014
    
    
    
    8.1
    %Average Ticket Price
    
    $
    37.47
    
    
    $
    36.70
    
    
    
    2.1
    %Total Revenue Per Total Bus Mile
    
    $
    3.146
    
    
    $
    2.908
    
    
    
    8.2
    %Operating Loss Per Total Bus Mile
    
    $
    (0.218
    )
    
    $
    (0.300
    )
    
    
    (27.3
    %)Cost Per Total Bus Mile:Maintenance
    
    $
    0.357
    
    
    $
    0.337
    
    
    
    5.9
    %Transportation
    
    $
    0.812
    
    
    $
    0.818
    
    
    
    (0.7
    %)
 Three Months Ended March 31, 2004 Compared to the Same Period in 2003 Operating Revenues.Total operating revenues increased $2.4 million, up 1.1%,
for the three months ended March 31, 2004, compared to the same period in 2003. Passenger services revenues decreased $0.4 million, or 0.2%, for the three
months ended March 31, 2004, compared to the same period in 2003. The decrease
is principally due to the 2.3% reduction in passengers almost all of which was
offset by a 2.1% increase in average ticket price. The price increases caused
the decline in passengers and as the increases were higher in the lower
yielding, longer haul markets (trips greater than 1,000 miles), passengers in
these markets declined at a higher rate than passengers in the higher yielding
short and medium haul markets. As a result, the mix of passengers changed and
average trip length declined 5.5%. The passenger decline along with the
decline in trip length resulted in a decline in passenger miles of 7.7% which
more than offset the favorable impact of an additional day in February and
better weather during the current quarter than the prior year. Because shorter
trips produce higher yield, the effects of the passenger mile decline were
almost completely offset by the increase in yield. Package express revenues increased $0.4 million, or 4.0%, for the three months
ended March 31, 2004, compared to the same period in 2003 principally due to a
3.2% increase in shipping days and price increases on oversize packages and
customer baggage that more than offset continued declines in standard product
deliveries (the traditional, low value, terminal to terminal market segment).
As a result of the price increases, sales per shipping day were up slightly
during the quarter as compared to the prior year. Food services revenues decreased $0.8 million, or 7.8%, for the three months
ended March 31, 2004, compared to the same period in 2003 primarily due to the
decrease in passenger traffic, particularly in the long haul markets. Other operating revenues increased $3.2 million, or 19.2%, for the three months
ended March 31, 2004, compared to the same period in 2003. The increase is
principally due to increased charter services and increases in meet and greet
and transportation services provided to cruise lines. 14




