GREYHOUND LINES INC, 10-K, 1996-03-15

GREYHOUND LINES INC
10-K, 1996-03-15
LOCAL & SUBURBAN TRANSIT & INTERURBAN HWY PASSENGER TRANS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10841

GREYHOUND LINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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DELAWARE 86-0572343
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

15110 N. DALLAS PARKWAY, SUITE 600, DALLAS, TEXAS 75248
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(214) 789-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 par value per share American Stock Exchange
10% Senior Notes, due July 31, 2001 American Stock Exchange
8.5% Convertible Subordinated Debentures, due March 31, American Stock Exchange
2007
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: 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 / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. / /

Aggregate market value of Common Stock held by non-affiliates of the
registrant based on the last reported sale price of the Common Stock on the
American Stock Exchange composite tape on March 1, 1996, was $203,196,084, which
value, solely for the purposes of this calculation, excludes shares held by
registrant's executive officers and directors. Such exclusion should not be
deemed a determination by the registrant that all such individuals are, in fact,
affiliates of the registrant.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES /X/ NO / /

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

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CLASS OF COMMON STOCK OUTSTANDING AT MARCH 1, 1996
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$.01 par value 58,179,326 shares
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DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive proxy statement for the Registrant, to be filed
not later than 120 days after the end of the fiscal year covered by this report,
are incorporated into Part III by reference.

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GREYHOUND LINES, INC. AND SUBSIDIARIES

INDEX TO FORM 10-K

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PAGE NO.
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PART I
Item 1. Business............................................................... 1
Item 2. Properties............................................................. 6
Item 3. Legal Proceedings...................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders.................... 10
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters................................................................ 11
Item 6. Selected Financial Data................................................ 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 14
Item 8. Financial Statements and Supplementary Data............................ 25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................... 58
PART III
Item 10. Directors and Executive Officers of the Registrant..................... 59
Item 11. Executive Compensation................................................. 62
Item 12. Security Ownership of Certain Beneficial Owners and Management......... 62
Item 13. Certain Relationships and Related Transactions......................... 62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........ 65
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PART I

ITEM 1. BUSINESS

GENERAL

Greyhound Lines, Inc. and subsidiaries (the "Company") is the only
nationwide provider of intercity bus transportation services in the United
States. The Company currently provides scheduled passenger service to more than
2,400 destinations with a fleet of approximately 2,100 buses. The number of
sales outlets increased by 50 during 1995 to approximately 1,500 sales
outlets.(a) The Company also provides package express delivery service and, in
certain terminals, food service.

BUSINESS STRATEGY

In late 1994, the Company began the implementation of a "back to basics"
strategy focusing on increasing revenues by improving customer service and the
frequency and convenience of schedule offerings. This strategy seeks to maximize
the unique value of the Company's national bus network by serving both long and
short-haul markets, connecting rural and urban America and providing
transportation between major cities. During 1995, the Company has further
refined this strategy to build on what management believes is the Company's most
significant competitive advantage: providing travel to customers when they want
to travel, where they want to travel, at an affordable price. Therefore, the
Company has further increased its operating capacity, schedule offerings, and
telephone answering capacity, and improved pricing and schedules related to
long-haul travel. The Company actively manages pricing in individual markets to
enhance demand for its services while optimizing margins, and during 1995
stabilized its pricing by introducing everyday low pricing and reducing the use
of deeply discounted promotional tickets. The Company's new strategy is
supported by a marketing campaign that integrates advertising, public relations,
sales promotion and pricing. In response to the Company's strategy, passengers
carried have increased each quarter during 1995 as compared to 1994, and
passengers carried for the full year of 1995 increased 1.3 million, or 8.4%, as
compared to 1994. The growth in passengers is reflected in the following table:

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FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
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1995 Passengers Carried (000's)........ 3,606 4,054 5,179 4,447 17,286
1994 Passengers Carried (000's)........ 3,467 3,784 4,692 4,006 15,949
Percentage increase.................... 4.0% 7.1% 10.4% 11.0% 8.4%
</TABLE>

As part of its revenue enhancement plans, the Company reestablished
relations with certain regional bus carriers to improve interline service and to
increase the use of shared terminals. Management is also developing programs to
improve its package express delivery service through system upgrades, localized
marketing strategies and price and schedule improvements. Additionally, the
Company will continue its efforts to develop markets where it believes there are
revenue growth opportunities, such as those along the U.S.-Mexico border and
between major Hispanic population centers in the U.S.

Many of the Company's operating expenses are fixed costs or costs that
cannot be changed rapidly. For example, the costs associated with running bus
miles would typically be classified as a variable cost. The Company operates
approximately 86.5% of the aggregate bus miles on a regularly scheduled basis
(the "base schedule offering"), approximately 10.0% of the aggregate bus miles
are operated on a capacity flexible, "whenever you want to go" basis to provide
service when the customer demand exceeds the base schedule offering
("extra-section miles") and the balance of the bus miles are attributable to
charter, training and repositioning of equipment. When the schedules are
published and the fleet and driver corps are organized

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(a) In 1994, the Company disclosed the number of sales outlets as 1,700. This
amount duplicated certain locations at which both Greyhound Lines, Inc. and
its subsidiaries sold tickets. Further, it included certain locations which
the Company served as bus stops, but at which no tickets were sold. The 1995
disclosure excludes these locations.

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around the base schedule offering, the scheduled miles being run cannot be
quickly reduced and, as a result, become more of a fixed cost. Accordingly,
typical fixed costs such as depreciation, amortization and lease expenses
related to the bus fleet and facilities, along with otherwise variable costs
such as maintenance, driver operations and customer service generally do not
vary proportionately with short-term changes in demand for the Company's
services except to the extent that capacity flexible extra-section miles permit
the adjustment of mileage-related costs. Management believes that the market
requires a core offering of scheduled service and, as a result, there are
limited opportunities to further reduce the Company's cost structure and that
returning the Company to profitability will be principally dependent on
increasing revenues. Moreover, the revenue enhancement strategy, which involves,
in part, providing more convenient service over the Company's routes, the
addition of new and more frequent schedules to meet customer travel preferences,
as well as improvements in customer service and telephone answering, will
require the Company to incur additional expenses during 1996 and future years
compared to 1995 and 1994. While limited in overall scope, management is
pursuing cost reduction opportunities in insurance and claims and accounting
processes.

The Company currently uses an automated system ("TRIPS") at approximately
260 terminals to sell tickets, issue daily reports of business, manage revenue
and seat capacity and quote fare and schedule information. To further improve
customer service, during late 1994, the Company modified its telephone answering
procedures and, in May 1995, opened a new telephone center to provide more
telephone-answering capacity. These improvements have resulted in an increase in
the number of unique callers reaching the telephone information center from
approximately 75% in October 1994, to approximately 94% in January 1995, to in
excess of 98% in January 1996, and resulted in 23.6 million calls being handled
in 1995 representing a 25.4% increase from the same period in 1994.

MARKETS

Passengers. The Company's major passenger markets are large metropolitan
areas, although the business is geographically fragmented with the 50 largest of
its 1,500 sales outlets accounting for approximately 48% of 1995 ticket sales
and the 1,000 largest origin/destination city pairs comprising approximately 36%
of 1995 ticket sales. Prior demographic studies have shown that the Company's
potential riders are concentrated in the northeastern, southern and industrial
Midwestern United States, as well as Texas and California. The typical passenger
travels to visit friends and relatives and generally has an annual income of
below $35,000. Based on market studies, the Company believes its customers are
price sensitive but not particularly time sensitive. In many cases, the
Company's passengers report that they own automobiles considered sufficiently
reliable for a trip of a similar distance. The majority of the Company's
customers usually make the decision to take a trip only a short time before
actually traveling and, for the most part, pay cash for their tickets on the day
of departure.

Package Express. The Company's package express delivery service primarily
serves small commercial shippers that require rapid delivery of small parcels
within a fairly limited geographical area. Typical shipments include car repair
parts, computer parts and forms, fresh flowers, eyeglasses, medical and dental
supplies, and certain pharmaceutical products. This portion of the Company's
business is strongest in the southern and western regions of the United States.
The Company is not a significant service provider in the document or letter
delivery business. Depending on the service chosen and the distance to the
receiving location, the Company's delivery time ranges from four to 48 hours.
During 1995, the average parcel shipped via the Company's package express
delivery service weighed 20.25 pounds and was shipped at an average sales price
of $13.35 as compared to 19.14 pounds and $13.15 during 1994.

Food Service. The Company's food service division manages facilities in
approximately 200 locations, which primarily serve the Company's passengers. The
operations include Company-operated facilities and contract concessionaires and
range in service levels from full-service cafeterias to vending machines.

COMPETITION

Passengers. The transportation industry is highly competitive. The
Company's primary sources of competition for passengers are automobile travel,
low cost air travel from both regional and national airlines,

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and in certain markets, regional bus companies and Amtrak. During the past few
years, regional airlines have increased their penetration in intermediate-haul
markets (400 to 1,000 miles), forcing the Company and the bus industry generally
to reduce prices in these markets in order to compete. Additionally, airline
discount programs may attract certain long-haul passengers from the Company.
However, these lower airline fares usually contain restrictions and require
advance purchase. Typically, the Company's customers decide to travel only a
short time before their trip and purchase their tickets on the day of travel.
The Company's everyday low pricing strategy results in "walk-up" fares
substantially below comparable airline fares. In instances where the Company's
fares exceed an airline discount fare, the Company believes the airline fares
are more restrictive and less readily available than travel provided by the
Company. In addition, the Company believes that in many cases it offers more
destination choices and more convenient schedules.

The automobile is the most significant form of competition to the Company.
The out-of-pocket costs of operating an automobile are generally less expensive
than bus travel, particularly for multiple persons traveling in a single car.
The Company meets this competitive trend through price and convenient
scheduling. To some extent, the Company is protected from the incremental
economics of auto travel since many of its customers travel alone. The lack of
multiple, reliable cars within a family and fear of driving alone for long
distances serve to offset the reduced convenience of bus travel and the economic
advantage of multi-person travel in a single car.

Competition from regional bus companies has increased materially during the
past several years and may continue to increase in the future. Price, frequency
of service and convenient scheduling are the current strategies of the Company
to meet this competition. Regional bus companies currently service more routes
in direct competition with the Company than in the recent past. These
competitors also possess operating authority for but do not currently operate
over numerous routes potentially competitive to the Company. Based on market and
competitive conditions, the regional bus companies could operate such routes in
the future. Competition by U.S.-based bus and van operators for Spanish speaking
customers is growing, particularly in states along the U.S.-Mexican border. The
Company also expects significant competition from Mexican bus carriers beginning
in 1997 when barriers to entry into the cross-border intercity bus market are
proposed to be eliminated under the North American Free Trade Agreement. In
addition to bringing new competition, the Company believes that this change will
serve to increase the volume of bus travel along both sides of the border. The
Company is pursuing various strategies which take advantage of this opportunity,
including alliances with Mexican bus carriers as well as U.S.-based
Hispanic-oriented bus companies.

Package Express. The Company faces intense competition in its package
express delivery service from local courier services, the U.S. Postal Service
and overnight, express and ground carriers. The Company is attempting to
stabilize its position in the industry by concentrating its efforts on
telemarketing and customer service by installing a 1-800 number staffed by
knowledgeable sales personnel, by improving local marketing, and by utilizing
terminal managers to solicit local sales prospects and improve local operations.
In addition, the Company intends to pursue consignment shipping opportunities.

Food Service. The captive nature of the food service operations in the
Company's terminals limits competition; however, in some locations proximity to
fast food outlets and convenience stores can pose a competitive factor.

SEASONALITY

The Company's business is seasonal in nature and generally follows the
pattern of the travel business as a whole, with peaks during the summer months
and the Thanksgiving and Christmas holiday periods. Historically, the Company
has experienced substantial seasonal variances in its cash flow. The first
quarter of the year has historically produced operating losses and negative cash
flows which are not offset until the third and fourth quarters when the
Company's operations typically produce substantial positive cash flows.

1991 REORGANIZATION UNDER CHAPTER 11

In March 1990, substantially all the Company's bus drivers, clerical
workers and mechanics represented by the Amalgamated Transit Union (the "ATU")
went on strike following unsuccessful contract renewal

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negotiations. Although the Company continued its operations by hiring
replacement drivers as quickly as possible, and most striking workers, other
than drivers, returned to work, the revenue losses and expenses associated with
the strike exhausted the Company's cash resources. In June 1990, the Company
filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code
("Chapter 11"). The Company's Chapter 11 plan of reorganization was confirmed by
the United States Bankruptcy Court for the Southern District of Texas,
Brownsville Division (the "Bankruptcy Court"), and the Company emerged from
bankruptcy on October 31, 1991.

WORKFORCE

At January 31, 1996, the Company employed approximately 10,800 workers,
consisting of approximately 4,200 terminal employees, 3,700 drivers, 1,000
supervisory personnel, 800 mechanics, 500 clerical workers, and 600 telephone
information agents. Of the total workforce, approximately 8,100 are full-time
employees and approximately 2,700 are part-time employees. Total salary and wage
costs increased by 7.9% in 1995 to $230.0 million which accounted for 35% of
total operating expenses in 1995.

At January 31, 1996, 45% of the Company's employees were represented by
collective bargaining agreements. The ATU represents approximately 4,180 of the
Company's drivers, telephone information agents, terminal workers at two
locations, and mechanics. These employees, with the exception of the terminal
workers, are governed by a collective bargaining agreement that expires on
January 31, 1999. The terminal workers at two locations are governed by
collective bargaining agreements that expire during 1996.

Additionally, approximately 370 mechanics and other maintenance employees
in 20 locations are represented by the International Association of Machinists
and Aerospace Workers (the "IAM"). The IAM-represented employees are governed by
a labor contract that expires on October 1, 1996. Also, the International
Brotherhood of Teamsters represents 138 terminal employees at three bus
terminals. Texas, New Mexico & Oklahoma Coaches, Inc., a subsidiary of the
Company, employs 138 drivers who are represented by the United Transportation
Union and 42 mechanics represented by the IAM.

TRADEMARKS

The Company has a perpetual, exclusive license to use, at no cost, the
Greyhound name and trademarks and the "image of the running dog" trademarks in
the United States and Mexico for travel and transportation (except by water)
purposes pursuant to a trademark license agreement. These names and trademarks
have substantial consumer awareness.

GOVERNMENT REGULATION

The Department of Transportation. As a motor carrier engaged in
interstate, as well as intrastate, transportation of passengers and express
shipments, the Company is, and must remain, registered with the U.S. Department
of Transportation (the "DOT"). Failure to maintain a satisfactory safety rating
or to meet minimum financial responsibility requirements, after notice and
opportunity to remedy, may result in the DOT's ordering the suspension or
revocation of the registration and, hence, the right to provide transportation.
The Company is subject to periodic and random inspections and audits by the DOT
to determine whether the Company's drivers, buses and records are in compliance
with the DOT's regulations. The DOT's regulations govern the qualifications,
duties and hours of service of drivers, the standards for vehicles, parts and
accessories, the maintenance of records and the submission of reports pertaining
to the Company's drivers, buses and operations. The Company, from time to time,
has been cited by the DOT for noncompliance with its regulations but,
nevertheless, has retained a satisfactory safety rating. The DOT establishes
minimum financial responsibility requirements for motor carriers; the Company
has met these and has been authorized to partially self-insure its bodily injury
and property damage liability (see "Insurance Coverage"). The DOT also
administers regulations to assure compliance with vehicle noise or emission
standards prescribed by the Environmental Protection Agency (the "EPA"). All of
the buses in the Company's fleet contain engines that comply with, or are
grandfathered from compliance under, EPA regulations, but, on occasion, the
Company has been cited and fined for non-compliance with noise or emission
standards.

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Surface Transportation Board. As a result of the Interstate Commerce
Commission Termination Act of 1995, the Company is now also regulated by DOT's
Surface Transportation Board (the "STB"). The STB must grant advance approval
for the Company to pool operations or revenues with another passenger carrier.
The STB, moreover, must authorize any merger by the Company with, or its
acquisition of, another motor carrier of passengers. The Company must maintain
reasonable through routes with other motor carriers of passengers, and, if found
not to have done so, the STB can prescribe them. Agreements between motor
carriers of passengers for their joint adoption of mileage guides, rules,
divisions or general rate adjustments are subject to STB authorization and
supervision.

State Regulations. As an interstate motor carrier of passengers, the
Company may engage in intrastate operations over any of its authorized routes.
By federal law, states are pre-empted from regulating the Company's fares or
express charges or its schedules, including the withdrawal of service over any
route. However, the Company's buses remain subject to state vehicle registration
requirements, bus size and weight limitations, fuel sales and use taxes and
other local standards not inconsistent with Federal requirements. In some states
the Company's securities issues are subject to regulation, in addition to those
of the Securities and Exchange Commission.

