##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 Form 10-Q þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)   
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 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
(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 þ
    
    NO o
 Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). YES o
    
    NO þ
 As of November 8, 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.




---



##### 



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.
    
    
    
    
    
    333-27267-08
    
    75-2548617
    
    Delaware350 N. St. Paul Street, 10th FloorDallas, Texas 75201(214) 849-8616Texas, New Mexico & Oklahoma Coaches, Inc.
    
    
    
    
    
    333-27267-10
    
    75-0605295
    
    Delaware1313 13th StreetLubbock, Texas 79408(806) 763-5389T.N.M. & O. Tours, Inc.
    
    
    
    
    
    333-27267-11
    
    75-1188694
    
    Texas(Same as Texas, New Mexico & Oklahoma
Coaches, Inc.)Vermont Transit Co., Inc.
    
    
    
    
    
    333-27267-12
    
    03-0164980
    
    Vermont345 Pine StreetBurlington, Vermont 05401(802) 862-9671
 As of September 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




---



##### 



GREYHOUND LINES, INC. AND SUBSIDIARIES 
 Page No.PART I.
    
    FINANCIAL INFORMATIONItem 1. Financial Statements:Interim Consolidated Statements of Financial Position as of
September 30, 2004 (Unaudited) and December 31, 2003
    
    
    5Interim Consolidated Statements of Operations for the Three and
Nine months Ended September 30, 2004 and 2003 (Unaudited)
    
    
    6Condensed Interim Consolidated Statements of Cash Flows for the
Nine months Ended September 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
    
    
    14Item 4. Controls and Procedures
    
    
    21PART II.
    
    OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 6. Exhibits
    
    
    22SIGNATURES
    
    
    23
 3




---



##### 



PART I.  FINANCIAL INFORMATION 
 ITEM 1.  FINANCIAL STATEMENTS 4




---



##### 



GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands, except share amounts) September 30,
    
    
    December 31,2004
    
    
    2003(Unaudited)Current AssetsCash and cash equivalents
    
    $
    33,489
    
    
    $
    18,805Accounts receivable, less allowance for doubtful
accounts of $1,104 and $1,364
    
    
    38,525
    
    
    
    39,170Inventories, less allowance for shrinkage of $344 and $309
    
    
    8,323
    
    
    
    9,428Prepaid expenses
    
    
    6,689
    
    
    
    10,687Other current assets
    
    
    3,674
    
    
    
    2,591Total Current Assets
    
    
    90,700
    
    
    
    80,681Property, plant and equipment, net of accumulated depreciation of $293,479
and $273,732
    
    
    355,878
    
    
    
    376,021Investments in unconsolidated affiliates
    
    
    13,906
    
    
    
    15,624Insurance and security deposits
    
    
    52,333
    
    
    
    33,394Goodwill
    
    
    2,939
    
    
    
    3,040Intangible assets, net of accumulated amortization of $42,569 and $39,703
    
    
    19,713
    
    
    
    29,439Total Assets
    
    $
    535,469
    
    
    $
    538,199Current LiabilitiesAccounts payable
    
    $
    20,324
    
    
    $
    25,379Accrued liabilities
    
    
    70,225
    
    
    
    59,947Rents payable
    
    
    6,752
    
    
    
    12,852Unredeemed tickets
    
    
    7,637
    
    
    
    12,396Current portion of claims liability
    
    
    38,524
    
    
    
    26,579Current maturities of long-term debt
    
    
    2,808
    
    
    
    3,344Total Current Liabilities
    
    
    146,270
    
    
    
    140,497Pension obligation
    
    
    141,408
    
    
    
    180,959Claims liability
    
    
    65,414
    
    
    
    57,697Long-term debt, net
    
    
    200,927
    
    
    
    202,349Minority interests
    
    
    3,390
    
    
    
    3,625Other liabilities
    
    
    22,463
    
    
    
    24,814Total Liabilities
    
    
    579,872
    
    
    
    609,941Commitments and Contingencies (Notes 1, 3, 4 and 7)Stockholders DeficitCommon stock (1,000 shares authorized; par value $.01; 587 shares issued)
    
    
    
    
    
    
    Capital in excess of par value
    
    
    420,391
    
    
    
    370,391Retained deficit
    
    
    (242,278
    )
    
    
    (219,485
    )Accumulated other comprehensive loss, net of tax benefit of $28,880
    
    
    (222,516
    )
    
    
    (222,648
    )Total Stockholders Deficit
    
    
    (44,403
    )
    
    
    (71,742
    )Total Liabilities and Stockholders Deficit
    
    $
    535,469
    
    
    $
    538,199
 The accompanying notes are an integral part of these statements. 5




---



##### 



GREYHOUND LINES, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands) Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003(Unaudited)
    
    (Unaudited)Operating RevenuesPassenger services
    
    $
    224,562
    
    
    $
    240,221
    
    
    $
    615,514
    
    
    $
    627,717Package express
    
    
    9,839
    
    
    
    10,187
    
    
    
    29,398
    
    
    
    29,198Food services .
    
