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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 June 30, 2004
 OR o
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
(State or other jurisdiction of
incorporation or organization)
    
    86-0572343
(I.R.S. employer
identification no.)15110 N. Dallas Parkway, Suite 600
Dallas, Texas
(Address of principal executive offices)
    

    75248
(Zip code)
 (972) 789-7000
(Registrants telephone number, including area code) 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  o
 Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES  o
    
    
    
    NO  x
 As of August 6, 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 in 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 of MexicoSistema Internacional de Transporte de Autobuses,
Inc.
350 N. St. Paul Street, 10th 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 June 30, 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
June 30, 2004 (Unaudited) and December 31, 2003
    
    
    5Interim Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 2004 and 2003 (Unaudited)
    
    
    6Condensed Interim Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 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
    
    
    13Item 4. Controls and Procedures
    
    
    21PART II. OTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K
    
    
    22SIGNATURES
    
    
    23Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350
  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)
 June 30,
    
    December 31,2004
    
    2003(Unaudited)Current AssetsCash and cash equivalents
    
    $
    11,542
    
    
    $
    18,805Accounts receivable, less allowance for doubtful
accounts of $1,456 and $1,364
    
    
    41,991
    
    
    
    39,170Inventories, less allowance for shrinkage of $311 and $309
    
    
    9,116
    
    
    
    9,428Prepaid expenses
    
    
    5,453
    
    
    
    10,687Other current assets
    
    
    4,055
    
    
    
    2,591Total Current Assets
    
    
    72,157
    
    
    
    80,681Property, plant and equipment, net of accumulated depreciation
of $290,022 and $273,732
    
    
    365,730
    
    
    
    376,021Investments in unconsolidated affiliates
    
    
    14,542
    
    
    
    15,624Insurance and security deposits
    
    
    45,860
    
    
    
    33,394Goodwill
    
    
    2,939
    
    
    
    3,040Intangible assets, net of accumulated amortization of $41,287 and $39,703
    
    
    24,183
    
    
    
    29,439Total Assets
    
    $
    525,411
    
    
    $
    538,199Current LiabilitiesAccounts payable
    
    $
    24,247
    
    
    $
    25,379Accrued liabilities
    
    
    65,798
    
    
    
    59,947Rents payable
    
    
    5,398
    
    
    
    12,852Unredeemed tickets
    
    
    11,928
    
    
    
    12,396Current portion of claims liability
    
    
    34,322
    
    
    
    26,579Current portion debt
    
    
    2,983
    
    
    
    3,344Total Current Liabilities
    
    
    144,676
    
    
    
    140,497Pension obligation
    
    
    139,693
    
    
    
    180,959Claims liability
    
    
    60,342
    
    
    
    57,697Long-term debt, net
    
    
    201,376
    
    
    
    202,349Minority interests
    
    
    3,264
    
    
    
    3,625Other liabilities
    
    
    23,352
    
    
    
    24,814Total Liabilities
    
    
    572,703
    
    
    
    609,941Stockholders DeficitCommon stock
(1,000 shares authorized; par value $.01; 587 shares issued)
    
    
    
    
    
    
    Capital in excess of par value
    
    
    420,391
    
    
    
    370,391Retained deficit
    
    
    (244,883
    )
    
    
    (219,485
    )Accumulated other comprehensive loss, net of tax benefit of $28,880
    
    
    (222,800
    )
    
    
    (222,648
    )Total Stockholders Deficit
    
    
    (47,292
    )
    
    
    (71,742
    )Total Liabilities and Stockholders Deficit
    
    $
    525,411
    
    
    $
    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 Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(Unaudited)
    
    (Unaudited)Operating RevenuesPassenger services
    
    $
    209,087
    
    
    $
    205,206
    
    
    $
    390,952
    
    
    $
    387,496Package express
    
    
    9,869
    
    
    
    9,692
    
    
    
    19,559
    
    
    
    19,011Food services
    
    
    9,526
    
    
    
    10,046
    
    
    
    18,345
    
    
    
    19,616Other operating revenues
    
    
    16,863
    
    
    
    16,874
    
    
    
    36,587
    
    
    
    33,426Total Operating Revenues
    
    
    245,345
    
    
    
    241,818
    
    
    
    465,443
    
    
    
    459,549Operating ExpensesMaintenance
    
    
    26,590
    
    
    
    25,268
    
    
    
    51,560
    
    
    
    50,489Transportation
    
    
    58,729
    
    
    
    62,845
    
    
    
    115,525
    
    
    
    124,111Agents commissions and station costs
    
    
    42,377
    
    
    
    44,309
    
    
    
    83,207
    
    
    
    87,316Marketing, advertising and traffic
    
    
    7,930
    
    
    
    6,582
    
    
    
    12,490
    
    
    
    12,582Insurance and safety
    
    
    18,421
    
    
    
    18,903
    
    
    
    38,199
    
    
    