Other. In addition, the Company is subject to regulations under the
Americans with Disabilities Act (the "ADA"), the Civil Rights Act of 1964, as
amended, and the Occupational Safety and Health Act. Under the ADA, the Company
will be required, at an uncertain date in the future, to make new buses
accessible to disabled persons. The ADA does not require the retrofitting of
existing buses with lift equipment. The DOT is currently developing regulations
regarding bus access and determining whether new buses should be equipped with
lift equipment or whether alternative forms of stationary terminal-based lift
devices should be permitted. Following the promulgation of final regulations,
which are not expected to be finalized during 1996, the Company will have two
years before the new regulations become effective, at which point newly acquired
buses must be accessible. The form of required access is uncertain as of the
date of this filing, but the expense of compliance, once the new regulations
take effect, could be material to the Company's results of operations. The
Company expects that new buses with built-in lift devices will be more costly to
purchase, by as much as $10,000 to $25,000 per bus, and will be more costly to
maintain. Additionally, the ADA requires the Company to design its new
facilities and retrofit existing facilities to eliminate barriers affecting
access by handicapped persons. The Company has a program to identify and address
mobility barriers at its facilities and has made, and is expected to continue to
make, expenditures to address these issues.

INSURANCE COVERAGE

The Interstate Commerce Commission (now the DOT) has granted the Company
authority to self-insure its automobile liability exposure for interstate
passenger service up to a maximum level of $5.0 million per occurrence. To
maintain self-insurance authority, the Company is required to maintain a
tangible net worth of $10.0 million (as of December 31, 1995, the Company's
tangible net worth was $129.8 million) and to maintain a $15.0 million trust
fund (currently fully funded) to provide security for payment of claims.
Subsequent to the self-insurance grant by the federal government, thirty-eight
states granted the Company the authority to self-insure its intrastate
automobile liability exposure. The Company maintains comprehensive automobile
liability and general liability insurance to insure its assets and operations
subject to a $1.5 million self-insured retention per occurrence. The Company
also maintains property insurance subject to a $0.1 million deductible per
occurrence, and maintains workers' compensation insurance, subject to a $1.0
million deductible per occurrence.

Insurance coverage and risk management expense are a key component of the
Company's cost structure. 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 materially adverse effect on
the Company's financial condition.

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ENVIRONMENTAL MATTERS

The Company may be liable for certain environmental liabilities and
clean-up costs relating to underground fuel storage tanks and systems in the
various facilities presently or formerly owned or leased by the Company. Based
upon surveys conducted by Company personnel, 74 locations have been identified
as sites requiring potential clean-up and/or remediation as of December 31,
1995. The Company has estimated the clean-up and/or remediation costs of these
sites to be $4.3 million, of which $0.9 million is indemnifiable by the
predecessor owner of the Greyhound domestic bus operations, now known as The
Dial Corp ("Dial"). The Company has no reason to believe that Dial will not
fulfill its indemnification obligations to the Company. However, if Dial does
not fulfill such obligations, the Company could have liability with respect to
those matters. Additionally, the Company has been designated as a potentially
responsible party by the EPA at three Superfund sites where the Company and
other parties face exposure for costs related to the clean-up of those sites.
Based on the EPA's enforcement activities to date, the Company believes its
liability at these sites will not be material because its involvement was as a
de minimis generator of wastes disposed of at the sites. In light of the minimal
involvement, the Company has been negotiating to be released from liability in
return for the payment of immaterial settlement amounts. The Company has
recorded a $1.0 million receivable from Dial for the indemnification at December
31, 1995, including costs associated with previously remediated sites. The
Company has also recorded a total environmental reserve of $4.2 million at
December 31, 1995 for noncapitalizable expenses related to the sites identified
for potential clean-up and/or remediation. The reserve amount for the remaining
sites is based on discounted cash flows at a discount rate of 8%. Management
believes that adequate accruals have been made related to all known
environmental matters.

ITEM 2. PROPERTIES

LAND AND BUILDINGS

At January 31, 1996, the Company used 502 pieces of real property in its
operations, of which 153 properties are owned and 349 are leased. Of those
properties, 396 are bus terminals, 33 are maintenance facilities, and the
remaining properties consist of driver dormitories, parking/storage lots, office
buildings and telephone information centers. The Company's properties vary in
size from approximately 100 square feet to approximately 150,000 square feet.
The Company leases eight of its key facilities from Dial, seven of which are
leased pursuant to a master lease agreement that expires in March 1997. Under
the master lease agreement, Dial may terminate the lease as to any or all of the
seven leased properties on six months' notice. The Company is reviewing the
suitability of each of the remaining Dial properties and may either attempt to
negotiate the purchase or re-lease of some of the facilities or find alternative
locations from which to conduct business. The Company believes the current
makeup of its properties is adequate for its operations, and although there is
no assurance, based on its recent experience, the Company believes that it will
be able to find suitable replacement properties on acceptable terms for any
properties the Company chooses to replace, or which are condemned, or for which
leases are not renewed or are otherwise terminated (including those properties
leased from Dial).

BUSES

At January 31, 1996, the Company operated a fleet of approximately 2,100
buses. Of those buses, approximately 800 are owned and 1,300 are leased. All but
181 of these buses were produced by one manufacturer, Motor Coach Industries
International, Inc. ("MCII"). The Company must purchase at least 75% of its bus
requirements, if any, from MCII pursuant to a bus purchase requirements contract
that continues through March 18, 1998.

The average age of the fleet has been reduced from 9.5 years in January
1993 to 6.8 years in January 1996. However, 30% of the Company's bus fleet
remains in excess of 10 years old. While the Company could continue to use these
older buses, the Company intends, over time, to replace these older, less
reliable vehicles with new buses. The Company believes that newer buses, as well
as older buses with newer engines, are more fuel efficient than buses with older
engines. New buses are generally less costly to maintain, in part because of
warranty coverage. The Company also anticipates acquiring new buses to increase
the size

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of the fleet in order to implement its plan to increase revenues by operating
additional bus miles. Due to technical design improvements and governmental
regulations, the principal bus engine model used in the Company's fleet will no
longer be available after 1997. In anticipation of this change, the Company
expects to acquire and begin advance testing of new bus models.

The Company expects to acquire up to 250 new buses during 1996 at an
aggregate cost of approximately $62 million. Orders will be placed subject to
the availability of cash from operations or financing on suitable terms.
Financing may be obtained through a variety of methods, including borrowings
under its credit agreement, operating and capital leases, and the possible sale
of securities. While the Company believes that its available credit facility
will provide the necessary funds for a significant portion of these buses and
that recent operating trends will support additional financing, there can be no
assurance that the Company will be able to obtain the necessary financing on
suitable terms for these purposes.

ITEM 3. LEGAL PROCEEDINGS

LABOR LITIGATION

The ATU strike in March 1990 resulted in litigation before the National
Labor Relations Board ("NLRB"). In early 1995, a settlement among the ATU, the
NLRB and the Company was finalized. The settlement resulted in the dismissal of
all litigation between the ATU, the NLRB and the Company, with the exception of
one issue related to the Company's granting, in 1990, of experience-based
seniority ("EBS") to drivers hired with previous commercial driving experience.
The Company continued to litigate this issue before the NLRB. In September 1994,
an Administrative Law Judge ("ALJ") of the NLRB issued a ruling finding that the
granting of EBS to drivers with previous commercial driving experience
constituted an unfair labor practice by the Company. The Company appealed the
ALJ's ruling. In October 1995, the NLRB affirmed the ALJ's ruling. The Company
opted not to appeal the NLRB's decision and in December 1995 announced that it
would eliminate EBS, effective in January 1996.

In June 1995, the Company extended an offer to over 350 post-March 1990
drivers with EBS. Pursuant to the offer, approximately 80% of eligible drivers
agreed to relinquish their seniority rights in return for cash payments. In
December 1995, a revised offer was made to the post-March 1990 drivers who did
not accept the prior buyout. Approximately two-thirds of the remaining drivers
accepted the revised offer, leaving, as of March 1, 1996, 21 post-March 1990
drivers who have not released the Company from liability as a result of their
loss of EBS seniority. These remaining 21 drivers could sue the Company based on
damages allegedly resulting from the loss of EBS, although to date, only one of
these remaining drivers has commenced litigation. Based on an assessment of the
potential liability it could face from claims by these remaining EBS drivers,
the Company does not believe that any such liability exposure is material nor
should it materially exceed the amounts recorded. The elimination of EBS also
affected drivers hired before March 1990. However, liability to this class of
drivers was resolved in the aforementioned settlement.

DEPARTMENT OF JUSTICE INVESTIGATION

In March 1994, the Antitrust Division of the U.S. Department of Justice
(the "DOJ") initiated an antitrust investigation to determine whether there is,
has been, or may be a violation by the Company of Sections 1 and 2 of the
Sherman Act by conduct or activities constituting a restraint of trade,
monopolization or an attempt to monopolize. This investigation principally
involved the competitive impact of (i) the Company's computerized reservation
system, including the provision of fare and scheduling information via
telephone, (ii) the Company's decision to discontinue publishing its bus
schedules in an industry publication and (iii) various provisions contained in
agreements with bus carriers using the Company's terminals. In April 1995, the
Company resumed publishing its schedules in the industry publication.

Pursuant to this investigation, the DOJ served a civil investigative demand
("CID") on the Company in March 1994. The CID required the Company to answer
various interrogatories and to produce certain documents. In July 1994, the
Company completed the production of documents and answered the interrogatories
required by the CID.

7
<PAGE> 10

In September 1995, the Company agreed with the DOJ to the entry of a
consent decree that would end the investigation. Under the provisions of the
consent decree, the Company has agreed not to enforce a provision in its bus
terminal lease agreements prohibiting a tenant bus carrier from selling its
tickets within 25 miles of the Company's terminal and has agreed not to adopt
any comparable provision. The Company rarely enforced this lease provision and
recently revised its lease agreements to eliminate the provision. The consent
decree was approved by a federal district court on February 28, 1996, and is now
final. The consent decree does not constitute an admission by the Company of any
violation of law, liability or wrongdoing. Management of the Company believes
that the consent decree will have no material impact on the Company's business,
financial condition or results of operations.

OKLAHOMA SALES TAX CLAIM

In January 1991, the Oklahoma Tax Commission ("OTC") filed a proof of claim
with the Bankruptcy Court in connection with the Company's 1990 Chapter 11
bankruptcy case. That claim related to sales taxes which the OTC alleged were
due and owing by the Company on interstate bus tickets sold in Oklahoma. The OTC
claim involved a proposed assessment of approximately $908,000 plus additional
interest from the date of the claim.

The Company objected to the claim on the basis that the tax the OTC
proposed to assess was an improper burden on interstate commerce in violation of
the Commerce Clause of the United States Constitution. In February 1993, the
Bankruptcy Court denied the OTC's claim in its entirety, finding that the
Oklahoma sales tax on interstate travel was unconstitutional. The OTC
subsequently appealed the Bankruptcy Court's decision. In April 1995, the United
States Supreme Court upheld the constitutionality of a sales tax imposed on
interstate bus tickets by the State of Oklahoma in a case involving another bus
company.

Subsequent to the Supreme Court's decision, the Company's case has been
remanded to the Bankruptcy Court where additional proceedings concerning the
claim will be heard. In April 1995, the Company began collecting sales taxes
from its customers for interstate bus tickets sold in Oklahoma. Additionally,
the OTC conducted an audit for the sales taxes due for the period from August
1992 to July 1995. The Company established a reserve during 1995 for its
estimate of the liability for the Bankruptcy claim and such audits. Based on an
assessment of the potential liability, the Company does not believe that any
such liability exposure is material nor should it materially exceed the amounts
recorded. Effective as of January 1, 1996, by federal legislation, all states,
including Oklahoma, are prohibited from collecting sales, use or similar taxes
on interstate bus tickets.

SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION

Between August and December 1994, seven purported class action lawsuits
were filed by purported owners of the Company's Common Stock (defined herein),
Convertible Debentures (defined herein) and Senior Notes (defined herein)
against the Company and certain of its former officers and directors. The suits
seek unspecified damages for securities law violations as a result of statements
made in public reports and press releases and to securities analysts during 1993
and 1994 that are alleged to have been false and misleading.

All the purported class action cases referred to above (with the exception
of one suit that was dismissed before being served on any defendants) have been
transferred to the United States District Court for the Northern District of
Texas, the Court in which the first purported class action suit was filed, and
are pending under a case styled In re Greyhound Securities Litigation, Civil
Action 3-94-CV-1793-G. A joint pretrial order has been entered in the class
action litigation which consolidates for pretrial and discovery purposes all of
the stockholder actions and, separately, all of the debtholder actions. The
joint pretrial order required plaintiffs to file consolidated amended complaints
and excused answers to the original complaints. In July 1995, the plaintiffs
filed their consolidated amended complaints, naming Greyhound Lines, Inc., Frank
J. Schmieder, J. Michael Doyle, Phillip W. Taff, Robert R. Duty, Don T.
Seaquist, Charles J. Lee, Charles A. Lynch and Smith Barney Incorporated as
defendants. Messrs. Lee and Lynch were subsequently dismissed from the case by
the plaintiffs. In September 1995, the various defendants filed motions to
dismiss plaintiffs' complaints. Also, in September 1995, plaintiffs filed a
motion seeking to certify the class of plaintiffs. Both motions have been fully
briefed and are pending for decision before the Court.

8
<PAGE> 11

In November 1994, a shareholder derivative lawsuit was filed by Harvey R.
Rice, a purported owner of the Company's Common Stock, against present directors
and former officers and directors of the Company and the Company as a nominal
defendant. The suit seeks to recover monies obtained by certain defendants by
allegedly trading in the Company's securities on the basis of nonpublic
information and to recover monies for certain defendants' alleged fraudulent
dissemination of false and misleading information concerning the Company's
financial condition and future business prospects. The suit, filed in the
Delaware Court of Chancery, New Castle County, is styled Harvey R. Rice v. Frank
J. Schmieder, J. Michael Doyle, Charles A. Lynch, Richard J. Caley, Thomas F.
Meagher, Thomas G. Plaskett, Kenneth R. Norton, Robert B. Gill, Alfred E.
Osborne, Jr., J. Patrick Foley, Charles J. Lee and Greyhound Lines, Inc., Civil
Action No. 13854. Pursuant to a stipulation, the time for all defendants to
answer, move or otherwise plead with respect to the derivative complaint is not
yet due.

In May 1995, a lawsuit was filed on behalf of two individuals, purported
owners of the Company's Common Stock, against the Company and certain of its
former officers and directors. The suit seeks unspecified damages for securities
law violations as a result of statements made in public reports and press
releases and to securities analysts during 1993 and 1994 that are alleged to
have been misleading. The suit, filed in the United States District Court for
the Northern District of Ohio, is styled James Illius and Teodore J. Krawec v.
Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action
No. 1-95-CV-1140. The defendants filed a motion to transfer venue seeking to
have the case transferred to the Northern District of Texas where the class
action litigation is pending. In September 1995, the defendants' motion was
granted and pursuant to the joint pretrial order in the class action case, the
matter will be consolidated into the litigation pending before the Court in
Dallas.

Based on a review of the litigation, a limited investigation of the
underlying facts and discussions with legal and outside counsel, the Company
does not believe that the outcome of this litigation would have a material
adverse effect on its business and financial condition. The Company intends to
defend against the actions vigorously. To the extent permitted by Delaware law,
the Company is obligated to indemnify and bear the cost of defense with respect
to lawsuits brought against its officers and directors. The Company maintains
directors' and officers' liability insurance that provides certain coverage for
itself and its officers and directors against claims of the type asserted in the
subject litigation. The Company has notified its insurance carriers of the
asserted claims.

In January 1995, the Company received notice that the Securities and
Exchange Commission (the "SEC") is conducting a formal, non-public investigation
into possible securities laws violations allegedly involving the Company and
certain of its present and former officers, directors and employees and other
persons. The SEC Order of Investigation (the "Order of Investigation") states
that the SEC is exploring possible insider trading activities, as well as
possible violations of the federal securities laws relating to the adequacy of
the Company's public disclosures with respect to problems with its passenger
reservation system implemented in 1993 and lower-than-expected earnings for
1993. In addition, the SEC has stated that it will investigate the adequacy of
the Company's record keeping with respect to the passenger reservation system
and its internal auditing controls. Although the SEC has not announced the
targets of the investigation, it does not appear from the Order of Investigation
that the Company is a target of the insider trading portion of the
investigation. In September 1995, the SEC served a document subpoena on the
Company requiring the production of documents, most of which the Company
voluntarily produced to the SEC in late 1994. The Company is fully cooperating
with the SEC's investigation of these matters. The probable outcome of this
investigation cannot be predicted at this stage in the proceeding.