    
    10,034
    
    
    
    11,037
    
    
    
    28,379
    
    
    
    30,653Other operating revenues
    
    
    15,416
    
    
    
    15,195
    
    
    
    52,003
    
    
    
    48,621Total Operating Revenues
    
    
    259,851
    
    
    
    276,640
    
    
    
    725,294
    
    
    
    736,189Operating ExpensesMaintenance
    
    
    25,754
    
    
    
    27,767
    
    
    
    77,314
    
    
    
    78,256Transportation
    
    
    61,697
    
    
    
    63,817
    
    
    
    177,222
    
    
    
    187,928Agents commissions and station costs
    
    
    44,335
    
    
    
    47,474
    
    
    
    127,542
    
    
    
    134,790Marketing, advertising and traffic
    
    
    7,515
    
    
    
    6,541
    
    
    
    20,005
    
    
    
    19,123Insurance and safety
    
    
    22,803
    
    
    
    18,592
    
    
    
    61,002
    
    
    
    55,058General and administrative
    
    
    29,109
    
    
    
    31,391
    
    
    
    98,774
    
    
    
    94,464Depreciation and amortization
    
    
    13,863
    
    
    
    14,143
    
    
    
    42,250
    
    
    
    40,988Operating taxes and licenses
    
    
    14,142
    
    
    
    15,589
    
    
    
    42,209
    
    
    
    45,269Operating rents
    
    
    19,317
    
    
    
    19,103
    
    
    
    57,494
    
    
    
    60,126Cost of goods sold  food services
    
    
    6,344
    
    
    
    6,862
    
    
    
    18,294
    
    
    
    19,643Other operating expenses
    
    
    5,634
    
    
    
    3,667
    
    
    
    6,705
    
    
    
    5,189Total Operating Expenses
    
    
    250,513
    
    
    
    254,946
    
    
    
    728,811
    
    
    
    740,834Operating Income (Loss)
    
    
    9,338
    
    
    
    21,694
    
    
    
    (3,517
    )
    
    
    (4,645
    )Interest Expense
    
    
    6,304
    
    
    
    6,352
    
    
    
    18,580
    
    
    
    18,491Income (Loss) Before Income Taxes and
Minority Interests
    
    
    3,034
    
    
    
    15,342
    
    
    
    (22,097
    )
    
    
    (23,136
    )Income Tax Provision
    
    
    302
    
    
    
    96
    
    
    
    931
    
    
    
    1,065Minority Interests
    
    
    127
    
    
    
    132
    
    
    
    (235
    )
    
    
    (341
    )Net Income (Loss)
    
    $
    2,605
    
    
    $
    15,114
    
    
    $
    (22,793
    )
    
    $
    (23,860
    )
 The accompanying notes are an integral part of these statements. 6




---



##### 



GREYHOUND LINES, INC. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Nine Months EndedSeptember 30,2004
    
    
    2003(Unaudited)Cash Flows From Operating ActivitiesNet loss
    
    $
    (22,793
    )
    
    $
    (23,860
    )Non-cash expenses and gains included in net loss
    
    
    59,705
    
    
    
    48,088Net change in certain operating assets and liabilities
    
    
    (645
    )
    
    
    (7,658
    )Net cash provided by operating activities
    
    
    36,267
    
    
    
    16,570Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (21,851
    )
    
    
    (20,178
    )Proceeds from assets sold
    
    
    880
    
    
    
    5,355Other investing activities
    
    
    2,711
    
    
    
    2,858Net cash used for investing activities
    
    
    (18,260
    )
    
    
    (11,965
    )Cash Flows From Financing ActivitiesPayments on debt and capital lease obligations
    
    
    (2,927
    )
    
    
    (3,292
    )Proceeds from new borrowings
    
    
    458
    
    
    
    1,420Net change in revolving credit facility
    
    
    
    
    
    
    (2,375
    )Other financing transactions
    
    
    (854
    )
    
    
    (607
    )Net cash used for financing activities
    
    
    (3,323
    )
    
    
    (4,854
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    14,684
    
    
    
    (249
    )Cash and Cash Equivalents, Beginning of Period
    
    
    18,805
    
    
    
    5,946Cash and Cash Equivalents, End of Period
    
    $
    33,489
    
    
    $
    5,697
 The accompanying notes are an integral part of these statements. 7




---



##### 



GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 30,
2004 and 2003 and cash flows for the nine months ended September 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 a merger transaction
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 September 30, 2004 and 2003, comprehensive
income (loss) was $2.9 million and $(5.2) million, respectively. Additionally,
for the nine months ended September 30, 2004 and 2003, comprehensive loss was
$22.7 million and $45.5 million, respectively. The difference between net
income (loss) and other comprehensive income (loss) in 2004 and 2003 is due to
changes in minimum pension liabilities and unrealized gains and losses on
available-for-sale securities. 8




