DALLAS - The latest cycle of financial travails at Greyhound Lines, which began four years ago, show no sign of easing and, in fact, they accelerated during the three months ended Sept. 30, because of the end-of-summer hurricanes in the southeast, reduced travel by lower- and middle-income customers, increased competition in the northeast and higher fuel prices.
Some of those factors, plus reduced passenger counts, fewer revenue miles, revamped price structure and cost-cutting moves are reflected in Greyhound's financial results for the 12 months and quarter ended Aug. 31.
Greyhound's corporate parent, Laidlaw International, reported last month that gross earnings at Greyhound were higher for all of fiscal 2004 but substantially lower for the final quarter of the fiscal year.
Laidlaw does not report net income for Greyhound and its other subsidiaries in its financial reports. Instead, it reports EBITDA -- earnings before interest, income taxes, depreciation, amortization and a handful of other accounting adjustments.
Companies like Laidlaw offer up EBITDA (pronounced e-bit-da) because they believe it provides useful information regarding their ability to service or incur debt.
For Greyhound, EBITDA in fiscal 2004 was $87.4 million, versus $67 million in fiscal 2003. For the final quarter of fiscal 2004, Greyhound EBITDA was $49.1 million, compared to $61.2 million during the final three months of fiscal 2003.
To give you an idea of the difference between net income and EBITDA, Laidlaw reported total net income of $61.7 million for fiscal 2004, while its EBITDA was $504.7 million. In fiscal 2003, Laidlaw had a net loss of $1.22 billion.
Nine days after Laidlaw released its numbers, Greyhound President and CEO Steve Gorman notified employees that because company sales remain stagnant, there would be company-wide layoffs during the first week of December.
Gorman said Greyhound had suffered an operating loss of $23 million during the first nine months of this year.
Revenue at Greyhound for the 12 months ended Aug. 31, totaled $1.23 billion, up slightly from fiscal '03 revenue of $1.2 billion. The 2.2 percent revenue gain was due almost entirely to a favorable Canadian currency exchange rate.
During the final three months of fiscal 2004, revenue at Greyhound dipped to $349.4 million, from the $356.7 million reported for the three months ended Aug. 31, 2003.
In August, Greyhound launched the first phase of a massive program to redo its entire system, eliminating more than 250 stops in 13 western and mid-western states. Because that action came late in fiscal 2004, its full impact is not reflected in the results for the year.
Other company actions begun during the summer of 2003, however, are reflected in the information Laidlaw reported for Greyhound. For example, during the fiscal year, Greyhound reduced the number of:
· Employees to 14,200, from 16,000 at the end of fiscal 2003.
· Drivers to 5,600, from 6,500.
· Management and administrative staff to 2,400, from 3,500.
· Buses in its fleet to 3,600, from 3,700.
· New coach deliveries to 46, from 219.
· Destinations to 3,400, from 3,700.
As a result of the cutback in acquiring new buses, the average age of Greyhound's fleet increased to 8 years as of Aug. 31, compared to 7.6 years at the end of fiscal 2003. Greyhound purchased 56 million gallons of fuel in fiscal 2004, representing more than 6 percent of revenue.
Laidlaw also reported one major embarrassment for Greyhound; someone dropped a $15 million ball.
In May 2001, a default judge for $11 million was entered by a state court in Georgia against Greyhound. The judgment stemmed from a 1995 judgment against a former consultant to Greyhound, Gary Jones.
Greyhound says it only learned in August of this year that there was a garnishment and default judgment, and because it was unaware of the situation, it "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." Now, because it failed to contest the garnishment and default judgment, the court says the company is on the hook for $15 million -- $11 million for the default judgment, plus $4 million in interest.
Greyhound has beaten a path back to the Georgia court, seeking to vacate the default judgment. The company says it doesn't think the judgment is enforceable.
Still, the matter is not to be taken lightly. The judgment potentially could upset Greyhound's revolving credit line. Until and unless the judgment is declared void, stayed, bonded or paid, it "could be deemed to be an event of default under the Greyhound (credit) facility," putting the company's entire financial and debt structure at risk.
And, under terms that allowed Laidlaw to emerge from bankruptcy last year, the parent company is not permitted to fund Greyhound. In other words, Laidlaw can't bail out Greyhound.
There were a couple of bright spots in the Laidlaw report:
· Profitability is expected to improve at Greyhound during fiscal 2005, while revenue growth will slow, reflecting the system cutbacks.
· Accident claims and professional liability expenses at Laidlaw decreased for the third consecutive year, dropping to $288.3 million in fiscal 2004, from $325.8 million in fiscal 2002.