OTHER LEGAL PROCEEDINGS

In addition to the litigation discussed above, the Company is a defendant
in various lawsuits arising in the ordinary course of business, primarily cases
involving personal injury and property damage claims. Although these lawsuits
involve a variety of different facts and theories of recovery, the majority
arise from traffic accidents involving buses operated by the Company. The vast
majority of these claims are covered by insurance for amounts in excess of the
self-retention or deductible portion of the policies. Therefore, based on the
Company's assessment of known claims and its historical claims payout pattern
and discussion with legal and outside counsel and risk management personnel,
management believes that there is no proceeding either

9
<PAGE> 12

threatened or pending against the Company relating to such personal injury
and/or property damage claims arising out of the ordinary course of business
that, if resolved against the Company, would materially exceed the amounts
recorded.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

10
<PAGE> 13

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS

MARKET INFORMATION

The Common Stock, par value $.01 per share (the "Common Stock"), of the
Company is listed on the American Stock Exchange under the symbol "BUS." The
following table sets forth the high and low sale prices for the Company's Common
Stock during the periods indicated as reported by the American Stock Exchange:

<TABLE>
<CAPTION>
HIGH LOW
----- ----
<S> <C> <C>
First Quarter 1994....................................... $12 1/2 $9 1/2
Second Quarter 1994...................................... 11 6 1/4
Third Quarter 1994....................................... 6 7/8 1 3/4
Fourth Quarter 1994...................................... 3 1 5/8

First Quarter 1995....................................... $ 2 3/4 $1 1/4
Second Quarter 1995...................................... 5 11/16 2 15/16
Third Quarter 1995....................................... 5 5/16 3 1/2
Fourth Quarter 1995...................................... 4 5/8 3 5/8

January 1, 1996 - March 1, 1996.......................... $ 4 9/16 $2 7/8
</TABLE>

HOLDERS

The number of shares of Common Stock outstanding as of March 1, 1996, was
58,179,326. The Company has issued 58,288,518 shares of Common Stock, of which
109,192 shares are currently held by the Company as treasury stock. As of March
1, 1996, there were approximately 12,976 recordholders of Common Stock.

DIVIDENDS

The Company has not paid any dividends on the Common Stock in the past and
does not expect to pay any dividends on the Common Stock in the foreseeable
future. The indenture governing the Senior Notes (defined herein) restricts the
Company's ability to pay, and the New Credit Facility (defined herein) prohibits
the Company from paying cash dividends on the Common Stock. In the event the
Company were not contractually prohibited from paying dividends, the holders of
Common Stock would be entitled to receive dividends only when and as declared by
the Board of Directors of the Company, subject to the prior rights and
preferences, if any, of holders of preferred stock.

CONVERTIBLE DEBENTURES

At December 31, 1995, the Company had outstanding $9.8 million principal
amount of its 8.5% Convertible Subordinated Debentures due March 31, 2007 (the
"Convertible Debentures") which are convertible at the option of the holder at
any time prior to maturity, unless previously redeemed, into Common Stock at the
conversion price of $12.375 per share, subject to adjustment in certain events
(see Note 12 to the December 31, 1995, Consolidated Financial Statements). In
December 1994, the Company completed the Tender Offer (defined herein) in which
approximately $89.0 million of its Convertible Debentures were exchanged for
approximately 22.8 million shares of the Company's Common Stock (see ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS").

11
<PAGE> 14

ITEM 6. SELECTED FINANCIAL DATA

Except for "Other Data" and "Operating Data," the following have been
extracted from the audited Consolidated Financial Statements of the Company for
each of the respective periods. The Company's results of operations for the ten
months ended October 31, 1991, are not representative of normal operations, and
thus, are not comparable to its results of operations for subsequent periods due
to the effects of the strike that began on March 2, 1990, and the Company's
subsequent Chapter 11 reorganization. See "BUSINESS -- Reorganization under
Chapter 11" included elsewhere in this filing. Additionally, as a result of the
adoption of fresh start financial reporting upon emergence from bankruptcy and
the consolidation, pursuant to the Company's Chapter 11 plan of reorganization,
of the operations of the Company and previously unconsolidated affiliates under
a centralized corporate structure, the Statement of Operations Data for the ten
months ended October 31, 1991, are not comparable to the Statement of Operations
Data and the Operating Data presented for later periods. Additionally, the
Statement of Operations Data for the year ended December 31, 1994, includes
$61.9 million in certain operating charges which may affect comparability. The
following financial data, as it relates to the Company, should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS", "BUSINESS" and the Consolidated Financial Statements
of Greyhound Lines, Inc. and Subsidiaries included elsewhere in this filing.

FIVE-YEAR STATISTICAL SUMMARY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS TEN MONTHS
DECEMBER 31, ENDED ENDED
---------------------------------------------------- DECEMBER 31, OCTOBER 31,
1995 1994(A) 1993 1992 1991 1991
----------- ----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........................ $ 657,364 $ 616,331 $ 666,496 $ 692,981 $ 124,937 $ 609,751
Operating expenses
Transportation services(b)................ 616,991 645,761 593,501 604,094 109,888 583,968
Depreciation and amortization............. 31,010 36,046 33,154 33,499 5,255 24,478
Interest expense............................ 26,807 33,456 30,832 35,297 6,038 15,557
Reorganization costs(c)..................... -- -- -- -- -- 83,150
Income tax provision (benefit)............ 374 16,862 6,253 9,142 1,580 (355)
Income (loss) before extraordinary items and
cumulative effect of a change in
accounting principle...................... (17,818) (115,794) 8,594 10,949 2,176 (97,047)
Extraordinary items(d)...................... -- (38,373) 407 -- -- (249,698)
Cumulative effect of a change in accounting
principle(e).............................. -- -- 690 -- -- --
Net income (loss)........................... $ (17,818) $ (77,421) $ 7,497 $ 10,949 $ 2,176 $ 152,651
Earnings per share of Common Stock(f):
Primary
Income (loss) before extraordinary
items and cumulative effect of a
change in accounting principle.... $ (0.33) $ (7.58) $ 0.65 $ 1.10 $ 0.22 N/A
Extraordinary items................. -- 2.51 (0.03) -- -- N/A
Cumulative effect of a change in
accounting principle.............. -- -- (0.05) -- -- N/A
---------- ---------- ---------- --------- ---------
Net income (loss)................... $ (0.33) $ (5.07) $ 0.57 $ 1.10 $ 0.22 N/A
========== ========== ========== ========= =========
Fully diluted
Income (loss) before extraordinary
items and cumulative effect of a
change in accounting principle.... $ (0.33) $ (7.58) $ 0.65 $ 0.96 $ 0.22 N/A
Extraordinary items................. -- 2.51 (0.03) -- -- N/A
Cumulative effect of a change in
accounting principle.............. -- -- (0.05) -- -- N/A
---------- ---------- ---------- --------- ---------
Net income (loss)................... $ (0.33) $ (5.07) $ 0.57 $ 0.96 $ 0.22 N/A
========== ========== ========== ========= =========
</TABLE>

12
<PAGE> 15

- ---------------

NOTES:

(a) The 1994 loss reflected $61.9 million in certain operating charges,
including increases in insurance and legal reserves to recognize the
pre-bankruptcy claims previously barred by the courts, adverse claims
development in 1994, and certain litigation exposure; write-downs of real
estate and other assets; costs associated with an operational
restructuring; and a $17.0 million increase in the income tax provision due
to the reversal of a previously recognized deferred tax benefit.

(b) Transportation services includes bus operating lease payments of $23.7
million, $22.7 million, $20.0 million, $27.8 million, and $31.8 million for
the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively.

(c) These reorganization costs are incremental revenues and expenses related to
the Company's Chapter 11 reorganization combined with the impacts of the
application of fresh start reporting to record the fair value of assets and
assumed liabilities of the reorganized Company.

(d) For the year ended December 31, 1994, the Company recorded an extraordinary
loss of $3.6 million, of which $3.2 million related to the write-off of
debt issuance costs and $0.4 million related to professional fees in
conjunction with the replacement of the Company's existing credit agreement
with a new credit agreement. The Company also recorded an extraordinary
gain of $41.9 million for the year ended December 31, 1994, related to the
conversion of $89.0 million of Convertible Debentures into Common Stock
(see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS"). The Company recorded an extraordinary loss of
$0.4 million for the year ended December 31, 1993, on the write-off of debt
issuance costs related to the replacement of the Company's then existing
credit agreement with a new credit agreement (see Note 9 to the December
31, 1994 Consolidated Financial Statements). The Company recorded an
extraordinary gain on extinguishment of debt of $249.7 million for the ten
months ended October 31, 1991, related to its emergence from bankruptcy.

(e) The net impact from adoption of SFAS No. 109 (defined herein, see Note 13
to the December 31, 1995, Consolidated Financial Statements) was $0.7
million and is reported as a charge to earnings as the cumulative effect
of a change in accounting principle for the year ended December 31, 1993.

(f) The completion of the tender offer portion of the Company's Financial
Restructuring resulted in the issuance of approximately 22.8 million shares
of Common Stock in December 1994 upon the conversion of approximately $89.0
million of Convertible Debentures into Common Stock. In January 1995, the
Company issued an additional 16.3 million shares of Common Stock in
connection with the consummation of the Rights Offering. The Company issued
4,000,000 shares of Common Stock on October 3, 1995 (see "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS"). The Company's stock was privately held prior to emergence
from bankruptcy on October 31, 1991.

(g) The Company's long-term debt was reduced by $89.0 million in December 1994
as a result of the conversion of the Convertible Debentures to Common
Stock. During December 1995, the Company repurchased $10.7 million
aggregate principal amount of its 10% Senior Notes due 2001 pursuant to a
put/call agreement with one of the Company's principal stockholders (see
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS").

13
<PAGE> 16

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CAPITAL RESOURCES AND LIQUIDITY

Public Offering. The Company filed a registration statement on Form S-3
relating to the sale of up to 10,004,144 shares of Common Stock which was
declared effective on September 28, 1995, and on October 3, 1995, the sale of
the stock was completed. Four million shares were sold by the Company and
6,004,144 shares were sold by Motor Coach Industries Limited, a selling
stockholder. The Company did not receive any portion of the proceeds from the
sale of shares of Common Stock by the selling stockholder.

Net proceeds to the Company from the sale of the 4,000,000 shares of Common
Stock offered by the Company were $15.4 million. The Company used $9.7 million
of the net proceeds it received to repurchase (the "Senior Note Repurchase")
$10.7 million aggregate principal amount of its 10% Senior Notes due 2001 (the
"Senior Notes") pursuant to a put/call agreement with one of the Company's
principal stockholders. The purchase price for the Senior Notes was based on
arm's-length negotiations. The Company used the remaining net proceeds from the
sale of the Common Stock for general corporate purposes. Pending use, the net
proceeds to the Company from the offering were invested in short-term,
interest-bearing securities or were used to reduce the borrowings under the New
Credit Facility (defined herein).

Capital Structure and Leverage. The Company had $172.7 million in
long-term debt outstanding (excluding $17.8 million of issued and undrawn
standby letters of credit) at December 31, 1995, which primarily consisted of
the Company's Senior Notes. Although the Company generally requires significant
cash flows to meet its debt and other continuing obligations, the Senior Note
Repurchase will reduce these requirements for the near term. After giving effect
to the Senior Note Repurchase, the Company's semi-annual interest payments on
the Senior Notes will be reduced from $8.2 million to $7.6 million (each January
31 and July 31). The Senior Notes sinking fund requirements for 1996, in the
amount of $8.0 million, will be met through the Senior Notes repurchased in 1995
and the $1.7 million of Senior Notes which the Company owned prior to the Senior
Note Repurchase. The balance of the Senior Note Repurchase will be applied to
the July 1997 sinking fund payment. As a result of the application of the
remaining Senior Note Repurchase, the July 1997 sinking fund payment will be
reduced from $10.0 million to approximately $5.7 million. The sinking fund
payment due July 1998 is $15.0 million and increases annually thereafter. The
Company will also require $26.0 million in the aggregate for other debt service,
$20.7 million of which is interest (including interest on the Senior Notes) and
$36.8 million for bus, real estate and other operating lease obligations during
1996.

During February 1995, in connection with the Financial Restructuring
(see -- "Financial Restructuring"), the Company pre-paid $12.9 million in bus
financing to Motor Coach Industries Acceptance Corporation ("MCIAC"). The
pre-payment resulted in the release of liens on 64 buses, which the Company then
pledged as collateral under the New Credit Facility (defined herein). Aggregate
amounts outstanding to MCIAC were $6.7 million as of December 31, 1995.

In July 1995, the Company issued 415,044 shares of Common Stock to
participants in the Company sponsored 401(k) cash or deferred retirement plans
that cover substantially all of its ongoing salaried, hourly and represented
employees.

Liquidity. Operating cash flows, together with cash from financing
activities, seasonal revolving credit borrowings and sales of assets,
historically have been sufficient to fund the Company's operations and investing
activities which consist primarily of capital expenditures for new bus
acquisitions, systems development costs and, where appropriate, facilities
replacements or upgrades. For the year ended December 31, 1995, operating
activities provided net cash of $29.5 million. However, during each year, the
seasonal fluctuations in the Company's cash flows can be significant. Typically,
cash flow for the first quarter of the year is negative, and is not offset until
the third and fourth quarters, which typically produce substantial positive cash
flows. The net cash required for financing activities, as well as cash required
for investing activities, were funded by cash provided by operating activities,
proceeds from the issuance of common stock, proceeds received from the Rights
Offerings (see -- "Financial Restructuring"), and the sale of surplus assets. At
December 31, 1995,

14
<PAGE> 17

the Company had cash and cash equivalents of $3.5 million and $34.7 million in
available borrowing capacity under the New Credit Facility (defined herein) for
general purposes. Additionally, the Company had sufficient unpledged collateral
which could be pledged under the terms of the New Credit Facility to increase
total available borrowing capacity to $51.7 million.

The Company is party to two floating rate interest rate swap agreements. In
October 1994, the agreements were amended to lock in future payments under the
agreements until maturity in July 1998. The net result of the amendments is that
these swaps will not be subject to interest rate risk. Under the amendments, the
Company will be required to pay $5.8 million in total from December 31, 1995
through the remaining term of the five-year agreements. The Company has
collateralized its payment obligations under the amended agreements with a $1.1
million letter of credit and liens on six pieces of Company-owned real property.
The Company is currently in negotiations with the counterparty to reduce
collateral requirements for 1996 and beyond.

During October 1994 as part of the Financial Restructuring
(see -- "Financial Restructuring"), the Company entered into a revolving credit
facility (the "Credit Facility") with Foothill Capital Corporation ("Foothill"),
which replaced the Company's prior bank facility. At the time of the Financial
Restructuring, the Credit Facility provided for revolving loans and letters of
credit and/or letter of credit guarantees of up to $35.0 million.

In June 1995, the Company renegotiated its Credit Facility (the "New Credit
Facility"). The New Credit Facility provides for revolving loans, letters of
credit and letter of credit guarantees up to a maximum commitment of $73.5
million. As of December 31, 1995, there were approximately $17.8 million in
issued and undrawn standby letters of credit outstanding under the New Credit
Facility, and no revolving borrowings outstanding under the New Credit Facility.
Syndication commitments under the New Credit Facility, including Foothill's
commitment as the lead agent, total $70.0 million at March 1, 1996. Availability
under the New Credit Facility is limited to the aggregate of the following: (1)
revolving advances of up to $3.5 million based on a formula of certain eligible
accounts receivable; (2) revolving advances of up to $44.5 million (the "Fixed
Asset Advances") based on the value of certain fixed asset collateral pledged to
Foothill; and (3) a bus purchase facility of up to $22.0 million (the "Bus
Purchase Facility"). Borrowings under the New Credit Facility mature on May 31,
1998, although availability under the Fixed Asset Advances will be subject to
quarterly reductions after April 1996, unless additional collateral is pledged.
The New Credit Facility is secured by liens on substantially all the assets of
the Company, excluding real estate purchases and new bus purchases that are
specifically pledged to support borrowings under the Bus Purchase Facility. The
New Credit Facility allows the Company to dispose of certain non-core real
estate properties. In addition, non-bus capital expenditures are limited to
$25.0 million annually with no spending limitations on bus purchases as long as
financed through debt, or operating or capital leases with maturities of no less
than five years. The Company is currently completing negotiations to increase
the commitments under the New Credit Facility to $80.0 million and extend the
agreement to January 15, 1999. The Company expects to successfully complete
these negotiations by April 1996.