---



##### 



GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2004
(Unaudited) 3. REVOLVING CREDIT FACILITY 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. Borrowings under the amended Revolving Credit Facility, after 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 September 30, 2004, borrowings
were 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 September 30,
2004, letters of credit or borrowings were 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 September 30, 2004, aggregated to
$106.0 million) subject to a maximum of $125 million, inclusive of a $70
million letter of credit sub-facility. As of September 30, 2004, the Company
had no outstanding borrowings under its Revolving Credit Facility, issued
letters of credit of $61.6 million and availability of $44.4 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 (the Financial Covenants) at levels that are the same as,
or more restrictive than, previous levels. The new Financial Covenants were
set at 15% to 20% less than the levels projected in financial forecasts
delivered to the agent bank by the Company in May 2004. As of September 30,
2004, the Company was in compliance with all of the Financial Covenants.
However, although the Companys most recent financial forecast indicates that
the Company will remain in compliance with the Financial Covenants through
2005, continued increases in fuel prices, continued softness in discretionary
travel, unforeseen events or changes in assumptions may 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 remain in
compliance with the Financial Covenants. As described in note 7 Legal Proceedings, in September 2004, Greyhound became
aware of proceedings brought in Georgia state court seeking to enforce a
default garnishment judgment. The garnishment alleges that Greyhound is liable
in an underlying Default Judgment in the amount of over $15 million. Greyhound
intends to vigorously defend its interests in the litigation. Although
Greyhound is seeking to overturn the Default Judgment, unless and until it is
declared void, stayed, bonded or paid, the Default Judgment could be deemed to
be an event of default under the Revolving Credit Facility. To date,
Greyhounds lenders have indicated that they do not wish to
claim a default and have not given notice of default or accelerated the repayment of
Greyhounds outstanding obligations under the Revolving Credit Facility. Any
accelerated repayment of Greyhounds indebtedness could cause defaults under
Greyhounds other debt agreements and force Greyhound to refinance and/or
renegotiate all or a significant portion of its outstanding indebtedness.
Should the Revolving Credit Facility be accelerated and Greyhound is unable to
renegotiate or refinance its outstanding indebtedness, then Greyhound may not
be able to satisfy its obligations as they become due and may not be able to
continue as a going concern. 9




---



##### 



GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2004
(Unaudited) 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. Most of
the leases qualify as operating leases for accounting purposes and, as such,
only the monthly lease payment is recorded in the Interim Consolidated
Statements of Operations and the liability and value of the underlying buses
are not recorded on the Interim Consolidated Statements of Financial Position.
The leases on most of the operating vehicles contain certain purchase
provisions or residual value guarantees and typically have lease terms of seven
years. Of those leases that contain residual value guarantees, the aggregate
residual value at lease expiration is $134.3 million of which the Company has
guaranteed $84.6 million. The Company has the right to exercise a purchase
option with respect to the leased equipment or the equipment can be sold to a
third party. At September 30, 2004, management estimates that the residual
value on certain leases will exceed the projected fair market value of the
underlying buses by $3.9 million and has established appropriate reserves for
this estimated liability. 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. 5. PENSION PLANS The Company maintains 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. Historically the Company
has obtained actuarial valuations on the plans twice a year. The most recent
actuarial valuation, as of May 31, 2004, reflected a $11.0 million decrease in
the funded status of the pension plans as compared to the December 31, 2003
actuarial valuation. The discount rates used for the Projected Benefit
Obligations were 6.25% and 6.0% at the May 31, 2004 and December 31, 2003
measurement dates, respectively. Plan status as of the last two valuation dates is as follows (in millions): Plan Measurement DateMay 31, 2004
    
    
    December 31, 2003Benefit Obligation
    
    $
    752.1
    
    
    $
    767.5Fair Value of Plan Assets
    
    
    557.1
    
    
    
    583.5Funded Status
    
    
    (195.0
    )
    
    
    (184.0
    )Unrecognized Prior Service Cost
    
    
    (6.9
    )
    
    
    (7.3
    )Unrecognized Net Loss
    
    
    262.4
    
    
    
    262.5Funding After Measurement Date
    
    
    50.1
    
    
    
    Prepaid Benefit Cost
    
    $
    110.6
    
    
    $
    71.2Accrued Benefit Liability
    
    $
    (141.4
    )
    
    $
    (181.0
    )Accumulated Other Comprehensive Loss
    
    
    252.0
    
    
    
    252.2Prepaid Benefit Cost
    
    $
    110.6
    
    
    $
    71.2
 The Company is required to record an additional minimum pension liability when
the pension plans accumulated benefit obligation exceeds the plans assets by
more than the amounts previously accrued for as pension costs. These charges
are recorded as a reduction to stockholders equity as a component of
accumulated comprehensive loss, net of any available tax benefit. During the
third quarter of 2004, after obtaining the most recent actuarial valuation, the
Company recorded a decrease in the minimum liability of $0.2 million. 10




---



##### 



GREYHOUND LINES, INC.
AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2004
(Unaudited) 5. PENSION PLANS (Continued) The following table provides the components of net periodic pension cost for
the three and nine months ended September 30, 2004 and 2003 (in thousands): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,Components of Net Periodic Pension
Cost
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Service Cost
    
    $
    384
    
    
    $
    359
    
    
    $
    1,149
    
    
    $
    1,110Interest Cost
    
    
    11,505
    
    
    
    11,422
    
    
    
    33,167
    
    
    
    34,857Expected Return on Assets
    
    
    (10,333
    )
    
    
    (10,020
    )
    
    
    (30,385
    )
    
    
    (30,067
    )Amortization of Actuarial Losses
    
    
    2,508
    
    
    
    1,468
    
    
    
    9,429
    
    
    