    36,466General and administrative
    
    
    36,032
    
    
    
    31,486
    
    
    
    69,665
    
    
    
    63,073Depreciation and amortization
    
    
    14,349
    
    
    
    14,062
    
    
    
    28,387
    
    
    
    26,845Operating taxes and licenses
    
    
    13,579
    
    
    
    15,047
    
    
    
    28,067
    
    
    
    29,680Operating rents
    
    
    18,485
    
    
    
    19,921
    
    
    
    38,177
    
    
    
    41,023Cost of goods sold  food services
    
    
    6,177
    
    
    
    6,452
    
    
    
    11,950
    
    
    
    12,781Other operating expenses
    
    
    278
    
    
    
    851
    
    
    
    1,071
    
    
    
    1,522Total Operating Expenses
    
    
    242,947
    
    
    
    245,726
    
    
    
    478,298
    
    
    
    485,888Operating Income(Loss)
    
    
    2,398
    
    
    
    (3,908
    )
    
    
    (12,855
    )
    
    
    (26,339
    )Interest Expense
    
    
    6,136
    
    
    
    6,244
    
    
    
    12,276
    
    
    
    12,139Loss Before Income Taxes and Minority Interests
    
    
    (3,738
    )
    
    
    (10,152
    )
    
    
    (25,131
    )
    
    
    (38,478
    )Income Tax Provision
    
    
    614
    
    
    
    934
    
    
    
    629
    
    
    
    969Minority Interests
    
    
    (65
    )
    
    
    (167
    )
    
    
    (362
    )
    
    
    (473
    )Net Loss
    
    $
    (4,287
    )
    
    $
    (10,919
    )
    
    $
    (25,398
    )
    
    $
    (38,974
    )
 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)
 Six Months EndedJune 30,2004
    
    2003(Unaudited)Cash Flows From Operating ActivitiesNet loss
    
    $
    (25,398
    )
    
    $
    (38,974
    )Non-cash expenses and gains
included in net loss
    
    
    37,517
    
    
    
    29,720Net change in certain operating
assets and liabilities
    
    
    (3,794
    )
    
    
    (5,132
    )Net cash provided by (used
for) operating activities
    
    
    8,325
    
    
    
    (14,386
    )Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (17,403
    )
    
    
    (12,910
    )Proceeds from assets sold
    
    
    760
    
    
    
    5,152Other investing activities
    
    
    2,728
    
    
    
    2,657Net cash used for investing
activities
    
    
    (13,915
    )
    
    
    (5,101
    )Cash Flows From Financing ActivitiesPayments on debt and capital
lease obligations
    
    
    (1,632
    )
    
    
    (2,113
    )Net change in revolving credit
facility
    
    
    
    
    
    
    25,369Other financing transactions
    
    
    (41
    )
    
    
    (12
    )Net cash provided by (used
for) financing activities
    
    
    (1,673
    )
    
    
    23,244Net Increase (Decrease) in Cash and
Cash Equivalents
    
    
    (7,263
    )
    
    
    3,757Cash and Cash Equivalents,
Beginning of Period
    
    
    18,805
    
    
    
    5,946Cash and Cash Equivalents, End of
Period
    
    $
    11,542
    
    
    $
    9,703
 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
 June 30, 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 and six months ended June 30, 2004
and 2003 and cash flows for the six months ended June 30, 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 Act. Neither Greyhound nor any of its
subsidiaries were included in, or made party to, these reorganization filings
and proceedings. In June 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 in other comprehensive
income. For the three months ended June 30, 2004 and 2003, comprehensive loss
was $4.5 million and $12.7 million, respectively. Additionally, for the six
months ended June 30, 2004 and 2003, comprehensive loss was $25.6 million and
$40.3 million, respectively. The difference between net loss and other
comprehensive loss in 2004 and 2003 is due to unrealized gains and losses on
available-for-sale securities. 8