The New Credit Facility is subject to financial covenants, including
maintenance of a minimum net worth and an agreed ratio of cash flow to interest
expense. At December 31, 1995, the Company was in compliance with these
covenants. In addition, the New Credit Facility provides for a reduction in
interest rates if certain ratio levels of cash flow to interest expense, in
excess of a minimum, are achieved. As of December 31, 1995, the Company had
exceeded the first threshold level and, as a result, the applicable interest
rate on any borrowings under the New Credit Facility will be reduced from 2.0%
above the prime rate to 1.75% above prime effective February 1, 1996.

The Company has embarked on an aggressive risk reduction and claims
reduction program. Due to a decrease in the pending inventory of claims, certain
insurance carriers have reduced their collateral and security requirements for
previous years' claims, which resulted in a return of collateral and security to
the Company of approximately $8.5 million during April 1995 and approximately
$14 million during December 1995. Nevertheless, a decision by the Company's
insurers to modify the Company's program substantially, by

15
<PAGE> 18

either increasing cost, reducing availability or increasing its collateral
requirements, could have a material adverse effect on the future liquidity and
operations of the Company.

During the Company's bankruptcy in 1990, certain funds were set aside to
cover claims arising under the Interstate Commerce Commission (now the DOT)
Trust Fund. Those claims have been concluded, and a final distribution has been
made to the claimants. The Interstate Commerce Commission Trust Fund was
collateralized with a $2.0 million letter of credit which was released to the
Company during September 1995.

Pension Plan Status.

Funding Requirements. The Company has five defined benefit pension plans.
The most significant plan is the Greyhound Lines, Inc. Retirement and Disability
Trust (the "ATU Plan") which covers approximately 17,000 current and former
employees, primarily drivers, fewer than 1,500 of whom are active employees as
of December 31, 1995. The ATU Plan was closed to new participants in November
1983 and, as a result, over 79% of the participants are 50 or more years old.
For financial reporting and investment planning purposes, the Company uses a
mortality table that closely matches the actual experience related to the
existing participant population.

In December 1994, the Congress passed the General Agreement on Tariffs and
Trade ("GATT") legislation. Included in this bill was a specification that
Employee Retirement Income Security Act of 1974, as amended ("ERISA") funding
requirements for pension plans be calculated using a specific actuarial
mortality table ("GATT-specified table"). This GATT-specified table differs
significantly from the table the Company has been using to value the pension
liabilities for financial reporting purposes. If the Company is required to
measure the pension liability, for ERISA funding purposes, utilizing the
GATT-specified table, it will be required to begin making contributions to the
ATU Plan at some time after 1997 in annual amounts potentially ranging from $2.3
million to $19.8 million. Management believes, however, that the ATU Plan is
currently adequately funded to meet the future benefit obligations. If the
Company is required to measure ERISA funding requirements using the
GATT-specified table, the Company believes that the ATU Plan will be over-funded
on an actual basis. Additionally, the ATU Plan documents provide that if the
Company is required to make contributions, benefits will be frozen and active
participants will not accrue any further benefits for continued service. This
freeze could contribute to further over-funding since the earnings on the assets
that are normally applied to fund current service accruals would be entirely
applied to increase the funding levels of the ATU Plan. If the ATU Plan is
over-funded, the excess assets cannot be returned to the Company.

The Company is exploring whether it may be able to obtain general or
specific relief from this requirement.

Pension Plan Accounting Treatment. In addition to the potential impact on
the Company's cash flow due to funding requirements, the ATU Plan represents a
potential risk to the Company's compliance with the minimum net worth covenant
in the New Credit Facility, particularly due to the size of the ATU Plan
liabilities ($701.8 million at December 31, 1995) relative to the Company's net
worth. Generally accepted accounting principles, which are different from ERISA
funding requirements, require that if the liabilities of a pension fund exceeds
its assets, a reduction in stockholder's equity be taken for the amount that
liabilities exceed assets for any particular pension plan. At December 31, 1995,
the ATU Plan's assets exceed the liabilities by $48.3 million, as measured for
accounting purposes. A substantial further decline in market interest rates,
among other factors, could result in the ATU Plan's liabilities exceeding the
ATU Plan's assets as measured for accounting purposes. Additionally, in the
event that the ATU Plan's liabilities exceed assets, the prepaid pension asset
related to the ATU Plan ($23.8 million at December 31, 1995) would be reversed
and stockholder's equity would be reduced by this amount, as well. There is no
cash impact of such an event. Although management feels that it is unlikely that
events would require the Company to record such a charge to equity, if the
Company were required to record a substantial reduction to equity due to the
above described pension accounting requirements, it could reduce the Company's
net worth below the minimum covenant levels. In such an instance, the Company
would seek a waiver for the minimum net worth requirement to the extent that it
is caused by a reduction to stockholder's equity related to the ATU Plan.

16
<PAGE> 19

The determination of the requirement of a reduction to stockholder's equity
is made on a plan by plan basis. Stockholder's equity reflects a reserve of $3.6
million related to the Greyhound Lines, Inc. Salaried Employees' Defined Benefit
Plan (the "Salaried Plan"). The related size of the Salaried Plan ($36.7 million
in plan liabilities at December 31, 1995) does not present substantial risk to
the Company's net worth.

Capital Expenditures. The Company's operations require significant annual
capital and maintenance expenditures related to the Company's bus fleet,
properties and systems software. For the year ended December 31, 1995, the
Company's capital expenditures totalled $46.4 million, of which $31.4 million
related to the purchase of buses. During June and July 1995, the Company took
delivery of 102 new buses from MCII. These buses were initially subject to a
month-to-month operating lease but were purchased by the Company during December
1995. The Company intends to sell and lease back these buses during the first
half of 1996. The Company also took delivery of and purchased 13 buses from MCII
in September 1995, and an additional 10 buses in December 1995. These
twenty-three buses were sold and leased back by the Company in December 1995 for
net proceeds of $6.2 million.

The average age of the bus fleet increased to 6.7 years at December 31,
1995 compared to 6.4 years at December 31, 1994, a change the Company believes
is immaterial. As of December 31, 1995, approximately 30% of the Company's bus
fleet was more than 10 years old compared to 32% at December 31, 1994. The
Company's experience indicates that as the age of its fleet increases, the
dependability and quality of service declines, which may make the Company less
competitive. While the Company could continue to use older buses, the Company
intends, over time, to replace older, less reliable vehicles with new buses. As
a result, during 1996 the Company expects to retire 212 buses that are 10 or
more years old. To replace these buses and to support the planned increase in
the size of the bus fleet, the Company expects to acquire up to 250 new buses in
1996 at an aggregate cost of approximately $62 million. The Company intends to
finance these purchases through cash flows from operations, operating leases and
vendor financing. Management believes that a continuing significant delay in
acquiring these new buses could adversely affect future operations due to the
higher operating costs associated with operating older buses and the inability
to implement fully the Company's plans to increase total bus miles.

The Company's ability to finance these and other capital expenditures and
to meet its other financial obligations will depend on the Company's future
operating performance, which will be subject to financial, economic, legal and
other factors affecting the business and operations of the Company, many of
which are beyond its control. Although cash flows from operating activities and
the New Credit Facility are expected to be sufficient to make a portion of the
Company's planned expenditures, the Company's operating strategy will depend on
the availability of additional sources of financing, such as operating and
capital lease financing or funds provided through sales of assets or sales of
securities. There can be no assurance that the Company will be able to obtain
financing on suitable terms for these purposes.

Certain Contingencies. The Company is subject to various contingencies
that could affect its liquidity position in the future. See "ITEM 3. LEGAL
PROCEEDINGS."

FINANCIAL RESTRUCTURING

During the fall of 1994, the Company initiated a comprehensive change to
its capital structure (the "Financial Restructuring"). The Financial
Restructuring was completed in January 1995 and consisted of (i) the execution
of the Credit Facility; (ii) the conversion of $89.0 million in aggregate
principal amount of the Convertible Debentures into shares of Common Stock; and
(iii) a rights offering (the "Rights Offering") to the Company's stockholders of
the opportunity to subscribe for and purchase 16.3 million new shares of Common
Stock for a total consideration of $35.0 million.

1995 AND 1994 RESULTS OF OPERATIONS

The Company's business is seasonal in nature and generally follows the
pattern of the travel business as a whole, with peaks during the summer months
and the Thanksgiving and Christmas holiday periods. Historically, the Company
has experienced substantial seasonal variances in its results of operations with
the third quarter, which includes the summer peak travel season, providing the
largest contribution to the

17
<PAGE> 20

Company's annual operating income. The second and fourth quarters generally
reflect a net loss or reduced income, and the first quarter is typically a loss
period. However, primarily due to weak demand for the Company's passenger
service throughout 1994 and certain operating charges, the Company experienced a
significant loss during each quarter of that year.

The following table presents certain of the Company's consolidated
operating statistics for the three and twelve months ended December 31, 1995 and
1994:

<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ------------------------
1995 1994 1995 1994
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Regular Service Miles (000)............ 64,691 58,219 256,683 235,786
Total Bus Miles (000).................. 65,338 58,723 259,746 238,457
Passenger Miles (000).................. 1,524,019 1,290,888 5,985,025 5,392,290
Available Seat Miles (000)............. 2,975,786 2,678,074 11,807,418 10,806,690
Passengers Carried (000)(a)............ 4,447 4,006 17,286 15,949
Average Trip Length (miles)(a)......... 343 322 346 338
Load Factor (% of available seats
filled).............................. 51.2 48.2 50.7 49.9
Yield (Passenger Revenue Per Passenger
Mile) (cents)........................ 9.28 9.44 9.36 9.61
Passenger Revenue Per Regular Service
Mile (dollars)....................... 2.19 2.09 2.18 2.20
Total Operating Revenue per Total Bus
Mile (dollars)....................... 2.53 2.48 2.53 2.58
Total Operating Expense per Total Bus
Mile (dollars)....................... 2.50 3.13 2.49 2.86
Cost per Total Bus Mile (cents):
Maintenance.......................... 26.5 32.0 26.4 30.8
Transportation....................... 60.0 57.9 60.4 56.1
Insurance and Safety................. 19.6 62.7 20.3 34.7
Station Costs as a % of Total
Revenue(%)........................... 19.8 20.6 19.1 19.4
</TABLE>

- ---------------

(a) See Operating Revenues for discussion of 1994 restatements

Charges to 1994 Results of Operations. The results of operations for the
year ended December 31, 1994, include certain operating charges of $61.9
million, an interest expense adjustment of $0.4 million, a tax expense
adjustment of $17.0 million and an extraordinary gain of $38.4 million. The
inclusion of these items in the 1994 results of operations affects the
comparability to the 1995 results of operations. To facilitate comparison, the
significant items that comprise these adjustments are discussed in the affected
expense categories below.

Operating Income (Loss). Operating income for 1995 was $9.4 million
compared to an operating loss of $65.5 million for 1994. Operating revenues
increased $41.0 million (or 6.7%) for 1995, while operating expenses decreased
$33.8 million (or 5.0%) for 1995, compared to 1994. The operating loss for 1994
included $61.9 million of certain operating charges including: write-down to the
expected market value of certain real estate assets which were expected to be
classified as surplus, charges to reflect the payment of pre-1991 claims that
the Bankruptcy Court allowed notwithstanding that those claims previously had
been barred by the court, adverse claims development in 1994, certain litigation
exposure and costs related to the Company's strategic and operational
reorganization.

18
<PAGE> 21

Operating Revenues. Passenger service revenues increased $41.8 million (or
8.1%) for the twelve months ended December 31, 1995, compared to the same period
in 1994, due to increased ridership. The following chart reflects the increase
in Passenger revenues by quarter for 1995 compared to the prior year:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1995 Passenger Revenue (000's)....... 109,454 136,663 172,715 141,407 560,239
1994 Passenger Revenue (000's)....... 110,841 126,336 159,359 121,895 518,431
Percentage increase (decrease)....... (1.3)% 8.2% 8.4% 16.0% 8.1%
</TABLE>

The number of passengers carried increased 8.4% for 1995 compared to 1994.
Management believes the increase in ridership resulted from the introduction of
everyday low pricing, improvements in handling customer telephone calls and more
convenient bus schedules. Although the short-haul business has increased, the
everyday low pricing strategy had a more significant impact on long-distance
travel producing a 2.4% increase in average trip length for 1995. The Company
expects the trends of increasing ridership and longer average trip lengths to
continue in 1996, as well.

Also contributing to higher passenger revenues was an improvement in
interline activity, which reflects an increase in the number of tickets being
sold by other carriers for all or a portion of the travel occurring over the
routes of the Company. The Company expects improvements in its interline
relationships to continue. The statistical information for 1994 has been
restated from that previously published.

Package express revenues declined $4.5 million (or 11.3%) in 1995 compared
to 1994. Package express revenues continued to decline throughout 1995
reflecting the impact of reductions in routes and terminal hours which were made
in 1994. These reductions resulted in decreased convenience and level of service
for the package express customers. As a result, many customers discontinued the
use of the Company's package express service during late 1994 and early 1995 and
began using competitors' services. In an effort to reduce this revenue decline,
the Company has made improvements to its service levels in the package express
business by increasing hours and providing more convenient schedules to its
customers.

Other operating revenues increased approximately $4.6 million (or 12.4%)
for 1995 compared to 1994 due primarily to an increase in interest income, which
comprises 16.8% of other operating revenues. As a result of higher interest
rates during 1995, interest earned on the Company's deposits increased. Prepaid
ticket order revenue has also increased.

Operating Expenses. Total operating expenses decreased $33.8 million (or
5.0%) for 1995 compared to 1994. Regular service miles operated in 1995 compared
to 1994 increased by 20.9 million miles (or 8.9%). Operating expenses for 1994
included a total of $60.1 million of the certain operating charges discussed
above.

Maintenance costs for 1995 decreased $4.9 million to $68.5 million. A
primary reason for the decrease compared to 1994 were certain operating charges
of $3.8 million taken in 1994, in part, to reserve for the increased costs of
environmental remediation. The remainder of the decrease relates to savings
realized in building-related costs (repairs, utilities, etc.) due to the closure
of several garages in 1994 and the closure of the New York City garage in
January 1995. The impact of these savings was to reduce costs, in spite of the
increase in miles operated and the slight increase in the average age of the
fleet from 6.4 years at December 31, 1994, to 6.7 years at December 31, 1995. As
a result, maintenance expenses decreased to 26.4 cents per mile in 1995 versus
30.8 cents per mile in 1994, as reported, or 29.2 cents per mile in 1994,
excluding the $3.8 million in certain operating charges. Maintenance costs, on a
per mile basis, during the first six months of 1996 may exceed current levels
due to the Company's efforts to accelerate engine changes during this off-peak
season for buses that are projected to have engine failures during the busy
summer period, when seasonal demands require high utilization of the entire bus
fleet.

Transportation expenses increased $23.1 million (or 17.3%) in 1995 compared
to 1994, due in part to an increase of 21.3 million (8.9%) bus miles operated.
On a comparable cost-per-mile basis, the added miles represented approximately
$11.9 million of the increase. The remainder of the increase is due to increases
in the year-over-year cost-per-mile for transportation expenses, which increased
from 56.1 cents per mile in 1994

19
<PAGE> 22

to 60.4 cents per mile in 1995. The increase in the cost per mile reflects a
contractually specified increase in drivers' wages, an increase in room rents
due primarily to limited availability of the new New York Dormitory, and
increased driver hiring and training due to the greater schedule offerings in
1995. Driver hiring and training contributed $4.9 million to the variance for
the year ended December 31, 1995, compared to the same period in 1994.

Agents' commissions and station costs increased $6.2 million (or 5.2%) in
1995 compared to 1994. The Company handled 4.8 million (or 25.4%) more telephone
calls in 1995 than in 1994. The Company achieved the improved call handling by
opening a new telephone center and improving staffing levels in its other
center. As a result, telephone information salaries and communication costs
reflect $2.9 million of the increase in this expense category. Ticket commission
expenses have increased due to the general increase in sales compared to 1994
and the conversion of 65 company-operated facilities to commission agencies.
Although the ticket commission expense increased as a result of these
conversions, it was offset by a related decrease in payroll, facility costs,
utilities and supplies since those became the responsibility of the agent upon
conversion. Interline commissions paid have also risen due to an increase in the
number of interline tickets honored by the Company in 1995. During 1994, certain
operating charges of $1.3 million were recorded in agents' commission and
station costs which relate primarily to the writeoff of certain receivables.

Marketing, advertising and traffic costs decreased $10.9 million (or 30.0%)
in 1995 compared to 1994, due primarily to a planned spending reduction in 1995
in direct advertising expenditures. Management plans an increase in advertising
spending in 1996 compared to 1995 principally to cover an increase in
advertising rates, as well as, the impact of a full year of advertising in 1996
in contrast to 1995 which reflected very little advertising spending during the
first quarter.