    2,411Net Periodic Pension Cost
    
    $
    4,064
    
    
    $
    3,229
    
    
    $
    13,360
    
    
    $
    8,311
 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 September 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 November
10, 2004, the shares had an aggregate market value of $65.0 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 nine months ended September 30, 2004, the
Company contributed $2.7 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
September 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. 11




---



##### 



GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2004
(Unaudited) 6. SALES OF BUSINESSES During the second quarter of 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 various federal, state and local laws
and regulations relating to environmental matters, including those concerning
emissions to the air, waste water discharges, storage, treatment and disposal
of waste and remediation of soil and ground water contamination. The Company
has incurred, and expects to incur, costs to comply with these legal
requirements, and these costs could continue to increase in the future.
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 On September 20, 2004, Greyhound responded to proceedings brought in Georgia
state court seeking to enforce a default garnishment judgment on funds in a
Greyhound bank account. While this action has since been dismissed it stemmed
from an October 1995 default judgment in the amount of approximately $7 million
(the 1995 Judgment) against Gary Jones, a former consultant to Greyhound.
More than four years later, in October 2000, the plaintiff who obtained the
1995 Judgment (the Plaintiff) began garnishment proceedings against Greyhound
in Georgia state court seeking to recover amounts owed to Gary Jones, who then
allegedly owed the Plaintiff the amount of approximately $11 million based on
the 1995 Judgment plus post-judgment interest. On May 2, 2001, a default
judgment for $11 million (the Default Judgment) was entered by the Georgia
state court against Greyhound. Greyhound was unaware of the garnishment and
the Default Judgment and inadvertently failed to contest it. Had the
garnishment been timely answered, Greyhound believes that the amount due in
response to the garnishment summons would not have exceeded $1,500. It is now alleged that Greyhound is liable to the Plaintiff in the amount of
$15 million, based on the $11 million judgment plus post-judgment interest.
Greyhound has filed a Motion to Vacate the Default Judgment in the Court where
such judgment was rendered. Based on several legal grounds, Greyhound believes
that the Default Judgment is null and void and not enforceable. Greyhound
intends to vigorously defend its interests in the litigation. Also see
discussion in note 3 Revolving Credit Facility. The Company is also a defendant in various other 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 material
adverse effect upon the Companys consolidated financial position or results of
operations. 12




---



##### 



GREYHOUND LINES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2004
(Unaudited) 7. CONTINGENCIES (Continued) 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. This 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. To date in 2004, the Company has made additional
contributions to the self-insurance trust fund in the amount of $13.6 million
and during the fourth quarter of 2004, the Company will be required to make an
additional contribution to the self-insurance trust fund of $5.6 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 September 30,
2004, the Company maintained $46.4 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, expired on
October 1, 2004. On October 8, 2004, the membership of the IAM ratified new
bargaining agreements. The new agreements expire on September 30, 2007. 8. RELATED PARTY TRANSACTIONS Included in accounts receivable on the Companys Interim Consolidated
Statements of Financial Position at September 30, 2004 and December 31, 2003,
are amounts due from Laidlaw or one of Laidlaws subsidiaries of $3.3 million
and $3.6 million, respectively. Included in accounts payable at September 30,
2004 and December 31, 2003, are amounts due to Laidlaw or one of Laidlaws
subsidiaries of $1.3 million and $1.1 million, respectively. 13




---



##### 



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
September 30, 2004, the Companys operations included a nationwide network of
terminal and maintenance facilities utilizing a fleet of approximately 2,800
buses. At September 30, 2004, the Company used a network of approximately
1,400 sales locations, offering the customer the ability to travel to more than
2,300 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 nine months
ended September 30, 2004 and the Companys consolidated financial position at
September 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 Third Quarter During the third quarter a number of external factors adversely impacted the
Companys operating results. Four hurricanes moved through the Southeast in
the months of August and September causing schedule cancellations within
Florida as well as significantly reduced demand to and from Florida, resulting
in lost revenue. Fuel prices rose dramatically, 37 cents per gallon higher
than the prior year, an increase of $4.6 million or 42%. Additionally, the
soft economy combined with higher fuel and health care costs have served to
reduce discretionary income in the Companys passenger demographics,
contributing to lower revenue across all mileage bands in all areas of the U.S.
In addition to the external factors, the Company recorded a charge of $4
million related to the decision to discontinue a software development project
and increased its insurance reserves by $2.3 million due to several serious
accidents that occurred during the quarter. As a result, for the quarter ended
September 30, 2004, revenue declined by $16.8 million or 6.1%, and operating
income declined by $12.4 million. For the nine months ended September 30,
2004, revenue declined by $10.9 million or 1.5%, expenses declined by $12.0
million or 1.6%, and the Companys operating loss declined from $4.6 million as
of September 30, 2003, to $3.5 million as of September 30, 2004, an improvement
of $1.1 million. During the third quarter of 2004, revenue per bus mile continued to improve,
principally as a result of a 5% improvement in yield. However, the effects of
the yield improvement were somewhat offset as passengers and passenger miles
declined at a higher rate than anticipated resulting in a 1.8% decrease in
load. The Company expected a decline in trips greater than 1,000 miles because
its pricing strategy targeted yield improvements in these low-yielding,
long-haul trips. However, for the reasons mentioned above, the Company
experienced declines in short and medium distance trips as well. In
mid-August, the Company implemented pricing and other changes and the declines
began to subside, however, not enough to offset the impact of the hurricanes
and the softness in discretionary travel. Additionally, although the reduction
in bus miles was significant and resulted in a significant decrease in
expenses, these decreases were largely offset by the increased costs of fuel
and insurance and the software write-off. The rising cost of fuel and the soft
economy will continue to challenge the Company in the near term and the Company
will continue to take other appropriate pricing and cost containment actions to
mitigate these issues. 14