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GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(Unaudited) 3. INDEBTEDNESS Revolving Credit Facility On July 6, 2004, the Company amended its revolving credit facility (Revolving
Credit Facility) to extend the maturity date two years to October 24, 2006,
reset certain financial covenants, modify rates of interest on borrowings and
provide for a prepayment premium should the Company terminate the facility
before October 24, 2006. Additionally, the amendment allows the Company to
elect to extend the maturity date an additional year, to October 24, 2007,
provided that the Company meets certain terms and conditions. Under the amended Revolving Credit Facility, borrowings after the quarterly
period ending September 30, 2004, are available at a rate, determined by
reference to a leverage ratio calculated quarterly, equal to Wells Fargo Banks
prime rate plus 0.375% to 2.25% or LIBOR plus 2.375% to 4.25%. Prior to the
quarterly period ending September 30, 2004, borrowings remain available at a
rate equal to Wells Fargo Banks prime rate plus 1.5% or LIBOR plus 3.5%.
Letter of credit fees are 3.5% per annum. A 1% prepayment premium is payable
should the Company terminate the facility before October 25, 2005, if
terminated between October 25, 2005 and October 23, 2006 the premium is 0.5%,
and if after October 23, 2006 there is no premium. At June 30, 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 June 30, 2004, aggregated to $108.2 million) subject to a
maximum of $125 million, inclusive of a $70 million letter of credit
sub-facility. As of June 30, 2004, the Company had no outstanding borrowings
under its Revolving Credit Facility, issued letters of credit of $62.2 million
and availability of $46.0 million. Additionally, the amendment requires the Company to maintain a minimum cash
flow to interest expense ratio, maximum indebtedness to cash flow ratio and
minimum cash flow at levels that are the same as, or more restrictive than,
previous levels. The new covenant levels were set at 15% to 20% less than the
levels projected in financial forecasts delivered to the agent bank by the
Company. As of June 30, 2004, the Company was in compliance with all such
covenants. As a result of the extension of the maturity date and recent
business improvements that have allowed the Company to meet its financial
covenants, management believes that there is no longer a going concern risk in
the near term. However, substantial needs for capital expenditures and debt
service requirements in the future mandate that the Company continue to
significantly improve operations and financial results. Additionally,
unforeseen events or changes in assumptions may occur and result in material
differences between the Companys future financial results or forecasts and the
current financial forecast, and those differences could result in management
concluding in the future that the Company may not be able to continue as a
going concern based upon the new information. 4. LEASE COMMITMENTS The Company generally uses lease financing as the principal source of bus
financing in order to achieve the lowest net cost of bus financing. These
leases typically have terms of seven years and contain specific residual values
and residual value guarantees. Most of the leases qualify as operating leases
for accounting purposes and, as such, only the monthly lease payment is
recorded in the consolidated statements of operations and the liability and
value of the underlying buses are not recorded on the consolidated statements
of financial position. In June 2004, the Company entered into two seven-year operating leases covering
20 buses. The leases have an aggregate residual value at lease expiration of
$2.9 million of which the Company has guaranteed $1.7 million. As required
under Financial Accounting Standards Board Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, the Company recorded a liability in an
insignificant amount for the estimated fair value of the residual value
guarantee imbedded in these leases. 9




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GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(Unaudited) 5. 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 and six months ended June
30, 2004 and 2003 (in thousands): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,Components of Net Periodic Pension Cost
    
    2004
    
    2003
    
    2004
    
    2003Service Cost
    
    $
    388
    
    
    $
    376
    
    
    $
    765
    
    
    $
    751Interest Cost
    
    
    10,826
    
    
    
    11,720
    
    
    
    21,662
    
    
    
    23,435Expected Return on Assets
    
    
    (10,046
    )
    
    
    (10,020
    )
    
    
    (20,052
    )
    
    
    (20,047
    )Amortization of Actuarial Losses
    
    
    3,460
    
    
    
    471
    
    
    
    6,921
    
    
    
    943Net Periodic Pension Cost
    
    $
    4,628
    
    
    $
    2,547
    
    
    $
    9,296
    
    
    $
    5,082
 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.
Additionally, on June 30, 2004, the Laidlaw Group contributed $50 million in
cash to the pension plans in accordance with the terms of the PBGC Agreement.
This contribution and the transfers will be in addition to the minimum funding
obligations to the pension plans, if any, required under current regulations. The $50 million cash contribution on June 30, 2004 has been designated by
Laidlaw as a capital contribution to the Company and, accordingly, the Company
recorded a $50 million increase in additional paid in capital and a $50 million
reduction in pension obligations. At June 30, 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 August 10, 2004, the shares
had an aggregate market value of $54.5 million. In addition to the cash contributions to the pension plans pursuant to the PBGC
Agreement described above, in 2004, the Company expects to contribute $3.0
million to all plans other than the ATU Plan, for which there is no funding
requirement in 2004. During the six months ended June 30, 2004, the Company
contributed $0.6 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 June
30, 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. 10




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GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(Unaudited) 6. SALES OF BUSINESSES During the quarter ended June 30, 2004, the Company sold the operations and
selected assets of Rockford Coach Lines, L.L.C. (Rockford) for cash of $1.5
million, and recorded a corresponding charge of $0.8 million. Additionally, the
Company sold its ownership interest in a courier company in Houston, Texas for
cash of $0.1 million resulting in an insignificant gain and a reduction in
goodwill of approximately $0.1 million. 7. 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 discussions 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. Insurance Coverage The U.S. Department of Transportation (DOT) has authorized the Company 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 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 trust fund, initially set at
$15 million, 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. The new ruling 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 made additional contributions to the self-insurance trust fund in the
amount of $13.6 million and during the third quarter of 2004, the Company will
be required to make an additional contribution to the self-insurance trust fund
of $2.7 million. The Companys self-insurance authority will continue to be
subject to periodic review by the DOT. 11