Insurance and safety costs decreased $30.0 million (or 36.2%) in 1995
compared to 1994. The decrease is primarily due to certain operating charges in
1994 of $30.7 million which related primarily to charges recorded to increase
reserve levels for bankruptcy claims previously considered barred and adverse
claims development in 1994. Baggage claims expense decreased by $1.7 million in
1995 compared to 1994, due to a new baggage handling policy put into place in
October 1994 which has reduced the number of baggage claims and also the payout
on baggage claims. The automobile and general liability expense increased due to
the additional claims exposure related to the increased miles operated, as well
as to the impact of a change in the Company's claims management strategy. A
significant component of the claims management strategy is to settle claims more
quickly. This strategy is expected to reduce insurance claims expense for
automobile and general liability over the longer term. Additionally, the Company
has begun the implementation of a safety and loss reduction program that
management believes will generate additional savings over the longer term.
However, management continues to monitor trends in exposure and to review the
adequacy of related reserves in light of any changes in exposure or claims
experience.

General and administrative expenses increased $0.7 million (or 1.0%) in
1995 compared to 1994, due in part to a $2.3 million accrual for expense related
to the Company's management incentive plan in 1995. There was no similar expense
recorded during 1994. Also, pension income was $3.6 million (or 62.8%) lower in
1995 than in 1994. Further, accounting salaries increased in 1995 compared to
1994 due to the increased use of temporaries and increased headcounts. Partially
offsetting these increases was a decrease in group insurance expenses over 1994
due to a reduction in both the employee- and Company-related portions of these
expenses, and a decrease in legal expenses of $3.9 million due to reduced
outside counsel fees in 1995.

Depreciation and amortization decreased by $5.0 million (or 14.0%) in 1995
compared to 1994, primarily due to an operating charge of $7.0 million taken in
1994 to recognize impairment of certain operating facilities which were less
than fully utilized. This favorable variance is partially offset by a full year
of depreciation in 1995 on 151 buses purchased in mid-1994. In addition, during
the fourth quarter of 1995 a $2.1 million charge was recorded to write down to
realizable value some older, high maintenance buses and certain real estate
which will be sold.

Operating taxes and licenses increased $0.7 million (or 1.5%) in 1995
compared to 1994, in part, as a result of a reserve recorded in the first
quarter of 1995 for past sales taxes potentially owed on interstate bus tickets
sold in Oklahoma. Payroll-related taxes have increased in 1995 due primarily to
increased driver and

20
<PAGE> 23

telephone center headcounts. Fuel and oil taxes have increased in 1995 compared
to 1994 due to the increase in miles run by the Company. These increases were
partially offset by a decrease in real estate taxes due to the closure of the
New York City garage in early January 1995, a lower valuation of the Chicago
maintenance facility for property tax purposes, and a refund received from New
York for a settlement of property taxes.

Operating rental expense decreased $0.4 million (or 0.8%) in 1995 compared
to 1994, primarily due to the closing of several maintenance facilities. This
decrease was partially offset by an increase in station rents, primarily for the
New York terminal where the Company pays a portion of its rent based on ticket
sales which were up 29.0% over 1994 levels. Casual rents for buses increased
$0.9 million due to the increased ridership during peak periods. Operating
rental expense for leased buses was $23.7 million for 1995 and $22.7 million for
1994.

Other operating expenses decreased $9.9 million (or 60.2%) in 1995 compared
to 1994. Included in 1994 are certain operating charges of $11.3 million, which
relate to a $4.5 million write-down taken to reflect the expected market value
of real estate properties which were not being utilized by the Company and were
expected to be sold. Additionally, the Company reevaluated all software and
systems on its books. This reevaluation resulted in $2.9 million in charges to
write-off certain systems which, due to operational changes in 1994, have
limited or no functionality. In late 1994, the Company also discontinued use of
the VORAD radar detection system because an extensive investment would have been
required to upgrade and maintain its effectiveness. Additionally, other
operating expenses in 1995 were reduced by a $1.2 million gain on the repurchase
of the Senior Notes.

Interest Expense. For the year ended December 31, 1995, interest expense
was $26.8 million compared to $33.5 million in 1994. Interest expense included
net expense of $0.7 million in 1995 and net savings of $0.7 million in 1994
resulting from the interest rate swap agreements entered into during 1993
(see -- "Capital Resources and Liquidity"). Interest expense decreased $6.6
million (or 19.9%) in 1995 compared to 1994, due to a $7.6 million interest
reduction related to the conversion of the Convertible Debentures (see --
"Financial Restructuring"). This reduction was offset by increased expense paid
on an installment note relating to bus purchase financing entered into during
mid-1994. Also offsetting the reduction is the interest component of a
settlement with the Internal Revenue Service for adjustments to the 1987, 1988
and 1989 federal tax returns. The weighted average of the Company's effective
interest rates on long-term debt outstanding as of December 31, 1995, was
12.65%.

Income Taxes. During the third quarter of 1994, the valuation allowance
for the deferred tax asset was increased to reserve for the remaining $17.0
million deferred tax asset. Due to the uncertainty as a result of the
restructuring, the Company believed it no longer met the "more likely than not"
realization criteria of SFAS No. 109. In 1995, the Company did not record any
tax benefit. The income tax expense for 1995 results from the settlement of the
1987 through 1989 IRS audit and state income taxes.

At December 31, 1995, the Company's net deferred tax assets total $32.9
million, less a valuation allowance of the same amount. Future use of the
deferred tax asset would normally reflect the recognition of tax expense and an
equal benefit due to the reversal of the valuation allowance, resulting in no
net impact to the Company's net earnings. However, $4.9 million of the deferred
tax asset arose prior to the fresh start date and, as a result, the reversal of
the related valuation allowance will increase capital in excess of par, rather
than reduce tax expense.

The Financial Restructuring at December 31, 1994, resulted in an ownership
change, as defined under Section 382 of the Internal Revenue Code (the "Code").
The provisions of the Code, as they apply to the Company, require that an annual
limitation be placed on the amount of net operating loss ("NOL") existing at
December 31, 1994, which may be utilized. Consequently, the Company's NOL
carryforwards from 1994 and prior tax years are now subject to an annual
limitation of $2.1 million. Any unused portion of the current annual limitation
may be carried forward to the following year. As a result, the Company had $31.5
million in NOL carryforwards available at December 31, 1994. The Company
estimates a NOL for 1995 of $28.5 million. None of the 1995 NOL is subject to
limitation under Section 382. The Company will also carry forward the unused
1995 annual limitation of $2.1 million from the 1994 NOL carryover. The Company
now has

21
<PAGE> 24

$60.0 million in NOL carryovers to 1996, $29.4 million of which is subject to
the annual $2.1 million limitation.

Extraordinary Item. The Company recorded an extraordinary loss of $3.2
million during 1994, for the write-off of debt issue costs related to the prior
credit facility, and an additional $0.4 million of extraordinary loss for
professional fees related to the Financial Restructuring. The extraordinary loss
was offset by a $41.9 million extraordinary gain on the conversion of the
Convertible Debentures to Common Stock recorded in the fourth quarter of 1994.

1994 AND 1993 RESULTS OF OPERATIONS

For 1994, the Company had an operating loss of $65.5 million, which
included $61.9 million in certain operating charges, compared to $39.8 million
in operating income for 1993. Those charges related to the write-down to the
expected market value of certain real estate assets which were expected to be
classified as surplus, charges to reflect the payment of pre-1991 claims that
the Bankruptcy Court allowed notwithstanding that those claims previously had
been barred by the court, adverse claims development in 1994, certain litigation
exposure, and costs related to the Company's strategic and operational
reorganization. In addition, in the third quarter of 1994, the Company recorded
a noncash, non-operating charge when it fully reserved its $17.0 million
deferred tax asset. The Company also incurred a $3.6 million extraordinary loss
for the write-off of deferred financing charges related to the prior credit
agreement, which the Company refinanced in October 1994. That extraordinary loss
was offset by a $41.9 million extraordinary gain resulting from the conversion
of $89.0 million of Convertible Debentures in the Financial Restructuring.

Operating Revenues. Regular route revenues declined $41.5 million (or
7.4%) in 1994 compared to 1993. Overall demand for the Company's passenger
service declined as reflected in a decrease in passengers carried of 0.5 million
(or 3.0%) in 1994 compared to 1993. In an effort to increase ridership, under
previous management, an aggressive advertising campaign offering discounted
fares was initiated early in 1994 which continued through the third quarter.
Although ridership began to increase, the lower fares resulted in lower yields
(revenue per passenger mile) and did not produce revenue equal to the prior
year.

Package express delivery service revenues declined $7.7 million (or 16.0%)
in 1994 compared to 1993. Package express revenues continued to decline in 1994
due to intense competition in the package express delivery service business from
overnight carriers and the de-emphasis by the Company of this service.

Food services revenues increased $0.4 million (or 1.9%) in 1994 compared to
1993. However, cost of goods sold for food services also increased $0.8 million
(or 6.7%) in 1994 compared to 1993. In 1994, the Company opened new locations
and closed non-profitable locations. Additionally, in an effort to gain control
over the quality of service provided in the terminals, the Company converted 34
locations, during 1992 through 1994, from agent-operated to Company-operated
locations.

Operating Expenses. Total operating expenses increased by $55.2 million
(or 8.8%) in 1994 compared to 1993.

Despite a slight increase in regular service miles operated for the year,
maintenance costs continued to decline in 1994 as a result of a reduction of
fleet age, successful efforts to reduce overhead including downsizing certain
garage locations to service islands, and increased training and more efficient
use of maintenance personnel. The decrease in maintenance expenses was partially
offset by $3.8 million in certain operating charges.

Transportation costs showed only a slight increase of $0.5 million in 1994
compared to 1993 due primarily to an increase in drivers' wages.

Agents' commissions and station costs decreased $2.8 million primarily due
to decreased ticket commissions and salaries. Ticket commissions decreased
primarily due to a decrease in ticket sales and the conversion of certain
terminals operated by independent contractors to Company-operated terminals
during 1993. During 1993, 107 terminals were converted to Company-operated
terminals. During 1994, the Company returned 22 of the smaller locations to
agent-operated terminals when it was determined that the conversion

22
<PAGE> 25

process was no longer profitable at the smaller locations. Also, salaries
decreased as a result of the Company's elimination of certain field management
positions in a continuing effort to reduce overhead. These decreases in costs
were partially offset by $1.3 million in certain charges primarily due to the
write-off of certain receivables.

Marketing expenses increased $8.0 million in 1994 compared to 1993.
Advertising expense for the year ended December 31, 1994, was $24.4 million
which was a $5.5 million increase compared to 1993. An aggressive advertising
campaign was initiated in the first quarter of 1994 in an effort to improve
traffic following the California earthquake and severe winter weather in the
Northeast, and in response to the generally weak demand for the Company's
passenger services. This advertising campaign continued into the third quarter.
Also, communication costs related to TRIPS increased $1.9 million because TRIPS
was operational for a full year in 1994 and only on a limited basis in 1993. In
addition, approximately 20 manual field locations were converted to TRIPS sites.

Insurance and safety costs increased $31.6 million in 1994 compared to
1993. This increase was primarily due to certain operating charges of $30.7
million which adjusted insurance reserves to recognize the pre-bankruptcy claims
previously barred by the courts and adverse claims development in 1994. Charges
were also included to reflect other potential legal exposures.

General and administrative expenses increased $3.2 million in 1994 compared
to 1993. This is due to an increase in salaries as a result of severance
packages and overall wage increases resulting from moving the Company's
accounting center from West Des Moines to Dallas. Additionally, information
systems costs have increased as TRIPS was functional for a full year in 1994 and
only a partial year in 1993 which increased equipment lease costs and usage
fees. Offsetting these increased expenses is a net $3.6 million increase in
pension income as compared to 1993.

Depreciation and amortization costs increased $2.9 million in 1994 compared
to 1993. Excluding charges of $7.0 million, depreciation expense decreased $4.1
million resulting from fewer buses owned than in the prior year due to
sale/leaseback transactions. The $7.0 million was recorded to recognize
impairment of certain properties which are less than fully utilized.

Operating rents increased $3.0 million in 1994 compared to 1993, caused
primarily by the increase in leased bus rental expense relating to the
sale/leaseback of 319 buses in December 1993 and 125 buses in March 1994.
Operating rental expense for leased buses for the years ended December 31, 1994
and 1993, was $22.7 million and $20.0 million, respectively, excluding casual
rents and other short-term leases during peak periods.

Other operating expenses increased $9.4 million in 1994 compared to 1993
primarily due to certain operating charges. These charges included $4.5 million
in write-downs taken to reflect the expected market value of real estate
properties which were no longer being utilized by the Company and which were
expected to be sold. Additionally, the Company reevaluated all software and
systems on its books. This reevaluation resulted in $2.9 million in charges to
write-off certain systems which, due to current year operational changes, have
limited or no functionality. In late 1994, the Company discontinued use of the
VORAD radar detection system because an extensive investment would have been
required to upgrade and maintain its effectiveness.

Expenses of $2.5 million were recorded during 1994 related to the Company's
strategic and operational reorganization. This amount consists primarily of
severance costs related to management overhead reductions.

Interest Expense. For the year ended December 31, 1994, interest expense
was $33.5 million compared to $30.8 million in 1993. Interest expense included
net savings of $0.7 million in 1994 and $1.4 million in 1993 resulting from the
interest rate swap agreements entered into during 1993. The Company amended its
two remaining interest rate swap agreements on October 6, 1994, to lock in the
future payments under the agreements until maturity in July 1998. The net result
of the amendments is to ensure that these swaps will not be subject to interest
rate risk. Consequently, should interest rates increase, the Company's payments
under the agreements would not be adversely affected. Conversely, should
interest rates decline, the Company would not receive any benefit.

23
<PAGE> 26

Income Taxes. For the quarter ended March 31, 1994, the Company recorded
an income tax benefit of $10.6 million as a result of its pre-tax loss and
increased its deferred tax asset. At that time, projections indicated that it
was "more likely than not" that the income tax benefit would be utilized to
offset future period income tax expense. At June 30, 1994, projections were
revised, and the Company expected to have a net loss for the year, due, in part,
to its strategic and operational reorganization. As a result, there was less of
a likelihood that the Company would utilize the income tax benefit, recognized
during the first quarter and therefore, the income tax benefit recorded for the
quarter ended March 31, 1994, was reversed during the second quarter. In
addition, as the projected losses continued to grow during the third quarter,
the Company concluded that the valuation allowance for the deferred tax asset
should be increased to reserve for the remaining $17.0 million asset. Due to the
uncertainty as a result of the Financial Restructuring and the ongoing strategic
and operational reorganization by the Company, the Company believed it no longer
met the "more likely than not" realization criteria of Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"). In addition, the Company did not
provide an income tax benefit on the loss for the year ended December 31, 1994.

At December 31, 1994, the Company's net deferred tax assets totaled $24.9
million, less a valuation allowance of the same amount. Future use of the
deferred tax asset would normally reflect the recognition of tax expense and an
equal benefit due to the reversal of the valuation allowance, resulting in no
net impact to the Company's net earnings. However, $4.9 million of the deferred
tax asset arose prior to the fresh start date, and as a result, the reversal of
the related valuation allowance will be used to increase capital in excess of
par, rather than reduce tax expense.

The Financial Restructuring generated significant amounts of income from
discharge of indebtedness ("DOD Income") for income tax purposes. The DOD Income
was offset by 1994 losses, thus eliminating the tax exposure created by the
Financial Restructuring. The Financial Restructuring also resulted in an
ownership change, as defined under Section 382 of the Internal Revenue Code (the
"Code"). The provisions of the Code, as they apply to the Company, require that
an annual limitation be placed on the amount of net operating loss ("NOL")
existing at December 31, 1994, which may be utilized. Consequently, the
Company's NOL carryforwards from 1994 are now subject to an annual limitation of
$2.1 million. Any unused portion of the current annual limitation may be carried
forward to the following year. As a result, the Company had $31.5 million in NOL
carryforwards at December 31, 1994.

Extraordinary Items. The Company recorded an extraordinary loss of $3.2
million during the third quarter of 1994, for the write-off of debt issue costs
related to the prior credit facility, and an additional $0.4 million of
extraordinary loss for professional fees related to the Financial Restructuring.
The extraordinary loss was offset by a $41.9 million extraordinary gain on the
conversion of the Convertible Debentures to Common Stock recorded in the fourth
quarter of 1994.

