DALLAS - A decline in revenues, combined with higher costs in a number of operational areas, produced an increase in financial losses for Greyhound Lines during the quarter and nine months ended May 31.
In filings with the Securities and Exchange Commission, Greyhound's parent company, Laidlaw International Inc., reported Greyhound lost more than $12 million during the quarter ended May 31, up from a like-period loss of $3.6 million last year.
For the nine months ended May 31, Greyhound lost $39.9 million, versus a loss of $19.8 million for the nine months ended May 31, 2002.
Revenue for both the quarter and nine months ended May 31, were below year-ago levels. Total revenue this year for the three and nine months ended May 31, was $291.4 million and $847.5 million, compared to same-period 2002 revenue of $297.5 million and $863.2 million.
In the filing, Laidlaw warned that Greyhound's ability to self-insure against losses resulting from crashes is in jeopardy because its tangible net worth has fallen below levels required by the federal government.
The decrease in passenger revenues at Greyhound was attributed to a variety of factors, including the uncertainty created by the war in Iraq and occasional terror alerts, and a decline in revenue in Hispanic markets resulting from the shut-down of a company subsidiary in the third quarter of last year.
There was one sales bright spot early this year, however. Revenue increased from charter services and "meet-and-greet" services provided to cruise lines.
On the expenses side, transportation expenses, consisting primarily of fuel costs and driver wages, increased measurably this year, compared to 2002. Driver costs also are higher this year, due to increased hiring of new drivers and the expense of training them.
During the first quarter of 2003, Greyhound's average cost for diesel fuel was 99 cents per gallon, compared to 64 cents a gallon during the same period last year. A difference that large adds more than $4 million to Greyhound's costs in a single quarter.
Marketing, advertising and traffic expenses jumped, primarily due to significantly curtailed advertising spending in 2001-02, due to Greyhound's belief that advertising would not stimulate travel in the immediate aftermath of 9/11.
Insurance and safety costs also rose noticeably. The increase was largely due to higher costs for excess insurance coverage and growth in the average cost per claim because of rising medical costs.
Outstanding company debt on March 31, was $232.4 million. In mid-May, Greyhound entered into a new revolving credit agreement. Changes to the agreement include, a lower advance rate on buses, the addition of all remaining unpledged buses to the collateral base, a modified advance rate on real estate collateral, increased rates of interest on borrowings and letter of credit fees, an increase in the letter of credit sub-facility, a lower minimum cash flow to interest expense ratio and a higher maximum debt to cash flow ratio for the balance of 2003, elimination of the minimum net worth covenant, the addition of a minimum cash flow covenant, and a waiver of any defaults arising under the previous revolving credit agreement.
Greyhound will have to negotiate new financial covenants for 2004 based on financial forecasts it makes in September for next year.
The U.S. Department of Transportation allows Greyhound to self insure its automobile liability exposure for interstate passenger service up to a maximum level of $5 million per occurrence. To maintain the self-insurance authority, Greyhound is required to jump through several hoops, including having a tangible net worth of $10 million and a $15 million trust fund. Trust fund is fully funded, but since the end of last year the company's tangible net worth has been below the minimum required by the DOT to maintain self-insurance authority.
Greyhound is in discussions with the DOT in an attempt to obtain a waiver of the net worth requirement or some other modification that would allow the company to continue its self-insurance authority.
Loss or modification of self-insurance authority "could have a material adverse effect on the company's liquidity, financial condition and results of operations," Laidlaw warns.