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##### Table of Contents



Operating Expenses.Total operating expenses decreased $4.8 million, or 2.0%,
for the three months ended March 31, 2004, compared to the same period in 2003. Maintenance costs decreased $0.3 million, or 1.0%, for the three months ended
March 31, 2004, compared to the same period in 2003. On a per-mile basis,
maintenance costs increased by 5.9% principally due to contractual wage
increases for mechanics, higher average fleet age and fewer buses under
warranty. Transportation expenses which consist primarily of fuel costs and driver wages,
decreased $4.5 million, or 7.3%, for the three months ended March 31, 2004,
compared to the same period in 2003, principally due to the effects of
operating fewer miles and lower driver training costs, partially offset by
contractual driver wage increases and fuel price increases. During the first
quarter of 2004 the average cost per gallon of fuel was $1.04 per gallon,
compared to $0.99 per gallon during the same period in 2003, resulting in
increased costs of $0.5 million. Additionally, driver hiring and training
costs were $1.7 million lower during the first quarter of 2004 compared to 2003
due to decreased hiring of new drivers. Agents commissions and station costs decreased $2.2 million, or 5.1%, for the
three months ended March 31, 2004, compared to the same period in 2003. The
decrease is primarily due to lower terminal and call center wages and
communication costs as a result of decreased ticket sales and lower passenger
volumes. Marketing, advertising and traffic expenses decreased $1.4 million, or 24.0%
for the three months ended March 31, 2004, compared to the same period in 2003.
The decrease is principally due to managements decision to reduce advertising
spending as compared to prior year, as discretionary travel remains soft during
off peak periods. Insurance and safety costs increased $2.2 million, or 12.6% for the three
months ended March 31, 2004, compared to the same period in 2004. The increase
is primarily due to an increase in the cost of excess insurance coverage and
growth in the average cost per claim due principally to inflationary increases
in medical costs and wages. General and administrative expenses increased $2.0 million, or 6.5%, for the
three months ended March 31, 2004, compared to the same period in 2003 due
principally to higher pension and incentive plan costs, partially offset by
decreased wages as a result of a reduction in force and decreased travel and
other costs as a result of lower business volumes. Depreciation and amortization increased by $1.3 million, or 9.8%, for the three
months ended March 31, 2004, compared to the same period in 2003. The increase
is primarily due to inflationary increases in the cost of recent capital
expenditures which, due to the long-lived nature of the Companys assets,
significantly exceeds the historical cost basis of asset disposals.
Additionally, the Company decreased its estimates of salvage value on certain
older buses. Operating taxes and licenses expense decreased by $0.1 million for the three
months ended March 31, 2004, compared to the same period in 2003. Decreases in
fuel taxes as a result of the decline in miles operated were almost completely
offset by increases in property taxes. Operating rents decreased $1.4 million, or 6.7%, for the three months ended
March 31, 2004, compared to the same period in 2003, principally due to
expirations of bus operating leases. Food services cost of goods sold decreased $0.6 million, or 8.8%, for the three
months ended March 31, 2004, compared to the same period in 2003, primarily due
to the decrease in food services revenues. Other operating expenses were comparable to the same period in 2003. Interest expense increased $0.2 million, or 4.2%, for the three months ended
March 31, 2004, compared to the same period in 2003 principally as a result of
higher interest rates on the Companys revolving credit facility. Income tax expense for the three months ended March 31, 2004, was comparable to
the same period in 2003. Minority interests for the three months ended March 31, 2004, reflects the
minority partners share of current year losses in the Companys Hispanic joint
ventures and were comparable to the same period in 2003. 15




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##### Table of Contents



Liquidity and Capital Resources The Company requires significant cash flows to finance capital expenditures,
including bus acquisitions, and to meet its debt service and other continuing
obligations. As of March 31, 2004, the Company had $205.1 million of
outstanding debt, implicit debt equivalent to $245.6 million for off-balance
sheet bus operating leases and $61.1 million of outstanding letters of credit
(which principally support recorded claims liabilities). The Companys
principal sources of liquidity are expected to be cash flow from operations
(which is net of cash charges for interest expense and lease payments under the
Companys bus operating leases), proceeds from operating lease or other
equipment financing for new bus purchases and borrowings under its revolving
credit facility. Generally new term financing (including bus operating lease
financing) must be obtained to support the Companys annual capital expenditure
needs. Additionally, the Company is currently limited under the terms of its
senior note indenture as to the amount of additional indebtedness that may be
incurred. If new bus financing cannot be obtained in the future, or is limited
pursuant to the senior note indenture, the Company would have to reduce capital
expenditures, resulting in an increase in fleet age and costs to operate the
fleet. Net cash provided by operating activities for the three months ended March 31,
2004 was $1.4 million, compared to net cash used by operating activities of
$18.4 million in the prior year, an improvement during the current quarter of
$19.8 million. The increase is due to the lower operating loss during the
first quarter of 2004 and lower payments than in the prior year of accrued
rents and accrued wages. The lower payments of accrued rents is principally
due to the timing of uneven rent payments on a large bus lease. Net cash used
by investing activities for the first quarter of 2004 was $10.0 million
compared to $1.3 million provided by investing activities during the same
period of 2003. During the first quarter of 2004 the Company had higher
capital expenditures than in the prior year principally due to purchases of
buses at lease expiration. Net cash used by financing activities in the first
quarter of 2004 was $0.7 million for the repayment of debt, versus net cash
provided by financing activities of $16.4 million in the prior year,
principally due to advances under the Revolving Credit Facility in the prior
year. As of March 31, 2004, the Company had no outstanding borrowings under its
Revolving Credit Facility, issued letters of credit of $61.1 million,
availability of $57.3 million and was in compliance with all of its covenants.
Based upon the Companys financial forecast for the remainder of 2004,
management currently believes that the Company will remain in compliance with
all of the covenants under the Revolving Credit Facility. The Revolving Credit Facility matures on October 24, 2004 and the Company has
entered into discussions to extend the maturity and to modify certain of the
other terms of the agreement. Although the Company has been successful in
obtaining necessary extensions and modifications to the Revolving Credit
Facility in the past, there can be no assurances that the Company will obtain
them in the future or that the cost of any future extensions, modifications or
other changes in the terms of the Revolving Credit Facility would not have a
material effect on the Company. In the event that the parties are unable to
agree on an extension of the facility beyond its current maturity date, and
that modifications suitable to the parties are not obtained, the Company will
be required to seek a replacement for the Revolving Credit Facility from other
financing sources. Should alternate sources of financing not be available,
then the Company may not be able to satisfy its obligations as they become due
and may not be able to continue as a going concern. As a result, the Company
may not be able to realize its assets and settle its liabilities in the normal
course of operations. PBGC Agreement and Potential Pension Plan Funding Requirements Laidlaw, collectively with all of its wholly-owned U.S. subsidiaries, including
Greyhound (the Laidlaw Group), is party to an agreement with the Pension
Benefit Guaranty Corporation regarding the funding levels of the Companys
pension plans (the PBGC Agreement). Under the PBGC Agreement 3.8 million
shares of common stock of Laidlaw were issued to a trust formed for the benefit
of the pension plans (the Pension Plan Trust). The trustee of the Pension
Plan Trust is to sell the stock at Laidlaws direction, but in no event later
than the end of 2004, with all net proceeds from the stock sales being
contributed directly to the pension plans. If the net proceeds from the stock
sales exceed $50 million, the excess amount may be credited against any future
required minimum funding obligations. If the net proceeds from the stock sales
are less than $50 million, the Laidlaw Group will be required to contribute the
amount of the shortfall in cash to the pension plans at the end of 2004.
Further, the Laidlaw Group must contribute an additional $50 million in cash to
the pension plans by June 30, 2004. These contributions and transfers will be
in addition to the minimum funding obligations to the pension plans, if any,
required under current regulations. 16