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##### Table of Contents



GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2004
(Unaudited) 7. CONTINGENCIES (Continued) 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 June 30, 2004,
the Company maintained $40.0 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. Union Contracts The International Association of Machinists and Aerospace Workers (the IAM)
represents approximately 400 of the Companys employees. The largest
collective bargaining agreements, representing approximately 300 mechanics at
18 maintenance facilities located throughout the United States, expire on
October 1, 2004. The Company and the IAM have begun negotiations on a new
bargaining agreement. If the members of the IAM were to engage in a strike or
other work stoppage the Company could experience a significant disruption of
operations that could have a material adverse effect on the business, financial
condition and results of operations of the Company. 8. RELATED PARTY TRANSACTIONS Included in accounts receivable on the Companys Interim Consolidated
Statements of Financial Position at June 30, 2004 and December 31, 2003, are
amounts due from Laidlaw or one of Laidlaws subsidiaries of $5.8 million and
$3.6 million, respectively. Included in accounts payable at June 30, 2004 and
December 31, 2003, are amounts due to Laidlaw or one of Laidlaws subsidiaries
of $1.1 million and $1.1 million, respectively. 12




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##### Table of Contents



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. At
June 30, 2004, the Companys operations included a nationwide network of
terminal and maintenance facilities utilizing a fleet of approximately 2,800
buses. At June 30, 2004, the Company used a network of approximately 1,700
sales locations, offering 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 that affected the
Companys consolidated results of operations for the three and six months ended
June 30, 2004 and the Companys consolidated financial position at June 30,
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 Second Quarter The business continued to improve during the second quarter because of the
Companys continued actions to improve operating results and to a lesser extent
because of lower revenue and passenger miles in the prior year due to the war
in Iraq and increased terror alert levels over the Easter and Memorial Day
holidays. Additionally, the Company amended its Revolving Credit Facility,
thus mitigating the going concern risk, signed a new collective bargaining
agreement with the Amalgamated Transit Union, Local 1700 and continued its
focus on cost reduction opportunities. For the quarter ended June 30, 2004,
revenue improved by $3.5 million or 1.5%, expenses declined by $2.8 million or
1.1% and, accordingly, the Company generated an operating profit of $2.4
million, compared to an operating loss of $3.9 million as of June 30, 2003, an
improvement of $6.3 million. For the six months ended June 30, 2004, revenue
improved by $5.9 million or 1.3%, expenses declined by $7.6 million or 1.6% and
the Companys operating loss declined from $26.3 million as of June 30, 2003,
to $12.9 million as of June 30, 2004, an improvement of $13.4 million. During the second quarter of 2004, the Company continued to take actions to
improve revenue per bus mile by increasing ticket prices, shifting the mix of
passengers toward higher yielding short-and medium-haul travel and reducing bus
miles. In April, the Company implemented further across the board price
increases and although this action caused a decline in passengers and passenger
miles, the declines were principally in the low yielding long-and very
long-haul trip distances, and the price increases more than offset the effects
of the decline in passengers and passenger miles. Concurrently, the Company
continued its efforts to aggressively reduce bus miles to respond to the
reduction in passengers and passenger miles. As a result of the reduction in
bus miles and the improvement in passenger revenue, revenue per mile improved
significantly for the three and six months ended June 30, 2004. Since approximately 76% of the Companys wages are variable with bus and
passenger miles, the reduction in bus miles resulted in a significant decrease
in expenses. In addition, costs declined as a result of the 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. However, significant increases in fuel, pension
and insurance costs offset a substantial portion of the savings and remain
challenging issues going forward. 13




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##### Table of Contents



On July 6, 2004, the Company amended its revolving credit facility (the
Revolving Credit Facility) to extend the maturity date two years to October
24, 2006, reset certain financial covenants, modify rates of interest on
borrowings and provide for a prepayment premium should the Company terminate
the facility before October 24, 2006. Additionally, the amendment allows the
Company to elect to extend the maturity date an additional year, to October 24,
2007, provided that the Company meets certain terms and conditions. As of June
30, 2004, the Company was in compliance with all of its debt covenants and the
Companys current forecasts indicate that it will meet its debt covenants
through the remainder of the agreement. As a result of the extension of the
maturity date and recent business improvements that have allowed the Company to
meet its financial covenants, management believes that there is no longer a
going concern risk in the near term. However, substantial needs for capital
expenditures and debt service requirements in the future mandate that the
Company continue to significantly improve operations and financial results.
Additionally, unforeseen events or changes in assumptions may occur and result
in material differences between the Companys future financial results or
forecasts and the current financial forecast, and those differences could
result in management concluding in the future that the Company may not be able
to continue as a going concern based upon the new information. Additionally, in July, the Company announced the first phase of its long-range
strategy for the passenger business. In general, the strategy is to more
efficiently serve areas where customer demand is greatest through a smaller,
simpler network of routes that is short-and medium-haul focused, but that can
still provide affordable service to long-haul passengers. The initial
implementation will be in the Northern region of the United States, roughly
between Chicago and Seattle, and will include the elimination of approximately
10 million miles, 260 sales locations and modifications of other routes to
provide a better service pattern for customers. In addition, approximately 150
jobs will be eliminated. The Company will implement the strategy in phases
beginning on August 18, 2004, and continuing over the next two to three years. In summary, during the quarter management continued making improvements to
stabilize the Company in the short-term and also began planning for
implementation of its long-term strategy. The Company will continue this dual
focus as substantial needs for capital expenditures and debt service
requirements mandate that the Company continue to significantly improve
operations and financial results. 14