24
<PAGE> 27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Management Report on Responsibility for Financial Reporting........................ 26
Report of Independent Public Accountants........................................... 27
Consolidated Statements of Financial Position at December 31, 1995 and 1994........ 28
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994
and 1993......................................................................... 29
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1994 and 1993.............................................................. 30
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994
and 1993......................................................................... 31
Notes to Consolidated Financial Statements......................................... 32
Report of Independent Public Accountants on Financial Statement Schedule........... 56
Schedule II -- Valuation and Qualifying Accounts -- For the Years Ended December
31, 1995, 1994 and 1993.......................................................... 57
</TABLE>

25
<PAGE> 28

MANAGEMENT REPORT ON RESPONSIBILITY
FOR FINANCIAL REPORTING

The management of Greyhound Lines, Inc. and its subsidiaries (the
"Company") has the responsibility for preparing the accompanying consolidated
financial statements and for their integrity and objectivity. The statements
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis (other than accounting for income taxes, see Note
13) and are not misstated due to fraud or material error. The financial
statements include amounts that are based on management's best estimates and
judgments. Management also prepared the other information in the annual report
on Form 10-K and is responsible for its accuracy and consistency with the
financial statements.

The Company's consolidated financial statements have been audited by Arthur
Andersen LLP, independent public accountants approved by the Board of Directors.
Management has made available to Arthur Andersen LLP all the Company's financial
records and related data, as well as the minutes of the stockholders' and
directors' meetings. Furthermore, management believes that all representations
made to Arthur Andersen LLP during its audits were valid and appropriate.

Management of the Company has established and maintains a system of
internal control that provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition, and the prevention and detection of fraudulent
financial reporting. The system of internal control provides for appropriate
division of responsibility and is documented by written policies and procedures
that are communicated to employees with significant roles in the financial
reporting process and updated as necessary. Management continually monitors the
internal control system for compliance. The Company maintains an internal
auditing program that independently assesses the effectiveness of the internal
controls and recommends possible improvements thereto. In addition, as part of
its audits of the Company's consolidated financial statements, Arthur Andersen
LLP considered the Company's system of internal control to the extent they
deemed necessary to determine the nature, timing and extent of audit tests to be
applied. Management has considered the internal auditors' and Arthur Andersen
LLP's recommendations concerning the Company's system of internal control and
has taken actions that the Company believes respond appropriately to these
recommendations. Management believes that the Company's system of internal
control is adequate to accomplish the objectives discussed herein.

Management also recognizes its responsibility for fostering a strong
ethical climate so that the Company's affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's code of corporate conduct, which is
publicized throughout the Company. The code of conduct addresses, among other
things, the necessity of ensuring open communication within the Company;
potential conflicts of interests; compliance with all domestic and foreign laws,
including those relating to financial disclosure; and the confidentiality of
proprietary information. The Company maintains a systematic program to assess
compliance with these policies.

Steven L. Korby
Executive Vice President,
Chief Financial Officer and Treasurer

Dallas, Texas
March 15, 1996

26
<PAGE> 29

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Greyhound Lines, Inc.:

We have audited the accompanying consolidated statements of financial
position of Greyhound Lines, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Greyhound Lines, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

As explained in Note 13 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for income taxes.

ARTHUR ANDERSEN LLP

Dallas, Texas
February 12, 1996

27
<PAGE> 30

GREYHOUND LINES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Current Assets
Cash and cash equivalents............................................ $ 3,494 $ 9,454
Accounts receivable, less allowance for doubtful accounts of $217 and
$840.............................................................. 29,912 33,584
Stock subscription receivable........................................ -- 15,150
Inventories.......................................................... 3,615 3,779
Prepaid expenses..................................................... 7,353 10,248
Assets held for sale................................................. 4,534 9,526
Other current assets................................................. 8,885 12,859
-------- --------
Total current assets......................................... 57,793 94,600
Prepaid Pension Plans.................................................. 24,299 22,250
Property, Plant and Equipment, net of accumulated depreciation of
$84,234 and $68,388.................................................. 300,603 288,250
Investments in Unconsolidated Affiliates............................... 1,367 1,312
Insurance and Security Deposits........................................ 76,586 84,548
Intangible Assets, net of accumulated amortization of $14,901 and
$9,644............................................................... 20,000 20,489
-------- --------
Total assets................................................. $480,648 $511,449
======== ========
Current Liabilities
Accounts payable..................................................... $ 18,871 $ 14,916
Accrued liabilities.................................................. 54,305 53,106
Unredeemed tickets................................................... 9,140 10,259
Current portion of reserve for injuries and damages.................. 24,605 26,455
Current maturities of long-term debt................................. 5,259 7,022
-------- --------
Total current liabilities.................................... 112,180 111,758
Reserve for Injuries and Damages....................................... 41,056 45,888
Long-Term Debt......................................................... 172,671 197,125
Deferred Gains......................................................... 920 1,277
Other Liabilities...................................................... 4,059 2,205
-------- --------
Total liabilities............................................ 330,886 358,253
-------- --------
Commitments and Contingencies (Note 17)
Stockholders' Equity
Preferred stock (10,000,000 shares authorized; par value $.01; none
issued) Series A junior preferred stock (500,000 shares
authorized; par value $.01; none issued).......................... -- --
Common stock (100,000,000 shares authorized; 58,277,318 and
37,567,744 shares issued as of December 31, 1995 and 1994,
respectively; par value $.01)..................................... 583 375
Common stock subscribed (16,279,070 shares as of December 31,
1994)............................................................. -- 163
Capital in excess of par value....................................... 228,422 182,826
Capital in excess of par value, subscribed........................... -- 29,184
Retained deficit..................................................... (74,633) (56,815)
Less: Unfunded accumulated pension obligation........................ (3,572) (1,499)
Less: Treasury stock, at cost (109,192 shares)....................... (1,038) (1,038)
-------- --------
Total stockholders' equity................................... 149,762 153,196
-------- --------
Total liabilities and stockholders' equity................... $480,648 $511,449
======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

28
<PAGE> 31

GREYHOUND LINES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Operating Revenues
Transportation services
Regular route....................................................... $560,239 $ 518,431 $559,883
Package express..................................................... 35,690 40,232 47,905
Food services......................................................... 19,683 20,510 20,130
Other operating revenues.............................................. 41,752 37,158 38,578
-------- --------- --------
Total operating revenues....................................... 657,364 616,331 666,496
-------- --------- --------
Operating Expenses
Maintenance........................................................... 68,540 73,469 77,893
Transportation........................................................ 156,878 133,766 133,284
Agents' commissions and station costs................................. 125,650 119,438 122,209
Marketing, advertising and traffic.................................... 25,513 36,445 28,431
Insurance and safety.................................................. 52,820 82,786 51,143
General and administrative............................................ 72,348 71,603 68,378
Depreciation and amortization......................................... 31,010 36,046 33,154
Operating taxes and licenses.......................................... 48,186 47,478 47,114
Operating rents....................................................... 47,884 48,286 45,313
Cost of goods sold -- food services................................... 12,597 13,465 12,617
Other operating expenses.............................................. 6,575 16,502 7,119
Restructuring expenses................................................ -- 2,523 --
-------- --------- --------
Total operating expenses....................................... 648,001 681,807 626,655
-------- --------- --------
Operating Income (Loss)................................................. 9,363 (65,476) 39,841
Gain on Sale of Assets.................................................. -- -- (5,838)
Interest Expense........................................................ 26,807 33,456 30,832
-------- --------- --------
Income (Loss) Before Income Taxes, Extraordinary Items and Cumulative
Effect of a Change in Accounting Principle............................ (17,444) (98,932) 14,847
Income Tax Provision.................................................... 374 16,862 6,253
-------- --------- --------
Income (Loss) Before Extraordinary Items and Cumulative Effect of a
Change in Accounting Principle........................................ (17,818) (115,794) 8,594
Extraordinary Items, net of income tax benefit of $0 and $258........... -- (38,373) 407
Cumulative Effect of a Change in Accounting Principle................... -- -- 690
-------- --------- --------
Net Income (Loss)....................................................... $(17,818) $ (77,421) $ 7,497
======== ========= ========
Earnings Per Share of Common Stock:
Primary
Income (loss) before extraordinary items and cumulative effect of a
change in accounting principle.................................... $ (0.33) $ (7.58) $ 0.65
Extraordinary items................................................. -- 2.51 (0.03)
Cumulative effect of a change in accounting principle............... -- -- (0.05)
-------- --------- --------
Net income (loss)................................................... $ (0.33) $ (5.07) $ 0.57
======== ========= ========
Fully diluted
Income (loss) before extraordinary items and cumulative effect of a
change in accounting principle.................................... $ (0.33) $ (7.58) $ 0.65
Extraordinary items................................................. -- 2.51 (0.03)
Cumulative effect of a change in accounting principle............... -- -- (0.05)
-------- --------- --------
Net income (loss)................................................... $ (0.33) $ (5.07) $ 0.57
======== ========= ========
</TABLE>

The accompanying notes are an integral part of these statements.

29
<PAGE> 32

GREYHOUND LINES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK CAPITAL CAPITAL IN UNFUNDED
COMMON STOCK SUBSCRIBED TREASURY STOCK IN EXCESS OF ACCUMULATED RETAINED
------------------- ------------------- ---------------- EXCESS OF PAR VALUE PENSION EARNINGS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAR VALUE SUBSCRIBED OBLIGATION (DEFICIT) TOTAL
------------ ------ ----------- ------ ------- ------- --------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER
31, 1992... 10,001,653 $100 -- -- 90,624 $ (363) $ 39,900 $ -- $ (500) $ 13,125 $ 52,262
Issuance of
new equity
interests.. 4,662,158 47 -- -- -- -- 92,936 -- -- -- 92,983
Exercise of
stock
options.... 112,255 1 -- -- -- -- 1,177 -- -- -- 1,178
Purchase of
treasury
stock...... -- -- -- -- 36,242 (778) -- -- -- -- (778)
Issuance of
treasury
stock...... -- -- -- -- (1,954) 39 -- -- -- (16) 23
Adjustment
for
unfunded
accumulated
pension
obligation. -- -- -- -- -- -- -- -- (999) -- (999)
Net income... -- -- -- -- -- -- -- -- -- 7,497 7,497
---------- ---- ----------- ---- ------- ------- -------- -------- ------- -------- --------
BALANCE,
DECEMBER
31, 1993... 14,776,066 148 -- -- 124,912 (1,102) 134,013 -- (1,499) 20,606 152,166
Exercise of
stock
options.... 1,370 -- -- -- -- -- 13 -- -- -- 13
Issuance of
treasury
stock...... -- -- -- -- (15,720) 64 28 -- -- -- 92
Tender Offer
(see Note
16)........ 22,790,308 227 -- -- -- -- 48,772 -- -- -- 48,999
Rights
Offering
(see Note
16)........ -- -- 16,279,070 163 -- -- -- 29,184 -- -- 29,347
Net loss..... -- -- -- -- -- -- -- -- -- (77,421) (77,421)
---------- ---- ----------- ---- ------- ------- -------- -------- ------- -------- --------
BALANCE,
DECEMBER
31, 1994... 37,567,744 375 16,279,070 163 109,192 (1,038) 182,826 29,184 (1,499) (56,815) 153,196
Rights
Offering... 16,279,070 163 (16,279,070) (163) -- -- 29,184 (29,184) -- -- --
Tender of
debentures. 6,060 -- -- -- -- -- 75 -- -- -- 75
Issuance of
new equity
interests
in
connection
with 401(k)
match...... 415,044 5 -- -- -- -- 962 -- -- -- 967
Issuance of
new equity
interests.. 4,000,000 40 -- -- -- -- 15,347 -- -- -- 15,387
Exercise of
stock
options.... 9,400 -- -- -- -- -- 28 -- -- -- 28
Adjustment
for
unfunded
accumulated
pension
obligation. -- -- -- -- -- -- -- -- (2,073) -- (2,073)
Net loss..... -- -- -- -- -- -- -- -- -- (17,818) (17,818)
---------- ---- ----------- ---- ------- ------- -------- -------- ------- -------- --------
BALANCE,
DECEMBER
31, 1995... 58,277,318 $583 -- $ -- 109,192 $(1,038) $228,422 $ -- $(3,572) $(74,633) $149,762
========== ==== =========== ==== ======= ======= ======== ======== ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

30
<PAGE> 33

GREYHOUND LINES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss)............................................................. $(17,818) $ (77,421) $ 7,497
Noncash expenses and gains included in net income
Depreciation and amortization............................................... 31,010 36,046 33,154
Amortization of deferred gain............................................... (357) (332) --
Amortization of discount on Senior Notes.................................... 3,037 2,659 2,334
Amortization of debt issuance costs......................................... 925 1,586 440
Net (gain) loss on assets sold.............................................. 515 3,663 (5,065)
Unfunded net pension gain................................................... (2,051) (6,179) (1,248)
Benefits realized from deferred tax assets.................................. -- -- 6,189
Deferred tax provision...................................................... -- 17,000 --
Cumulative effect of a change in accounting principle....................... -- -- 690
Write-down of surplus property.............................................. -- 4,513 --
Write-off of intangible assets.............................................. -- 806 --
Write-off of debt issuance costs -- prior credit facility................... -- 3,158 --
Extraordinary gain on debt conversion....................................... -- (41,948) --
Gain on Senior Notes Repurchase............................................. (1,166) -- --
Net change in certain operating assets and liabilities
Accounts receivable......................................................... 4,129 3,777 (6,154)
Inventories................................................................. 164 3,405 (2,075)
Prepaid expenses............................................................ 2,895 (1,131) 4,947
Other current assets........................................................ 3,974 (1,401) 1,523
Insurance and security deposits............................................. 7,962 10,759 2,745
Intangible assets........................................................... (5,301) (4,446) (9,104)
Accounts payable............................................................ 3,763 (3,162) (3,886)
Accrued liabilities......................................................... 5,594 6,135 (2,053)
Reserve for injuries and damages............................................ (6,682) 29,444 (2,460)
Unredeemed tickets.......................................................... (1,119) (102) (730)
-------- -------- -------
Net cash provided by (used for) operating activities ................... 29,474 (13,171) 26,744
-------- -------- -------
Cash Flows From Investing Activities
Capital expenditures.......................................................... (46,370) (81,565) (104,998)
Proceeds from assets sold..................................................... 12,349 28,646 57,538
Proceeds from termination of interest rate swap............................... -- 1,609 --
Net change in ICC trust fund.................................................. -- -- 1,500
Deposit to collateralize operating leases..................................... -- (7,127) (23,283)
Other investing activities.................................................... (55) 208 (25)
-------- -------- -------
Net cash used for investing activities.................................. (34,076) (58,229) (69,268)
-------- -------- -------
Cash Flows From Financing Activities
Payments on debt and capital lease obligations................................ (18,771) (7,548) (15,391)
Proceeds from long-term borrowings............................................ -- 31,541 2,309
Net proceeds from Rights Offering............................................. 11,685 17,205 --
Proceeds from issuance of Common Stock........................................ 15,415 13 94,184
Repurchase Senior Notes....................................................... (9,687) -- --
Purchase of treasury stock.................................................... -- -- (778)
Net change in revolving credit facility....................................... -- -- (218)
-------- -------- -------
Net cash provided by financing activities............................... (1,358) 41,211 80,106
-------- -------- -------
Net Increase (Decrease) in Cash and Cash Equivalents............................ (5,960) (30,189) 37,582
Cash and Cash Equivalents, Beginning of Period.................................. 9,454 39,643 2,061
-------- -------- -------
Cash and Cash Equivalents, End of Period........................................ $ 3,494 $ 9,454 $ 39,643
======== ======== =======
Supplemental Schedule of Noncash Investing and Financing Activities:
Cash capital expenditures..................................................... $(46,370) $ (81,565) $(104,998)
Noncash acquisitions (Note 3)................................................. -- -- (9,043)
-------- -------- -------
Total capital expenditures.................................................... $(46,370) $ (81,565) $(114,041)
======== ======== =======
</TABLE>

The accompanying notes are an integral part of these statements.

31
<PAGE> 34

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. BACKGROUND AND OPERATING ENVIRONMENT

Greyhound Lines, Inc. and subsidiaries (the "Company") is the largest
intercity bus carrier in the United States and its primary businesses consist of
scheduled passenger service, package express delivery service and food services
at certain terminals. The Company's operations include a nationwide network of
terminal and maintenance facilities, a fleet of approximately 2,100 buses and
approximately 1,500 sales outlets. The Company's operating subsidiaries include
Texas, New Mexico & Oklahoma Coaches, Inc. ("TNM&O") and Vermont Transit, Co.,
Inc. ("VTC"). The Company is subject to regulation by the Department of
Transportation (the "DOT") and certain states.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company. Investments in companies that are 25% to 50% owned ("affiliates")
are accounted for using the equity method. All significant intercompany
transactions and balances have been eliminated.

Certain Reclassifications

Certain reclassifications have been made to the prior period statements to
conform them to the December 31, 1995, classifications.

Cash and Cash Equivalents

Cash and cash equivalents include short-term investments that are part of
the Company's cash management portfolio. These investments are highly liquid and
have original maturities of three months or less.

Inventories

Inventories are stated at the lower of cost or market, and cost is
determined using the first-in, first-out method.