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##### Table of Contents



At March 31, 2004, all 3.8 million shares of Laidlaw common stock remained in
the Pension Plan Trust and no dividends had been received from Laidlaw on these
shares. Based upon the closing price of the Laidlaw stock on the New York
Stock Exchange on May 11, 2004, the shares had an aggregate market value of
$49.1 million. The largest of the plans (the ATU Plan) represents approximately 90% of the
total obligations of the pension plans. Based upon current regulations and
plan asset values at March 31, 2004, and assuming annual investment returns
exceed 3% and that the contributions required under the PBGC Agreement are made
in accordance with the timing specified in the PBGC Agreement, the Company does
not anticipate any significant additional minimum funding requirements for the
ATU Plan until 2007. However, there is no assurance that the ATU Plan will be
able to earn the assumed rate of return, that new regulations may not result in
changes in the prescribed actuarial mortality table and discount rates, or that
there will be market driven changes in the discount rates, any of which could
result in the Company being required to make contributions in the future that
differ significantly from the current estimates. Insurance Coverage The predecessor agency to the Surface Transportation Board granted the Company
authority to self-insure its automobile liability exposure for interstate
passenger service up to a maximum level of $5.0 million per occurrence, which
has been continued by the Department of Transportation (DOT). To maintain
self-insurance authority, the Company is required to provide periodic financial
information and claims reports, maintain a satisfactory safety rating by the
DOT, a tangible net worth of $10.0 million and a $15.0 million trust fund to
provide security for payment of claims. At December 31, 2002, and continuing
to date, the Companys tangible net worth has fallen below the minimum required
by the DOT to maintain self-insurance authority. On July 25, 2003, the DOT
granted a waiver of the tangible net worth requirement through December 31,
2004 and, as a condition of the waiver, the Company was required to increase
the self-insurance trust fund by $2.7 million. On May 4, 2004, the DOT issued
a ruling reaffirming both the Companys self-insurance authority and the
temporary waiver of the tangible net worth requirement through December 31,
2004. However, the new ruling now requires that the trust be evaluated
quarterly and funded to the greater of $17.7 million or 110% of the estimated
unpaid liability for self-insured claims. As a result, during the second
quarter of 2004, the Company will be required to make additional contributions
to the self-insurance trust fund in the amount of $13.6 million. The Companys
self-insurance authority will continue to be subject to periodic review by the
DOT. Insurance coverage and related administrative expenses are key components of
the Companys cost structure. Additionally, the Company is required by the DOT,
some states and some of its insurance carriers to maintain collateral deposits
or provide other security pursuant to its insurance program. At March 31,
2004, the Company maintained $25.5 million of collateral deposits (including
the DOT trust fund) and had issued $53.7 million of letters of credit in
support of these programs. The loss or further modification of self-insurance
authority from the DOT or a decision by the Companys insurers to modify the
Companys program substantially, by either increasing cost, reducing
availability or increasing collateral, could have a material adverse effect on
the Companys liquidity, financial condition and results of operations. Risks Associated with Forward-Looking Statements Included in this Form 10-Q Statements in this Form 10-Q that are not purely historical facts, including
statements regarding beliefs, expectations, intentions, projections or
strategies for the future of Greyhound may be forward-looking
statements
under the Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from the plans, intentions and expectations
reflected in or suggested by the forward-looking statements. Such risks and
uncertainties include, among others, the general economic condition of the
United States and the future level of bus travel demand; the impact of future
terrorist incidents; operational disruptions as a result of bad weather; the
Companys future yields; increased costs for security; the cost and
availability of excess insurance coverage and the Companys ability to retain
authority to self-insure; the impact of changes in fuel prices; the effect of
future Government regulations; potential pension plan funding requirements;
limitations on financing flexibility and availability due to the potential
inability of the Company to obtain extensions of the maturity date of its
revolving credit facility or to remain in compliance with covenants required
under its various debt agreements consequently affecting the ability of the
Company to continue as a going concern; changing credit markets; disruptions to
Company operations as a result of forced relocations of terminals or garages;
and other factors described from time to time in the Companys publicly
available Securities and Exchange Commission filings. The Company undertakes
no obligation to publicly update or revise any forward-looking statements to
reflect events or circumstances that may arise after the date of this filing. 17