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##### Table of Contents



Results of Operations The following table sets forth the Companys results of operations as a
percentage of total operating revenue for the three and six months ended June
30, 2004 and 2003: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Operating RevenuesPassenger
services
    
    
    85.2
    %
    
    
    84.9
    %
    
    
    84.0
    %
    
    
    84.3
    %Package Express
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.2
    
    
    
    4.1Food services
    
    
    3.9
    
    
    
    4.1
    
    
    
    3.9
    
    
    
    4.3Other operating
revenues
    
    
    6.9
    
    
    
    7.0
    
    
    
    7.9
    
    
    
    7.3Total
Operating
Revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating ExpensesMaintenance
    
    
    10.8
    
    
    
    10.5
    
    
    
    11.1
    
    
    
    11.0Transportation
    
    
    24.0
    
    
    
    26.0
    
    
    
    24.8
    
    
    
    27.0Agents
commissions and
station costs
    
    
    17.3
    
    
    
    18.3
    
    
    
    17.9
    
    
    
    19.0Marketing,
advertising and
traffic
    
    
    3.2
    
    
    
    2.7
    
    
    
    2.7
    
    
    
    2.7Insurance and
safety
    
    
    7.5
    
    
    
    7.8
    
    
    
    8.2
    
    
    
    7.9General and
administrative
    
    
    14.7
    
    
    
    13.0
    
    
    
    15.0
    
    
    
    13.7Depreciation and
amortization
    
    
    5.9
    
    
    
    5.8
    
    
    
    6.1
    
    
    
    5.9Operating taxes
and licenses
    
    
    5.5
    
    
    
    6.2
    
    
    
    6.0
    
    
    
    6.5Operating rents
    
    
    7.5
    
    
    
    8.2
    
    
    
    8.2
    
    
    
    8.9Cost of goods
sold  food
services
    
    
    2.5
    
    
    
    2.7
    
    
    
    2.6
    
    
    
    2.8Other operating
expenses
    
    
    0.1
    
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.3Total
Operating
Expenses
    
    
    99.0
    
    
    
    101.6
    
    
    
    102.8
    
    
    
    105.7Operating Income
(Loss)
    
    
    1.0
    
    
    
    (1.6
    )
    
    
    (2.8
    )
    
    
    (5.7
    )Interest Expense
    
    
    2.5
    
    
    
    2.6
    
    
    
    2.6
    
    
    
    2.7Income Tax
Provision
    
    
    0.2
    
    
    
    0.4
    
    
    
    0.1
    
    
    
    0.2Minority Interests
    
    
    0.0
    
    
    
    (0.1
    )
    
    
    0.0
    
    
    
    (0.1
    )Net Loss
    
    
    (1.7
    )%
    
    
    (4.5
    )%
    
    
    (5.5
    )%
    
    
    (8.5
    )%
 15




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##### Table of Contents



The following table sets forth certain operating data for the Company for the
three and six months ended June 30, 2004 and 2003. Certain statistics have
been adjusted and restated from those previously published to provide
consistent comparisons. Three Months Ended June 30,
    
    Six Months Ended June 30,2004
    
    2003
    
    % Change
    
    2004
    
    2003
    
    % ChangeRegular Service Miles (000s)
    
    
    71,038
    
    
    
    77,561
    
    
    
    (8.4
    %)
    
    
    138,400
    
    
    
    149,980
    
    
    
    (7.7
    %)Total Bus Miles (000s)
    
    
    73,568
    
    
    
    80,247
    
    
    
    (8.3
    %)
    
    
    143,534
    
    
    
    155,131
    
    
    
    (7.5
    %)Passenger Miles (000s)
    
    
    1,892,529
    
    
    
    2,080,075
    
    
    
    (9.0
    %)
    
    
    3,551,507
    
    
    
    3,877,708
    
    
    
    (8.4
    %)Passengers Carried (000s)
    
    
    5,366
    
    
    
    5,518
    
    
    
    (2.8
    %)
    
    
    10,220
    
    
    
    10,485
    
    
    
    (2.5
    %)Average Trip Length
(passenger miles ÷ passengers
carried)
    
    
    353
    
    
    
    377
    
    
    
    (6.4
    %)
    
    
    348
    
    
    