---



##### 



On October 8, 2004, the Company was notified by the International Association
of Mechanics and Aerospace Workers union that their membership had ratified new
collective bargaining agreements, representing approximately 300 of the
Companys employees. With this ratification, the collective bargaining
agreements for all of the Companys drivers and mechanics are in place for
three years and should provide a stable working environment over this period of
time. On August 18, 2004, the Company implemented 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 occurred in the Northern region of the United States, roughly
between Chicago and Seattle, and involved 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
were eliminated. The Company recorded a charge of $0.4 million during the
quarter for severance, real estate lease terminations and other implementation
costs. The Company will continue to implement the strategy in phases over the
next two to three years. In summary, the Company experienced a difficult quarter; however, management
continued its strategy of making improvements to stabilize the Company in the
short-term and also implemented the first phase 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. 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 nine months ended
September 30, 2004 and 2003: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Operating RevenuesPassenger services
    
    
    86.4
    %
    
    
    86.8
    %
    
    
    84.9
    %
    
    
    85.3
    %Package express
    
    
    3.8
    
    
    
    3.7
    
    
    
    4.0
    
    
    
    4.0Food services
    
    
    3.9
    
    
    
    4.0
    
    
    
    3.9
    
    
    
    4.1Other operating revenues
    
    
    5.9
    
    
    
    5.5
    
    
    
    7.2
    
    
    
    6.6Total Operating Revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating ExpensesMaintenance
    
    
    9.9
    
    
    
    10.0
    
    
    
    10.7
    
    
    
    10.6Transportation
    
    
    23.7
    
    
    
    23.1
    
    
    
    24.5
    
    
    
    25.5Agents commissions and station costs
    
    
    17.1
    
    
    
    17.2
    
    
    
    17.6
    
    
    
    18.3Marketing, advertising and traffic
    
    
    2.9
    
    
    
    2.4
    
    
    
    2.8
    
    
    
    2.6Insurance and safety
    
    
    8.8
    
    
    
    6.7
    
    
    
    8.4
    
    
    
    7.5General and administrative
    
    
    11.2
    
    
    
    11.4
    
    
    
    13.6
    
    
    
    12.8Depreciation and amortization
    
    
    5.3
    
    
    
    5.1
    
    
    
    5.8
    
    
    
    5.6Operating taxes and licenses
    
    
    5.5
    
    
    
    5.6
    
    
    
    5.8
    
    
    
    6.1Operating rents
    
    
    7.4
    
    
    
    6.9
    
    
    
    7.9
    
    
    
    8.2Cost of goods sold  food services
    
    
    2.4
    
    
    
    2.5
    
    
    
    2.5
    
    
    
    2.7Other operating expenses
    
    
    2.2
    
    
    
    1.3
    
    
    
    0.9
    
    
    
    0.7Total Operating Expenses
    
    
    96.4
    
    
    
    92.2
    
    
    
    100.5
    
    
    
    100.6Operating Income (Loss)
    
    
    3.6
    
    
    
    7.8
    
    
    
    (0.5
    )
    
    
    (0.6
    )Interest Expense
    
    
    2.4
    
    
    
    2.3
    
    
    
    2.6
    
    
    
    2.5Income (Loss) Before Income Taxes
    
    
    1.2
    
    
    
    5.5
    
    
    
    (3.1
    )
    
    
    (3.1
    )Income Tax Provision
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.1Minority Interests
    
    
    0.1
    
    
    
    0.0
    
    
    
    (0.1
    )
    
    
    0.0Net Income (Loss)
    
    
    1.0
    %
    
    
    5.5
    %
    
    
    (3.1
    )%
    
    
    (3.2
    )%
 15




---



##### 



The following table sets forth certain operating data for the Company for the
three and nine months ended September 30, 2004 and 2003. Certain statistics
have been adjusted and restated from those previously published to provide
consistent comparisons. Three Months Ended September 30,
    
    Nine Months Ended September 30,2004
    
    
    2003
    
    
    % Change
    
    
    2004
    
    
    2003
    
    
    % ChangeRegular Service Miles (000s)
    
    
    75,430
    
    
    
    83,200
    
    
    
    (9.3
    %)
    
    
    213,830
    
    
    
    233,180
    
    
    
    (8.3
    %)Total Bus Miles (000s)
    
    
    76,914
    
    
    
    84,715
    
    
    
    (9.2
    %)
    
    
    220,448
    
    
    
    239,846
    
    
    
    (8.1
    %)Passenger Miles (000s)
    
    
    2,021,674
    
    
    
    2,270,469
    
    
    
    (11.0
    %)
    
    
    5,573,181
    
    
    
    6,148,177
    
    
    
    (9.4
    %)Passengers Carried (000s)
    
    
    5,762
    
    
    
    6,131
    
    
    
    (6.0
    %)
    
    
    15,982
    
    
    