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES The Company maintains a set of disclosure controls and procedures designed to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. As of the end of the
period covered by this report, an evaluation was carried out under the
supervision and with the participation of the Companys management, including
its Principal Executive Officer and Principal Financial Officer, of the
effectiveness of the Companys disclosure controls and procedures. Based on
that evaluation, the Principal Executive Officer and Principal Financial
Officer have concluded that the Companys disclosure controls and procedures
are effective. During the most recent fiscal quarter, there have not been any changes in the
Companys internal controls over financial reporting or in other factors that
have materially affected, or are reasonably likely to materially affect, the
Companys internal controls over financial reporting. 18




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##### Table of Contents



PART II. OTHER INFORMATION 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)

    Exhibits10.1
    
    Memorandum of Agreement, dated March 27, 2004, between the Registrant and
the Amalgamated Transit Union National Local 1700.31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(b)

    Reports on Form 8-K
  On February 2, 2004, the Company filed a current report on Form 8-K with
the Securities and Exchange Commission reporting Other Events. No
financial statements were included.On March 26, 2004, the Company filed a current report on Form 8-K with
the Securities and Exchange Commission reporting Other Events. No
financial statements were included. 19




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Date: May 17, 2004 GREYHOUND LINES, INC.By:
    /s/ Cheryl W. FarmerCheryl W. FarmerSenior Vice President - Finance ATLANTIC GREYHOUND LINES OF
VIRGINIA, INC.By:
    /s/ Cheryl W. FarmerCheryl W. FarmerVice President - Finance GLI HOLDING COMPANYBy:
    /s/ Cheryl W. FarmerCheryl W. FarmerVice President - Finance GREYHOUND de MEXICO, S.A. de C.V.By:
    /s/ William J. GiesekerWilliam J. GiesekerExaminer SISTEMA INTERNACIONAL de TRANSPORTE
de AUTOBUSES, INC.By:
    /s/ Cheryl W. FarmerCheryl W. FarmerVice President - Finance TEXAS, NEW MEXICO & OKLAHOMA
COACHES, INC.By:
    /s/ Cheryl W. FarmerCheryl W. FarmerVice President - Finance T.N.M. & O. TOURS, INC.By:
    /s/ Cheryl W. FarmerCheryl W. FarmerVice President - Finance VERMONT TRANSIT CO., INC.By:
    /s/ Cheryl W. FarmerCheryl W. FarmerVice President - Finance 20