    370
    
    
    
    (6.0
    %)Load (avg. number of
passengers per regular
service mile)
    
    
    26.6
    
    
    
    26.8
    
    
    
    (0.8
    %)
    
    
    25.7
    
    
    
    25.9
    
    
    
    (0.8
    %)Load Factor (% of available
seats
filled)
    
    
    52.4
    %
    
    
    53.0
    %
    
    
    (1.1
    %)
    
    
    50.5
    %
    
    
    51.1
    %
    
    
    (1.2
    %)Yield (regular route revenue
÷ passenger
miles)
    
    $
    0.1105
    
    
    $
    0.0987
    
    
    
    12.0
    %
    
    $
    0.1101
    
    
    $
    0.0999
    
    
    
    10.2
    %Average Ticket
Price
    
    $
    38.97
    
    
    $
    37.19
    
    
    
    4.8
    %
    
    $
    38.25
    
    
    $
    36.96
    
    
    
    3.5
    %Total Revenue Per Total Bus
Mile
    
    $
    3.335
    
    
    $
    3.013
    
    
    
    10.7
    %
    
    $
    3.243
    
    
    $
    2.962
    
    
    
    9.5
    %Cost Per Total Bus Mile:Maintenance
    
    $
    0.361
    
    
    $
    0.315
    
    
    
    14.6
    %
    
    $
    0.359
    
    
    $
    0.325
    
    
    
    10.5
    %Transportation
    
    $
    0.798
    
    
    $
    0.783
    
    
    
    1.9
    %
    
    $
    0.805
    
    
    $
    0.800
    
    
    
    0.6
    %Insurance and
Safety
    
    $
    0.250
    
    
    $
    0.236
    
    
    
    5.9
    %
    
    $
    0.266
    
    
    $
    0.235
    
    
    
    13.2
    %
 Three and Six Months Ended June 30, 2004 Compared to the Same Periods in 2003 Operating Revenues.Total operating revenues increased $3.5 million, up 1.5%,
and $5.9 million, up 1.3% for the three and six months ended June 30, 2004,
compared to the same periods in 2003. Passenger services revenues increased $3.9 million, up 1.9%, and $3.5 million,
up 0.9%, for the three and six months ended June 30, 2004, compared to the same
periods in 2003. Overall, the increase in yield, driven by both price
increases as well as a shift in the mix of customers toward higher yielding
short-and medium-haul travel, was only partially offset by a decline in
passenger miles, principally in the long-and very long-haul markets, trips
greater than 1,000 miles. The increase in ticket prices was designed to dampen
demand for the low yielding long-and very long-haul markets and includes price
increases initiated in the third quarter of 2003 as well as an across-the-board
price increase in April 2004. The pricing actions resulted in the passenger
miles decline however, the decline was mitigated somewhat by lower passenger
miles in the prior year as a result of the war in Iraq and higher terror alert
levels. Consistent with the passenger miles decline, bus miles also declined.
The revenue increase coupled with the decline in bus miles produced a 10.7% and
a 9.5% improvement in revenue per mile for the three and six months ending June
30, 2004, respectively. Package express revenues increased $0.2 million, up 1.8%, and $0.5 million, up
2.9%, for the three and six months ended June 30, 2004, compared to the same
periods in 2003. The increase is principally due to price increases on
oversize packages and customer baggage, partially offset by continued
reductions 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 and first half of
2004. Food services revenues decreased $0.5 million, down 5.2%, and $1.3 million,
down 6.5%, for the three and six months ended June 30, 2004, compared to the
same periods in 2003 primarily due to the decrease in passenger traffic,
particularly in the long-haul markets. 16