    16,616
    
    
    
    (3.8
    %)Average Trip Length (passenger miles
÷ passengers carried)
    
    
    351
    
    
    
    370
    
    
    
    (5.1
    %)
    
    
    349
    
    
    
    370
    
    
    
    (5.7
    %)Load (avg number of passengers per
regular service mile)
    
    
    26.8
    
    
    
    27.3
    
    
    
    (1.8
    %)
    
    
    26.1
    
    
    
    26.4
    
    
    
    (1.1
    %)Load Factor (% of available seats
filled)
    
    
    52.6
    %
    
    
    53.9
    %
    
    
    (2.4
    %)
    
    
    51.2
    %
    
    
    52.1
    %
    
    
    (1.7
    %)Yield (regular route revenue ÷
passenger miles)
    
    $
    0.1111
    
    
    $
    0.1058
    
    
    
    5.0
    %
    
    $
    0.1104
    
    
    $
    0.1021
    
    
    
    8.2
    %Average Ticket Price
    
    $
    38.97
    
    
    $
    39.18
    
    
    
    (0.5
    %)
    
    $
    38.51
    
    
    $
    37.78
    
    
    
    1.9
    %Total Revenue Per Total Bus Mile
    
    $
    3.378
    
    
    $
    3.266
    
    
    
    3.4
    %
    
    $
    3.290
    
    
    $
    3.069
    
    
    
    7.2
    %Cost Per Total Bus Mile:Maintenance
    
    $
    0.335
    
    
    $
    0.328
    
    
    
    2.1
    %
    
    $
    0.351
    
    
    $
    0.326
    
    
    
    7.7
    %Transportation
    
    $
    0.802
    
    
    $
    0.753
    
    
    
    6.5
    %
    
    $
    0.804
    
    
    $
    0.784
    
    
    
    2.6
    %Insurance and Safety
    
    $
    0.296
    
    
    $
    0.219
    
    
    
    35.2
    %
    
    $
    0.277
    
    
    $
    0.230
    
    
    
    20.4
    %
 Three and Nine Months Ended September 30, 2004 Compared to the Same Periods in
2003 Operating Revenues.Total operating revenues decreased $16.8 million, down
6.1%, and $10.9 million, down 1.5% for the three and nine months ended
September 30, 2004, compared to the same periods in 2003. Passenger services revenues decreased $15.7 million, down 6.5%, and $12.2
million, down 1.9%, for the three and nine months ended September 30, 2004,
compared to the same periods in 2003. The third quarter of 2004 was adversely
impacted by four hurricanes that moved through the Southeast U.S. during August
and September as well as by soft economic conditions. The hurricanes caused
cancellations of a number of schedules within Florida and significantly reduced
demand to and from Florida. Overall during the quarter, a passenger miles decline of 11.0% was partially
offset by a yield increase of 5.0% resulting in a decline in passenger revenue
of 6.5%. Bus miles also declined 9.3% during the quarter, a lower rate of
decline than the passenger miles decline, and although revenue per mile
continued to increase compared to the prior year, the increase was at a lower
rate than in the first two quarters of 2004 and load declined, as well.
Although the Company planned for continued declines in its low-yielding
long-haul business, the Company experienced significant declines across all
mileage bands in all areas of the country. The Company implemented a number of
pricing actions in the second half of August and the declines mitigated
slightly, however, the month of September was adversely affected by the
hurricanes and resultant storms along the East Coast. Management believes that
the revenue decline not associated with reduced travel due to the hurricanes
stems principally from soft economic conditions, particularly in the Companys
passenger demographic, and management will continue to monitor revenue trends
and take actions as appropriate. Package express revenues decreased $0.3 million, down 3.4%, for the three
months ended September 30, 2004, and increased $0.2 million, up 0.7% for the
nine months ended September 30, 2004, compared to the same periods in 2003.
The decrease in revenues during the quarter ended September 30, 2004 is mainly
due to the sale of a courier company in Houston, Texas. Overall, the increase
for the nine months ended September 30, 2004 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). 16