Property, Plant and Equipment

Property, plant and equipment, including capitalized leases, are recorded
at cost, including interest during construction, if any. Depreciation is
provided over their estimated useful lives or lease terms, ranging from 3 to 20
years for structures and improvements, 4 to 12 years for revenue equipment, and
5 to 10 years for all other items, using principally the straight-line method of
depreciation for financial reporting purposes and accelerated methods for tax
reporting purposes. Maintenance costs are expensed as incurred, and renewals and
betterments are capitalized.

Debt Issuance Costs and Discounts

Costs incurred related to the issuance of debt are deferred, and such costs
and any related discounts are amortized to interest expense using the
straight-line method over the life of the related debt.

Software Development Costs

The direct costs of internally developed software are capitalized when
technological feasibility has been established, and amortization of the software
begins when the software is ready for use. The cost of the capitalized software
is amortized over a period of five years.

32
<PAGE> 35

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reserve for Injuries and Damages

The Company maintains comprehensive automobile liability, general
liability, workers' compensation, and property insurance to insure its assets
and operations. Automobile and general liability insurance coverages are subject
to a $1.5 million self-insured retention per occurrence. The Company also
maintains property insurance subject to a $0.1 million deductible per
occurrence, and maintains workers' compensation insurance, subject to a $1.0
million deductible per occurrence.

Successful claims against the Company, which do not exceed the deductible
or self-insured retention, are paid out of operating cash flows. A reserve for
injuries and damages has been established for these claims payments. This
reserve, which also includes an estimate of environmental liabilities, is
provided from an assessment of actual claims and claims incurred but not
reported ("IBNR") based upon historical experience.

Revenue Recognition

Transportation revenue is recognized when the service is provided. A
liability for tickets sold but not used is recorded.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Future Accounting Changes

The Company plans to adopt Statement of Financial Accounting Standards No.
121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," effective January 1, 1996. Under SFAS
No. 121, impairment losses are recognized when information indicates the
carrying amount of long-lived assets, identifiable intangibles and goodwill
related to those assets will not be recovered through future operations or sale.
Impairment losses for assets to be held or used in operations will be based on
the excess of the carrying amount of the asset over the asset's fair value.
Assets held for disposal, except for discontinued operations, will be carried at
the lower of carrying amount or fair value less cost to sell. SFAS No. 121 will
be applied prospectively from the date of adoption and, based on current
circumstances, management does not believe the effect of adoption will be
material.

The Company also plans to adopt Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," effective
January 1, 1996. SFAS No. 123 allows companies adopting the pronouncement to
either change the actual accounting methods for stock based compensation in the
financial statements or to disclose certain pro forma results of operations as
if the pronouncement had been adopted in the financial statements. The Company
will elect pro forma disclosure in the footnotes to the financial statements. As
a result, the adoption of SFAS 123 will have no effect on the financial
statements.

33
<PAGE> 36

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Earnings Per Share

Primary earnings per common share is calculated by dividing net income by
the weighted average shares of common stock of the Company ("Common Stock") and
Common Stock equivalents outstanding during the period. Common Stock equivalents
represent the dilutive effect of the assumed exercise of certain outstanding
stock options. The calculation of fully diluted earnings per share of Common
Stock assumes the dilutive effect of the Company's 8.5% Convertible Subordinated
Debentures due 2007 (the "Convertible Debentures") converted into Common Stock.
For the years ended December 31, 1995, 1994 and 1993, the assumed exercise of
outstanding in-the-money stock options and conversion of Convertible Debentures
have an antidilutive effect. As a result, these shares are not included in the
weighted average shares outstanding at December 31, 1995, 1994 and 1993. The
weighted average shares outstanding used in the calculation of earnings per
share of Common Stock for the years ended December 31, 1995, 1994 and 1993, are
as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Primary........................................ 54,595,377 15,284,050 13,209,869
Fully diluted.................................. 54,595,377 15,284,050 13,209,869
</TABLE>

3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES

Cash paid for interest was $22.7 million, $25.1 million and $29.3 million
for the years ended December 31, 1995, 1994 and 1993, respectively. There were
no cash payments for federal income taxes for the years ended December 31, 1995,
1994 and 1993, other than the $0.3 million settlement payment related to the
1987 through 1989 IRS audit.

Significant noncash investing and financing activities during 1994 included
the conversion of $89.0 million of Convertible Debentures into equity resulting
in the issuance of approximately 22.8 million shares of Common Stock.
Significant noncash investing and financing activities during the year ended
December 31, 1993, included the acquisition of 35 buses with $7.6 million in
remaining proceeds from the 1992 sale of inventory to Universal Coach Parts,
Inc. ("UCP"), an affiliate of The Dial Corp ("Dial") at that time. Additionally,
the Company received a bargain rent leasehold interest in the New York City
driver dormitory valued at $1.3 million. Also included in noncash financing and
investing activities during the year ended December 31, 1993, was the paydown of
the revolving bank loans of $26.3 million with the proceeds of the
sale/leaseback of 319 buses.

4. INVENTORIES

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
Service parts...................................................... $2,121 $2,178
Fuel............................................................... 381 491
Food service operations............................................ 1,113 1,110
------ ------
Inventories.............................................. $3,615 $3,779
====== ======
</TABLE>

34
<PAGE> 37

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. PREPAID EXPENSES

Prepaid expenses consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------ -------
<S> <C> <C>
Insurance......................................................... $3,504 $ 4,916
Taxes and licenses................................................ 1,195 2,993
Rents............................................................. 1,292 932
Other............................................................. 1,362 1,407
------ -------
Prepaid expenses........................................ $7,353 $10,248
====== =======
</TABLE>

Prepaid insurance decreased $1.4 million primarily due to paying for
directors' and officers' insurance in January 1996 instead of December 1995.
Prepaid taxes and licenses decreased $1.8 million due to paying for licenses for
the buses in January 1996 rather than in December 1995.

6. OTHER CURRENT ASSETS

Other current assets consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------ -------
<S> <C> <C>
Deposits.......................................................... $7,505 $11,713
Other............................................................. 1,380 1,146
------ -------
Other current assets.................................... $8,885 $12,859
====== =======
</TABLE>

The deposits held as of December 31, 1995 and 1994, are the current portion
of insurance deposits that include self-insurance deposits required by the DOT
and the Company's primary insurance carrier to cover interstate and certain
intrastate claims for bodily injury and property damage liability.

As of December 31, 1995, the current portion of the deposit with the
Company's primary insurance carrier has decreased by $4.2 million as a result of
the return of $22.5 million of collateral deposits in 1995. The magnitude of the
current portion of insurance deposits has decreased but the percentage of the
current portion has increased due to management's efforts to settle claims more
quickly.

7. BENEFIT PLANS

Pension Plans

The Company has five defined benefit pension plans. The first plan (the
"ATU Plan") covers substantially all of the Company's ongoing hourly employees
hired before November 1, 1983. The Company's hourly plan provides normal
retirement benefits to the covered employees based upon a percentage of average
final earnings, reduced pro rata for service of less than 15 years. Participants
in this plan will continue to accrue benefits as long as no contributions are
due from the Company. In the event a contribution is required, the plan benefits
will be frozen until such time as the assets of the plan exceed 115% of the plan
liabilities. The second plan covered salaried employees through May 7, 1990,
when the plan was curtailed. The third plan is a multi-employer pension plan,
instituted in 1992, to cover certain union mechanics. The remaining two plans
are held by TNM&O and VTC and cover substantially all of their salaried and
hourly personnel. It is the Company's policy to fund the minimum required
contribution under existing tax laws.

35
<PAGE> 38

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's net periodic pension cost (income) included the following (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the
period.......................................... $ 4,331 $ 6,362 $ 7,260
Interest cost on projected benefit obligations.... 60,041 61,261 64,760
Actual return on plan assets...................... (148,028) 23,474 (99,764)
Net amortization and deferral..................... 81,922 (95,805) 26,640
--------- -------- --------
Net periodic pension cost (income)...... $ (1,734) $ (4,708) $ (1,104)
========= ======== ========
</TABLE>

The following table sets forth the funded status and amounts recognized in
the consolidated statements of financial position for the pension plans (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------- -------------------------------
ACCRUED PENSION ACCRUED PENSION
PREPAID PLAN PREPAID PLAN
PENSION PLANS LIABILITIES PENSION PLANS LIABILITIES
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations
Vested benefit obligations..... $ 672,665 $39,078 $ 656,303 $32,207
========= ======= ========= =======
Accumulated benefit
obligations................. $ 696,223 $39,188 $ 685,139 $32,789
========= ======= ========= =======
Projected benefit obligations.... $ 706,292 $39,767 $ 693,552 $33,553
Plan assets at fair value........ 754,582 36,184 691,764 31,606
--------- ------- --------- -------
Plan assets greater than (less
than) projected benefit
obligations.................... 48,290 (3,583) (1,788) (1,947)
Unrecognized net (gain) loss..... (23,991) 2,481 24,038 51
Adjustment required to recognize
minimum liability.............. -- (2,073) -- --
--------- ------- --------- -------
Prepaid (accrued) pension
costs....................... $ 24,299 $(3,175) $ 22,250 $(1,896)
========= ======= ========= =======
</TABLE>

Statement of Financial Accounting Standards No. 87, "Employers Accounting
for Pensions", required the Company to record an additional minimum liability of
$2.1 million as of December 31, 1995. This provision was reflected as a
reduction of stockholders' equity.

In determining the benefit obligations and service costs for the Company's
defined benefit pension plans, the following assumptions were used:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Weighted average discount rate............................. 7.25% 8.75%
Expected long-term rate of return on plan assets........... 9.00% 9.00%
Rate of salary progression................................. 0.00-6.00% 0.00-5.00%
</TABLE>

Plan assets consist primarily of government-backed securities, corporate
equity securities, guaranteed insurance contracts, annuities and corporate debt
obligations.

Cash or Deferred Retirement Plans

The Company sponsors 401(k) cash or deferred retirement plans that cover
substantially all of its ongoing salaried, hourly and represented employees.
Costs to the Company related to these plans were $1.1 million, $1.2 million, and
$987,000 for the years ended December 31, 1995, 1994 and 1993, respectively.

36
<PAGE> 39

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On October 31, 1991, the Company contributed 500,000 shares of its Common Stock
to an employee stock ownership plan ("ESOP") for its employees. Effective
December 31, 1994, this plan was amended to merge it into the Company's 401(k)
profit sharing plan. An IRS determination letter relating to this merger, while
not necessary, was applied for in a timely fashion. The application is pending.

Other Plans

A contributory trusteed health and welfare plan has been established for
all active hourly employees which are represented by collective bargaining
agreements and a contributory health and welfare plan has been established for
salaried employees and hourly employees who are not represented by collective
bargaining agreements. For the years ended December 31, 1995, 1994 and 1993, the
Company incurred costs of $13.9 million, $15.5 million, and $15.2 million,
respectively, related to these plans. No post-retirement health and welfare
plans exist.

Effective January 1, 1993 the Company implemented a Supplemental Executive
Retirement Plan (the "SERP"), a defined benefit plan which covered only key
executives of the Company. During 1995, the SERP was converted to a defined
contribution plan.

8. PROPERTY, PLANT, AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Land and improvements......................................... $ 72,351 $ 73,171
Structures and improvements
Owned....................................................... 82,730 80,093
Capitalized leased assets................................... 650 650
Lease interests............................................. 4,376 4,376
Leasehold improvements...................................... 22,423 19,918
Revenue equipment
Owned....................................................... 143,198 119,211
Capitalized leased assets................................... 22,118 22,118
Leasehold improvements...................................... 1,707 7,100
Furniture and fixtures........................................ 25,122 20,959
Vehicles, machinery and equipment............................. 10,162 9,042
-------- --------
Property, plant and equipment............................... 384,837 356,638
Accumulated depreciation................................. (84,234) (68,388)
-------- --------
Property, plant and equipment, net.................. $300,603 $288,250
======== ========
</TABLE>

During March 1994, the Company ordered 151 new buses from Motor Coach
Industries International, Inc. ("MCII") for an aggregate cost of $34.8 million.
The Company had taken delivery of all of the new buses as of September 30, 1994
(see Note 12). During June and July 1995, the Company took delivery of 102 new
buses from MCII. These buses were initially subject to a month to month
operating lease but were purchased by the Company during December 1995. The
Company intends to sell and lease back these buses during the first half of
1996. The Company also took delivery of and purchased 13 buses from MCII in
September 1995, and an additional 10 buses in December 1995. These twenty-three
buses were sold and leased back by the Company in December 1995 for net proceeds
of $6.2 million.

37
<PAGE> 40

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accumulated depreciation of capitalized leased assets amounted to $11.6
million and $8.3 million at December 31, 1995 and 1994, respectively.

9. INSURANCE AND SECURITY DEPOSITS

Insurance and security deposits consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Insurance deposits............................................... $41,713 $51,411
Security deposits................................................ 34,679 32,894
Other............................................................ 194 243
------- -------
Insurance and Security Deposits........................ $76,586 $84,548
======= =======
</TABLE>

Insurance deposits are required by the Company's self-insurance
authorizations and the Company's primary insurance carrier to cover self-insured
interstate and certain intrastate auto liability as well as workers'
compensation coverage in certain states.

Insurance deposits decreased due to the return of $22.5 million of
collateral deposits from the Company's principal liability insurer in 1995.
Security deposits at December 31, 1995 and 1994, include a $20.3 million pledge
of assets required as a collateral deposit for a $70.1 million sale/leaseback of
319 buses. Also included in security deposits at December 31, 1995 and 1994, was
a $2.0 million deposit required by the lessor in conjunction with a separate
sale/leaseback of 46 buses. Finally, included in security deposits at December
31, 1995 and 1994 is an $8.1 million deposit required by the lessor in
conjunction with another separate sale/leaseback of 125 buses.

10. INTANGIBLE ASSETS

Intangible assets consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- -------
<S> <C> <C>
Trademark....................................................... $ 10,198 $10,198
Software........................................................ 21,007 17,086
Covenants not to compete........................................ -- 533
Debt issuance costs............................................. 3,667 2,287
Other........................................................... 29 29
-------- -------
Intangible assets............................................... 34,901 30,133
Accumulated amortization...................................... (14,901) (9,644)
-------- -------
Intangible assets, net................................ $ 20,000 $20,489
======== =======
</TABLE>

Trademarks are amortized using the straight-line method over 15 years.
Capitalized software costs are being amortized using the straight-line method
over the shorter of their useful life or five years. Covenants not to compete
were fully amortized as of December 31, 1994 and were written off during 1995.
Software increased $3.9 million due to additions to the Company's scheduling,
ticketing and transportation planning system ("TRIPS"), the Bus Operations
Support System, and a new accounting system.

38
<PAGE> 41

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Compensation, benefits and payroll-related taxes................. $18,237 $16,037
Bus operating leases and rentals................................. 1,207 1,258
Interest......................................................... 7,468 8,697
Operating, property and income taxes............................. 5,982 4,452
Other expenses................................................... 21,411 22,662
------- -------
Accrued liabilities............................................ $54,305 $53,106
======= =======
</TABLE>

Compensation, benefits and payroll-related taxes have increased $2.2
million primarily due to the accrual for the Company's management incentive
plan. The interest accrual decreased $1.2 million due to the conversion of the
Convertible Debentures and also due to the repurchase of the Senior Notes.

12. LONG-TERM DEBT AND INTEREST EXPENSE

Long-term debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Secured Indebtedness
Revolving bank loans, prime plus 2.0% (weighted average 10.5%
at December 31, 1995 and 1994) due 1998................... $ -- $ --
Other secured indebtedness, 10.75%, due 1995................. -- 805
Capital lease obligations (weighted average 10.82% and 10.75%
at December 31, 1995 and 1994, respectively) due through
2001...................................................... 14,494 16,884
Real estate mortgages (ranging from 9.4% to 11.0%) due
through 2006.............................................. 2,066 2,437
Note payable, prime plus 1.5%, due 2004...................... 15,588 30,481
Unsecured Indebtedness
Senior Notes, 10% stated rate (13.5% imputed rate), due 2001,
net of unamortized discount of $17,108 and $20,397 at
December 31, 1995 and 1994, respectively.................. 135,561 142,932
Convertible Debentures, 8.5%, due 2007....................... 9,804 9,879
Other long-term debt (weighted average 10.0% at December 31,
1995 and 1994) due through 1996........................... 417 729
-------- --------
Long-term debt................................................. 177,930 204,147
Less current maturities...................................... (5,259) (7,022)
-------- --------
Long-term debt, net..................................... $172,671 $197,125
======== ========
</TABLE>

Credit Facility

During October 1994 as part of the Financial Restructuring, the Company
entered into a revolving credit facility (the "Credit Facility") with Foothill
Capital Corporation ("Foothill"), which replaced the Company's prior bank
facility. At the time of the Financial Restructuring, the Credit Facility
provided for revolving loans and letters of credit and/or letter of credit
guarantees of up to $35.0 million.