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##### Table of Contents



Other operating revenues consisting primarily of revenue from travel services
and in-terminal sales and services, were essentially flat for the three months
ended June 30, 2004 and increased $3.2 million, up 9.5%, for the six months
ended June 30, 2004, compared to the same periods in 2003. For the three
months ended June 30, 2004, increased revenue from increased charter services
and meet and greet and transportation services provided to cruise lines was
largely offset by declines in in-terminal sales and the expiration of transit
contracts. For the six months ending June 30, 2004, increases in charter and
cruise line services during the peak winter months more than offset declines in
in-terminal sales and the expiration of transit contracts. Operating Expenses.Total operating expenses decreased $2.8 million, down
1.1%, and $7.6 million, down 1.6% for the three and six months ended June 30,
2004, compared to the same periods in 2003. Maintenance costs increased $1.3 million, up 5.2%, and $1.1 million, up 2.1%
for the three and six months ended June 30, 2004, compared to the same periods
in 2003. On a per mile basis, maintenance costs increased 14.6% and 10.5%, for
the three and six months ended June 30, 2004, 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
salaries, decreased $4.1 million, down 6.5%, and $8.6 million, down 6.9%, for
the three and six months ended June 30, 2004, compared to the same periods 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 three and six months ended June 30, 2004 the
average cost per gallon of fuel was $1.17 and $1.10 per gallon, compared to
$0.88 and $0.93 per gallon during the same periods in 2003, resulting in
increased fuel costs of $3.4 million and $3.9 million, respectively.
Additionally, driver hiring and training costs were $2.8 million lower during
the six months ended June 30, 2004 compared to 2003 due to decreased hiring of
new drivers. Agents commissions and station costs decreased $1.9 million, down 4.4%, and
$4.1 million, down 4.7%, for the three and six months ended June 30, 2004,
compared to the same periods in 2003. The decrease is primarily due to lower
terminal wages, call center wages and communication costs as a result of
decreased ticket sales, lower passenger volumes and lower rates on long
distance communication as a result of a new contract. Marketing, advertising and traffic expenses increased $1.3 million, up 20.5%
for the three months ended June 30, 2004, and decreased $0.1 million, down
0.7%, for the six months ended June 30, 2004, compared to the same periods in
2003. Management deferred spending on advertising until the second quarter of
2004 in preparation for the peak summer travel period. Overall advertising
costs for the six months are consistent with the prior year. Insurance and safety costs decreased $0.5 million, down 2.5% for the three
months ended June 30, 2004 and increased $1.7 million, up 4.8% for the six
months ended June 30, 2004, compared to the same periods in 2003. On a cost
per mile basis, insurance and safety costs increased 5.9% and 13.2% for the
three and six months ended June 30, 2004, principally due to an increase in the
cost of excess insurance and medical and wage inflation, partially offset by
the reduction in miles operated. In addition, for the six months ended June
30, 2004, insurance and safety costs increased as a result of increased
reserves on several large claims. General and administrative expenses increased $4.5 million, up 14.4%, and $6.6
million, up 10.5%, for the three and six months ended June 30, 2004, compared
to the same periods in 2003. The increase is attributable to higher incentive
plan and pension costs ($11.6 million), partially offset by decreased wages and
benefits as a result of the 2003 reduction in force and decreases in other
costs as a result of lower business volumes. Depreciation and amortization expenses increased $0.3 million, up 2.0%, and
$1.5 million, up 5.7%, for the three and six months ended June 30, 2004,
compared to the same periods in 2003. The increase is primarily due to
inflationary increases in the cost of recent capital expenditures that, 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. 17




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##### Table of Contents



Operating taxes and licenses expense decreased $1.5 million, down 9.8%, and
$1.6 million, down 5.4%, for the three and six months ended June 30, 2004,
compared to the same periods in 2003, principally due to decreased fuel taxes
and payroll taxes as a result of a decline in miles operated and reductions in
the workforce. Operating rents decreased $1.4 million, down 7.2%, and $2.8 million, down 6.9%,
for the three and six months ended June 30, 2004, compared to the same periods
in 2003 principally due to expirations of bus operating leases that occurred in
the first half of 2004. Food services cost of goods sold decreased $0.3 million, down 4.3%, and $0.8
million, down 6.5%, for the three and six months ended June 30, 2004, compared
to the same periods in 2003 due primarily to the decrease in food services
revenues. Other operating expenses decreased $0.6 million, down 67.3%, and $0.5 million,
down 29.6%, for the three and six months ended June 30, 2004, compared to the
same periods in 2003. The decrease is principally because net losses on asset
sales during the three and six months of 2004 were less than the net of
severance paid and gains on asset sales during the prior year. Interest expense decreased $0.1 million, down 1.7% for the three months ended
June 30, 2004 and increased $0.1 million, up 1.1%, for the six months ended
June 30, 2004, compared to the same periods in 2003. Although interest expense
is consistent year over year, reductions in interest expense that would have
occurred in 2004 due to lower borrowings, principally under the revolving
credit facility, are offset by increases in costs for letters of credit
outstanding. Income tax expense decreased $0.3 million, down 34.3%, and $0.3 million down
35.1% for the three and six months ended June 30, 2004, the tax expense
represents state tax expense related to its subsidiaries that operate in
separate return states. Minority interests for the three and six months ended June 30, 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. 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 June 30, 2004, the Company had $204.4 million of
outstanding debt, implicit debt equivalent to $238.5 million for off-balance
sheet bus operating leases and $62.2 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. 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 six months ended June 30,
2004 was $8.3 million, an increase of $22.7 million from the $14.4 million used
during the same period of 2003. The increase is due mainly to a decrease in
the operating loss and larger non-cash pension and depreciation expenses during
the six months ended June 30, 2004. Net cash used by investing activities for
the six months ended June 30, 2004 was $13.9 million compared to $5.1 million
used for investing activities during the same period of 2003. During the first
half of 2004 the Company had higher capital expenditures than the prior year,
principally due to purchase of buses at lease expiration, and decreased
proceeds from the sale of assets. Net cash used by financing activities for
the six months ended June 30, 2004 was $1.7 million, principally due to
repayment of debt, versus $23.2 million provided by financing activities during
the same period of 2003, principally from borrowings under the Revolving Credit
Facility. 18