---



##### 



Food services revenues decreased $1.0 million, down 9.1%, and $2.3 million,
down 7.4%, for the three and nine months ended September 30, 2004, compared to
the same periods in 2003 primarily due to the decrease in passenger traffic,
particularly in the long-haul markets, and also due to the effects of the
hurricanes in the Southeast U.S. Other operating revenues, consisting primarily of revenue from travel services
and in-terminal sales and services, increased $0.2 million, up 1.5%, and $3.4
million, up 7.0%, for the three and nine months ended September 30, 2004,
compared to the same periods in 2003. The increase was due principally to
additional meet and greet and transportation services provided to cruise
lines partially offset by declines in in-terminal sales and the expiration of
transit contracts. Operating Expenses.Total operating expenses decreased $4.4 million, down
1.7%, and $12.0 million, down 1.6% for the three and nine months ended
September 30, 2004 compared to the same periods in 2003. The reduction in
expenses is primarily due to lower sales, reduced bus miles and staffing
reductions partially offset by increases in fuel, maintenance costs, pension
expense, insurance and a software write-off. In the prior year, expenses for
the quarter include severance costs related to a reduction in force on October
1, 2003 and the write-off of an investment in an unconsolidated subsidiary. Maintenance costs decreased $2.0 million, down 7.2%, and $0.9 million, down
1.2% for the three and nine months ended September 30, 2004 compared to the
same periods in 2003. On a per mile basis, maintenance costs increased 2.1%
and 7.7%, for the three and nine months ended September 30, 2004, primarily due
to a higher average fleet age, and increased materials costs as a result of
fewer bus engines and transmissions under warranty. Additionally, regular
service bus miles were down significantly, 9.3% for the three months and 8.3%
for the nine months ended September 30, 2004. As a result, the fixed cost
component of maintenance, principally real estate and related costs as well as
supervision, increased on a per mile basis. Transportation expenses which consist primarily of fuel costs and driver
salaries, decreased $2.1 million, down 3.3%, and $10.7 million, down 5.7% for
the three and nine months ended September 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 fuel price increases. During
the three and nine months ended September 30, 2004 the average cost per gallon
of fuel was $1.25 and $1.16 per gallon, compared to $0.88 and $0.91 per gallon
during the same periods in 2003, resulting in increased fuel costs of $4.6
million and $8.6 million, respectively. Additionally, driver hiring and
training costs were $2.5 million lower during the nine months ended September
30, 2004 compared to 2003 due to decreased hiring. Agents commissions and station costs decreased $3.1 million, down 6.6%, and
$7.2 million, down 5.4%, for the three and nine months ended September 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
lower passenger volumes and lower rates for long distance communication as a
result of a new contract. Marketing, advertising and traffic expenses increased $1.0 million, up 14.9%,
and $0.9 million, up 4.6%, for the three and nine months ended September 30,
2004, compared to the same periods in 2003. Management increased advertising
slightly over the prior year principally due to advertising campaigns related
to the implementation of the Companys strategic initiative in the Northern
region of the U.S. Insurance and safety costs increased $4.2 million, up 22.6%, and $5.9 million,
up 10.8% for the three and nine months ended September 30, 2004 compared to the
same periods in 2003. On a cost per mile basis, insurance and safety costs
increased 35.2% and 20.4% for the three and nine months ended September 30,
2004, respectively. The increase is principally due to increased reserves on
several large claims, and is also due to an increase in the number of severe
accidents, an increase in the cost of excess insurance coverage and medical and
wage inflation. General and administrative expenses decreased $2.3 million, down 7.3% during
the three months ended September 30, 2004, and increased $4.3 million, up 4.6%
for the nine months ended September 30, 2004 compared to the same periods in
2003. The decrease for the three months ended September 30, 2004, is
attributable to lower health and welfare costs, lower communication costs,
decreased wages and reimbursements under a federal government grant program,
partially offset by increased pension and incentive costs. For the nine months
ended September 30, 2004 higher pension and incentive costs more than offset
lower health and welfare costs, lower communication costs and decreased wages
and other costs due to lower business volumes. 17




---



##### 



Depreciation and amortization expenses decreased $0.3 million, down 2.0% for
the three months ended September 30, 2004, and increased $1.3 million, up 3.1%,
for the nine months ended September 30, 2004, compared to the same periods in
2003. The decrease for the three months ending September 30, 2004 is due
primarily to the effects of increased retirements of assets, primarily buses,
and an increase in the number of assets that are fully depreciated. The
increase for the nine months ended September 30, 2004 is primarily due to a
decrease in its estimate of salvage value on certain older buses.
Additionally, during the quarter the Company revised its estimated life of
buses from 18 to 15 years. The change in estimated life had an insignificant
impact on depreciation expense. Operating taxes and licenses expense decreased $1.4 million, down 9.3%, and
$3.1 million, down 6.8%, for the three and nine months ended September 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 increased $0.2 million, up 1.1%, for the three months ended
September 30, 2004 and decreased $2.6 million, down 4.4%, for the nine months
ended September 30, 2004, compared to the same periods in 2003. During the
quarter the increase is due to lease termination costs related to location
closures. For the nine months ended September 30, 2004 the decrease is
principally due to expirations of bus operating leases that occurred in the
first half of 2004. Food services cost of goods sold decreased $0.5 million, down 7.5%, and $1.3
million, down 6.9%, for the three and nine months ended September 30, 2004,
compared to the same periods in 2003 due primarily to the decrease in food
service revenues. Other operating expenses increased $2.0 million, up 53.6%, and $1.5 million, up
29.2% for the three and nine months ended September 30, 2004, compared to the
same periods in 2003. For the three and nine months ended September 30, 2004,
the increase is principally because a software write-off and net losses on
asset sales were greater than the net of severance paid and gains on asset
sales during the prior year. Interest expense decreased slightly for the three months ended September 30,
2004, and increased $0.1 million, up 0.5%, for the nine months ended September
30, 2004, compared to the same periods in 2003. For the nine months ended
September 30, 2004 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 increased $0.2 million, up 214.6%, for the three months
ended September 30, 2004 and decreased $0.1 million, down 12.6% for the nine
months ended September 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 nine months ended September 30, 2004,
reflects the minority partners share of current year to date gains and 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 September 30, 2004, the Company had $203.7 million of
outstanding debt, implicit debt equivalent to $231.5 million for off-balance
sheet bus operating leases and $61.6 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. 18