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##### Table of Contents



On July 6, 2004, the Company amended its Revolving Credit Facility to extend
the maturity date two years to October 24, 2006, reset certain financial
covenants, modify rates of interest on borrowings and provide for a prepayment
premium should the Company terminate the facility before October 24, 2006.
Additionally, the amendment allows the Company to elect to extend the maturity
date an additional year, to October 24, 2007, provided that the Company meets
certain terms and conditions. Under the amended Revolving Credit Facility, borrowings after the quarterly
period ending September 30, 2004, are available at a rate, determined by
reference to a leverage ratio calculated quarterly, equal to Wells Fargo Banks
prime rate plus 0.375% to 2.25% or LIBOR plus 2.375% to 4.25%. Prior to the
quarterly period ending September 30, 2004, borrowings remain available at a
rate equal to Wells Fargo Banks prime rate plus 1.5% or LIBOR plus 3.5%.
Letter of credit fees are 3.5% per annum. A 1% prepayment premium is payable
should the Company terminate the facility before October 25, 2005, if
terminated between October 25, 2005 and October 23, 2006 the premium is 0.5%,
and if after October 23, 2006 there is no premium. At June 30, 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 June 30, 2004, aggregated to $108.2 million) subject to a
maximum of $125 million, inclusive of a $70 million letter of credit
sub-facility. As of June 30, 2004, the Company had no outstanding borrowings
under its Revolving Credit Facility, issued letters of credit of $62.2 million
and availability of $46.0 million. Additionally, the amendment requires the Company to maintain a minimum cash
flow to interest expense ratio, maximum indebtedness to cash flow ratio and
minimum cash flow at levels that are the same as, or more restrictive than,
previous levels. The new covenant levels were set at 15% to 20% less than the
levels projected in financial forecasts delivered to the agent bank by the
Company. As of June 30, 2004, the Company was in compliance with all such
covenants. As a result of the extension of the maturity date and recent
business improvements that have allowed the Company to meet its financial
covenants, management believes that there is no longer a going concern risk in
the near term. However, substantial needs for capital expenditures and debt
service requirements in the future mandate that the Company continue to
significantly improve operations and financial results. Additionally,
unforeseen events or changes in assumptions may occur and result in material
differences between the Companys future financial results or forecasts and the
current financial forecast, and those differences could result in management
concluding in the future that the Company may not be able to continue as a
going concern based upon the new information. 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.
Additionally, on June 30, 2004, the Laidlaw Group contributed $50 million in
cash to the pension plans in accordance with the terms of the PBGC Agreement.
This contribution and the transfers will be in addition to the minimum funding
obligations to the pension plans, if any, required under current regulations. The $50 million cash contribution on June 30, 2004 has been designated by
Laidlaw as a capital contribution to the Company and, accordingly, the Company
recorded a $50 million increase in additional paid in capital and a $50 million
reduction in pension obligations. At June 30, 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 August 10, 2004, the shares
had an aggregate market value of $54.5 million. 19




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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 June 30, 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 U.S. Department of Transportation (DOT) has authorized the Company 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 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 trust fund, initially set at
$15 million, 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. The new ruling 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 made additional contributions to the self-insurance trust fund in the
amount of $13.6 million and during the third quarter of 2004, the Company will
be required to make an additional contribution to the self-insurance trust fund
of $2.7 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 June 30, 2004,
the Company maintained $40.0 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. Union Contracts The International Association of Machinists and Aerospace Workers (the IAM)
represents approximately 400 of the Companys employees. The largest
collective bargaining agreements, representing approximately 300 mechanics at
18 maintenance facilities located throughout the United States, expire on
October 1, 2004. The Company and the IAM have begun negotiations on a new
bargaining agreement. If the members of the IAM were to engage in a strike or
other work stoppage the Company could experience a significant disruption of
operations that could have a material adverse effect on the business, financial
condition and results of operations of the Company. 20




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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;
changing credit markets; the ability to renew labor agreements without
incurring a work stoppage or slowdown; disruptions to the Companys operations
as a result of forced relocations of terminals or garages or loss of use of
terminals or garages due to condemnation or lease terminations; the Companys
ability to achieve its forecasted results and, therefore, remain in compliance
with the financial covenants under its Revolving Credit Facility; 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. 
 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. 21




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PART II. OTHER INFORMATION 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits  31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    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 July 8, 2004, the Company filed a current report on Form 8-K with the
Securities and Exchange Commission submitting as an exhibit Amendment
Number One to Amended and Restated Loan and Security Agreement among
Greyhound Lines, Inc., as Borrower, the Financial Institutions named as
lenders, and Wells Fargo Foothill, Inc. as Agent dated as of July 6,
2004. No financial statements were included. 22




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Date: August 16, 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 23