---



##### 



Net cash provided by operating activities for the nine months ended September
30, 2004 was $36.3 million, an increase of $19.7 million from the $16.6 million
provided during the same period of 2003. The increase is due principally to
larger non-cash expenses (pension, depreciation and software write-off) during
the nine months ended September 30, 2004. Net cash used by investing
activities for the nine months ended September 30, 2004 was $18.3 million
compared to $12.0 million used for investing activities during the same period
of 2003. During the nine months ended September 30, 2004 the Company had
higher capital expenditures than the prior year, principally due to the
purchase of buses at lease expiration, and decreased proceeds from the sale of
assets. Net cash used by financing activities for the nine months ended
September 30, 2004 was $3.3 million, principally due to repayment of debt,
versus $4.9 million used for financing activities during the same period of
2003, principally from repayment of borrowings under the Revolving Credit
Facility in 2003. 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. Borrowings under the amended Revolving Credit Facility, after 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 September 30, 2004, borrowings
were 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 September 30,
2004, letters of credit or borrowings were 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 September 30, 2004, aggregated to
$106.0 million) subject to a maximum of $125 million, inclusive of a $70
million letter of credit sub-facility. As of September 30, 2004, the Company
had no outstanding borrowings under its Revolving Credit Facility, issued
letters of credit of $61.6 million and availability of $44.4 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 (the Financial Covenants) at levels that are the same as,
or more restrictive than, previous levels. The new Financial Covenants were
set at 15% to 20% less than the levels projected in financial forecasts
delivered to the agent bank by the Company in May 2004. As of September 30,
2004, the Company was in compliance with all of the Financial Covenants.
However, although the Companys most recent financial forecast indicates that
the Company will remain in compliance with the Financial Covenants through
2005, continued increases in fuel prices, continued softness in discretionary
travel, unforeseen events or changes in assumptions may 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 remain in
compliance with the Financial Covenants. As described in Part II, Item 1 Legal Proceedings, in September 2004,
Greyhound became aware of proceedings brought in Georgia state court seeking to
enforce a default garnishment judgment. The garnishment alleges that Greyhound
is liable in an underlying Default Judgment in the amount of over $15 million.
Greyhound intends to vigorously defend its interests in the litigation.
Although Greyhound is seeking to overturn the Default Judgment, unless and
until it is declared void, stayed, bonded or paid, the Default Judgment could
be deemed to be an event of default under the Revolving Credit Facility. To
date, Greyhounds lenders have indicated that they do not wish
to claim a default and have not given notice of default or accelerated the
repayment of Greyhounds outstanding obligations under the Revolving Credit
Facility. Any accelerated repayment of Greyhounds indebtedness could cause
defaults under Greyhounds other debt agreements and force Greyhound to
refinance and/or renegotiate all or a significant portion of its outstanding
indebtedness. Should the Revolving Credit Facility be accelerated and
Greyhound is unable to renegotiate or refinance its outstanding indebtedness,
then Greyhound may not be able to satisfy its obligations as they become due
and may not be able to continue as a going concern. 19




---



##### 



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. This 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. To date in 2004, the Company has made additional
contributions to the self-insurance trust fund in the amount of $13.6 million
and during the fourth quarter of 2004, the Company will be required to make an
additional contribution to the self-insurance trust fund of $5.6 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 September 30,
2004, the Company maintained $46.4 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;
changing credit markets; 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; resolution of the
Default Judgment allowing Greyhound to remain in compliance with the default
provisions of the 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. 20




---



##### 



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




---



##### 



PART II. OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS Other Legal Proceedings On September 20, 2004, Greyhound responded to proceedings brought in Georgia
state court seeking to enforce a default garnishment judgment on funds in a
Greyhound bank account. While this action has since been dismissed it stemmed
from an October 1995 default judgment in the amount of approximately $7 million
(the 1995 Judgment) against Gary Jones, a former consultant to Greyhound.
More than four years later, in October 2000, the plaintiff who obtained the
1995 Judgment (the Plaintiff) began garnishment proceedings against Greyhound
in Georgia state court seeking to recover amounts owed to Gary Jones, who then
allegedly owed the Plaintiff the amount of approximately $11 million based on
the 1995 Judgment plus post-judgment interest. On May 2, 2001, a default
judgment for $11 million (the Default Judgment) was entered by the Georgia
state court against Greyhound. Greyhound was unaware of the garnishment and
the Default Judgment and inadvertently failed to contest it. Had the
garnishment been timely answered, Greyhound believes that the amount due in
response to the garnishment summons would not have exceeded $1,500. It is now alleged that Greyhound is liable to the Plaintiff in the amount of
$15 million, based on the $11 million judgment plus post-judgment interest.
Greyhound has filed a Motion to Vacate the Default Judgment in the Court where
such judgment was rendered. Based on several legal grounds, Greyhound believes
that the Default Judgment is null and void and not enforceable. Greyhound
intends to vigorously defend its interests in the litigation. Also see
discussion in Part I, Item 2 Liquidity and Capital Resources. 
 ITEM 6. EXHIBITS (a) Exhibits 10.1
    
    Fourth Amendment to Supplemental Executive Retirement Plan. *31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal 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.
   *
    
    Management contract or compensatory plan 22




---



##### 



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: November 15, 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. FarmerSenior Vice 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