39
<PAGE> 42

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In June 1995, the Company renegotiated its Credit Facility (the "New Credit
Facility"). The New Credit Facility provides for revolving loans, letters of
credit and letter of credit guarantees up to a maximum commitment of $73.5
million. As of December 31, 1995, there were approximately $17.8 million in
issued and undrawn standby letters of credit outstanding under the New Credit
Facility, and no revolving borrowings outstanding under the New Credit Facility.
Syndication commitments under the New Credit Facility, including Foothill's
commitment as the lead agent, total $70.0 million at December 31, 1995.
Availability under the New Credit Facility is limited to the aggregate of the
following: (1) revolving advances of up to $3.5 million based on a formula of
certain eligible accounts receivable; (2) revolving advances of up to $44.5
million (the "Fixed Asset Advances") based on the value of certain fixed asset
collateral pledged to Foothill; and (3) a bus purchase facility of up to $22.0
million (the "Bus Purchase Facility"). Borrowings under the New Credit Facility
mature on May 31, 1998, although availability under the Fixed Asset Advances
will be subject to quarterly reductions after April 1996 unless the Company
pledges additional collateral. The New Credit Facility is secured by liens on
substantially all the assets of the Company, excluding real estate purchases and
new bus purchases unless those buses are specifically pledged to support
borrowing under the Bus Purchase Facility. The New Credit Facility allows the
Company to dispose of certain non-core real estate properties. In addition,
non-bus capital expenditures are limited to $25.0 million annually with no
spending limitations on bus purchases as long as financed through debt, or
operating or capital leases with maturities of no less than five years.

Senior Notes

The Company's 10% Senior Notes due 2001 (the "Senior Notes") bear interest
at the rate of 10% per annum, payable each January 31 and July 31. The Senior
Notes had an original stated principal amount of $165.0 million, of which $1.7
million have been held by the Company prior to December 1995. During December
1995, the Company repurchased (the "Senior Note Repurchase") an additional $10.7
million aggregate principal of its Senior Notes pursuant to a put/call agreement
with one of the Company's principal stockholders. The Senior Note Repurchase
resulted in a $1.2 million gain which is included in other operating expenses in
the Company's Consolidated Statement of Operations for the year ended December
31, 1995. The Senior Notes are reflected net of unamortized discount in the
Consolidated Statements of Financial Position to reflect an imputed interest
rate of 13.5%, and also net of any Senior Notes held by consolidated
subsidiaries. At the Company's option, the Senior Notes may be redeemed at any
time as a whole, or from time to time in part, initially at a redemption price
equal to 110% of the principal amount thereof, declining ratably on each July
31, commencing July 31, 1992, to 101% of the principal amount thereof on July
31, 2000, in each case together with accrued and unpaid interest to the
redemption date. The Senior Notes are subject to mandatory redemption pursuant
to a sinking fund commencing July 31, 1996, and on each July 31 thereafter
through July 31, 2000, calculated to retire approximately 65% of the original
principal amount of the Senior Notes prior to maturity. The 1996 sinking fund
payment of $8.0 million will be met through the Senior Note Repurchase and the
$1.7 million of Senior Notes which the Company owned prior to the Senior Note
Repurchase. The balance of the Senior Note Repurchase, $4.3 million, will be
applied to the July 1997 sinking fund payment. In addition, the Senior Notes are
subject to mandatory redemption from the proceeds of certain sales of assets not
used for capital expenditures or to reduce the obligations under the revolving
bank loans. Any Senior Notes not theretofore redeemed mature July 31, 2001.

Convertible Debentures

During 1992, the Company issued $98.9 million of Convertible Debentures.
Interest on the Convertible Debentures is payable semiannually (each March 31
and September 30). The Convertible Debentures are

40
<PAGE> 43

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

convertible at the option of the holder at any time prior to maturity, unless
previously redeemed, into Common Stock at the conversion price of $12.375 per
share (equivalent to a conversion rate of approximately 80.81 shares per $1,000
principal amount of Convertible Debentures), subject to adjustment in certain
events. During the fourth quarter of 1994, the Company made an offer (the
"Tender Offer") to convert the entire $98.9 million in aggregate principal
amount of the Company's Convertible Debentures into shares of Common Stock at a
conversion rate of approximately 256 shares of Common Stock for each $1,000
bond. On December 22, 1994, the Company announced the completion of the Tender
Offer with approximately $89.0 million, or 90.0%, of the $98.9 million issue
being tendered and converted into 22.8 million shares resulting in a $41.9
million extraordinary gain in the accompanying Consolidated Statement of
Operations for the year ended December 31, 1994.

Other

Under the most restrictive provisions of all its debt agreements, the
Company may not incur additional indebtedness, is limited on the payment of
dividends on its Common Stock, and may not enter into certain mergers, or
acquire or dispose of any assets (except in the ordinary course of business).
Covenants under the New Credit Facility provide that the Company may not prepay
the Convertible Debentures. The New Credit Facility is subject to financial
covenants, including maintenance of a minimum net worth and an agreed ratio of
cash flow to interest expense. The New Credit Facility also limits the Company's
capital expenditures. At December 31, 1995, the Company was in compliance with
all covenants.

During March 1994, the Company ordered 151 new buses from MCII for an
aggregate cost of $34.8 million. The Company had taken delivery of all of the
new buses as of September 30, 1994. As delivery was taken, the new buses were
90% financed through a ten-year installment note with MCI, which is secured by
the purchased buses and which bears interest at a rate of prime plus 1.5
percent. MCI subsequently transferred the financing for 50 of the buses to
another lender and assigned the financing on the remaining 101 buses to MCI
Acceptance Corp. ("MCIAC"), a wholly owned subsidiary of MCII. In connection
with the Rights Offering, the Company made a prepayment on the amount owed to
MCIAC of $12.9 million during February 1995 (see Note 18).

During 1993, the Company executed three interest rate swap agreements
whereby fixed interest rates were swapped for variable interest rates. The
purpose of these agreements was to hedge the interest rates related to the
Company's 10% Senior Notes and the 8.5% Convertible Debentures. The five-year
swap transactions totalled $150.0 million, and collateral of $10.0 million was
provided to secure the transaction. When the Company entered into a previous
bank credit facility in December 1993, the deposit was returned to the Company.
The net interest expense during 1995 and the net interest expense savings during
1994 resulting from the interest rate swap agreements was $0.7 million and $0.7
million, respectively. During January 1994, the Company terminated a $75.0
million interest rate swap agreement. The gain resulting from the termination
was $1.6 million and will be recognized evenly over the remaining term of the
five-year agreement.

The Company amended its two remaining interest rate swap agreements during
October 1994, to lock in the future payments under the agreements until maturity
in July 1998. The net result of the amendments is to ensure that these swaps
will not be subject to interest rate risk. Consequently, should interest rates
increase, the Company's payments under the agreements will not be adversely
affected. Conversely, should interest rates decline, the Company would not
receive any benefit. Under the amendments, the Company will be required to pay
$5.8 million in total from December 31, 1995, through the remaining term of the
five-year agreements. The Company has collateralized its payment obligations
under the terminated agreements with a $1.1 million letter of credit and liens
on six pieces of Company-owned real property. The Company is currently in
negotiations with the counterparty to reduce collateral requirements for 1996
and beyond.

41
<PAGE> 44

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1995, maturities of long-term debt for the next five fiscal
years ending December 31 and all years thereafter, are as follows (in
thousands):

<TABLE>
<S> <C>
1996.............................................................. $ 5,259
1997.............................................................. 10,518
1998.............................................................. 20,167
1999.............................................................. 29,416
2000.............................................................. 55,104
2001 and thereafter............................................... 57,466
--------
$177,930
========
</TABLE>

13. INCOME TAXES

Income Tax Provision

The income tax provision consisted of the following (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994 1993
---- ------- ------
<S> <C> <C> <C>
Current
Federal................................................... $312 $ -- $ --
State..................................................... 62 (138) 75
---- ------- ------
Total current.......................................... 374 (138) 75
---- ------- ------
Deferred
Federal................................................... -- 17,000 5,482
State..................................................... -- -- 696
---- ------- ------
Total deferred......................................... -- 17,000 6,178
---- ------- ------
Income tax provision.............................. $374 $16,862 $6,253
==== ======= ======
</TABLE>

Effective Tax Rate

The differences, expressed as a percentage of income before taxes,
extraordinary items, and cumulative effect of a change in accounting principle,
between the statutory and effective federal income tax rates are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ----- ----
<S> <C> <C> <C>
Statutory tax rate.......................................... (34.0)% (34.0)% 34.0%
Amortization of reorganization value in excess of amounts
allocable to identifiable assets.......................... -- -- 3.0
Dividends received deduction................................ (0.1) -- (0.3)
Non-compliance fees......................................... 0.3 0.1 0.3
State income taxes.......................................... 0.4 (0.1) 5.0
Unrecognized current year benefit........................... 32.4 33.8 --
Reversal of recognition of deferred tax assets.............. -- 17.2 --
Other....................................................... 3.2 -- 0.1
----- ----- ----
Effective tax rate................................ 2.2% 17.0% 42.1%
===== ===== ====
</TABLE>

42
<PAGE> 45

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred Tax Assets

Significant components of deferred income taxes at December 31, 1995 and
1994, were as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Deferred Tax Assets
Federal and state NOL carryforwards...................... $ 23,556 $ 13,239
Reserve for injuries and damages......................... 19,447 21,333
Book over tax depreciation and amortization.............. 1,621 1,262
Other accrued expenses and reserves...................... 5,838 7,318
Other deferred tax assets................................ 666 853
-------- --------
Total deferred tax assets........................ 51,128 44,005
-------- --------
Deferred Tax Liabilities
Tax over book depreciation and amortization.............. 10,583 12,641
Pension cost for tax purposes in excess of books......... 7,491 6,176
Other deferred tax liabilities........................... 192 209
-------- --------
Total deferred tax liabilities................... 18,266 19,026
-------- --------
Net deferred tax assets.................................... 32,862 24,979
Valuation allowance........................................ (32,862) (24,979)
-------- --------
Deferred tax assets, net of valuation
allowance...................................... $ -- $ --
======== ========
</TABLE>

Pursuant to the requirements of SFAS No. 109 (defined herein), a valuation
allowance must be provided when it is more likely than not that the deferred
income tax asset will not be recognized. As of December 31, 1993, the Company
believed that a sufficient history of earnings had been established to make
realization of a $17.0 million deferred income tax asset more likely than not.
In the third quarter of 1994, due to the uncertainty created by the Financial
Restructuring and the ongoing strategic and operational reorganization, the
Company increased the valuation allowance to reserve for the $17.0 million
deferred income tax asset as the Company believed it no longer met the "more
likely than not" realization criteria. The changes in the valuation allowance
are as follows (in thousands):

<TABLE>
<CAPTION>
1995 1994
------ --------
<S> <C> <C>
Increase in deferred income tax asset resulting from normal
changes in temporary differences............................... $7,883 $ 15,089
Decrease in deferred income tax asset due to a change in
assumption of deductibility.................................... -- (11,970)
Loss of federal and state NOL's due to financial restructuring... -- (29,655)
Deferred tax expense recognized due to a change in estimate of
realization of deferred income tax asset....................... -- 17,000
------ --------
Net change in valuation allowance...................... $7,883 $ (9,536)
====== ========
</TABLE>

Future use of the deferred tax asset would normally reflect the recognition
of tax expense and an equal benefit due to the reversal of the valuation
allowance, resulting in no net impact to the Company's net earnings. However,
$4.9 million of the deferred tax asset arose prior to the fresh start date and,
as a result, the reversal of the related valuation allowance will be used to
increase capital in excess of par, rather than reduce tax expense.

43
<PAGE> 46

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Change in Accounting Principle -- Accounting for Income Taxes

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), which requires, among other
things, an asset and liability approach for financial accounting and reporting
for income taxes. The Company adopted SFAS No. 109 on January 1, 1993.

Pursuant to SFAS No. 109, the Company was required to apply purchase method
accounting in a different manner than that reflected in the Company's
Consolidated Statements of Financial Position prior to January 1, 1993. The net
impact from adoption of SFAS No. 109 was $0.7 million and is reported as
cumulative effect of a change in accounting principle in the accompanying
Consolidated Statement of Operations for the year ended December 31, 1993.

Availability and Amount of NOL's

The 1994 financial restructuring resulted in an ownership change, as
defined under Section 382 of the Internal Revenue Code (the "Code"). The
provisions of the Code, as they apply to the Company, require that an annual
limitation be placed on the amount of NOL's which may be utilized. Consequently,
the Company's NOL carryforwards from 1994 are now subject to an annual
limitation of $2.1 million. Any unused portion of the current annual limitation
may be carried forward to the following year. The Company estimates a 1995
taxable loss of $28.5 million. None of the 1995 loss is subject to limitation
under Section 382. The Company will also carry forward the unused 1995 annual
limitation of $2.1 million from the 1994 NOL carryover. As a result, the Company
will carryforward available NOL's of $60.0 million, $29.4 million of which is
subject to the annual $2.1 million limitation. The NOL carryforwards expire as
follows:

14. FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of
the fair value of financial instruments. The following methods and assumptions
were used by the Company in estimating the fair value disclosures for its
financial instruments.

For cash and cash equivalents and the revolving bank loans, the carrying
amounts reported in the Consolidated Statements of Financial Position
approximate fair value. The fair values of the interest rate swaps, short-term
deposits and long-term insurance deposits are based upon quoted market prices at
December 31, 1995 and 1994, where available. For the portion of short-term
deposits and long-term insurance and security deposits where no quoted market
price is available, the carrying amounts are believed to approximate fair value.
For the other secured indebtedness, real estate mortgages, note payable and
other long-term debt, the fair values are estimated using discounted cash flow
analysis, based upon the Company's incremental borrowing rates for similar types
of borrowing arrangements. The fair values of the Senior Notes and the
Convertible Debentures were based upon quoted market prices at December 31, 1995
and 1994.

44
<PAGE> 47

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The carrying amounts and fair values of the Company's financial instruments
at December 31, 1995 and 1994, are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Other current assets
Deposits.......................... $ 7,505 $ 7,505 $ 11,713 $ 11,713
Insurance and security deposits
Insurance deposits................ 41,713 41,713 51,411 51,411
Security deposits................. 34,679 34,679 32,894 32,894
Long-term debt
Interest rate swaps............... (666) (5,346) (34) (5,200)
Other secured indebtedness........ -- -- (805) (805)
Real estate mortgages............. (2,066) (1,333) (2,437) (1,578)
Note payable...................... (15,588) (10,981) (30,481) (20,536)
Senior Notes...................... (135,561) (141,980) (142,932) (124,163)
Convertible Debentures............ (9,804) (9,118) (9,879) (5,730)
Other long-term debt.............. (417) (417) (729) (688)
</TABLE>

15. LEASE COMMITMENTS

The Company leases buses and terminals from various parties pursuant to
capital and operating leases expiring at various dates through 2033. In March
1994, the Company entered into two lease agreements in a $28.0 million
sale/leaseback of 125 buses. In December 1995, the Company sold and leased back
23 buses for net proceeds of $6.2 million.

At December 31, 1995, scheduled future minimum payments for the next five
fiscal years ending December 31, under the capital leases and noncancelable
operating leases are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996............................................................ $ 4,098 $ 36,817
1997............................................................ 4,086 30,883
1998............................................................ 4,074 27,345
1999............................................................ 2,994 25,050
2000............................................................ 2,994 22,323
Thereafter...................................................... 454 110,132
------- --------
Total minimum lease payments.................................. 18,700 $ 252,550
======= ========
Amounts representing interest.............................. 4,206
-------
Present value of minimum lease payments............... $14,494
=======
</TABLE>

For the years ended December 31, 1995, 1994 and 1993, rental expenses for
operating leases (net of sublease rental income of approximately $1.9 million,
$1.7 million and $2.6 million, respectively) amounted to $47.8 million, $48.0
million, and $46.0 million, respectively. Rental expenses for bus operating
leases, excluding casual rents and other short term leases during peak periods,
amounted to $23.7 million in 1995 and are scheduled at $30.3 million for 1996.

45
<PAGE> 48

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. STOCKHOLDERS' EQUITY

The Company filed a registration statement on Form S-3 relating to the sale
of up to 10,004,144 shares of Common Stock which was declared effective on
September 28, 1995, and on October 3, 1995, the sale of the stock was completed.
Four million shares were sold by the Company and 6,004,144 shares were sold by
Motor Coach Industries Limited, a selling stockholder. The Company did not
receive any portion of the proceeds from the sale of shares of Common Stock by
the selling stockholder.

Net proceeds to the Company from the sale of the 4,000,000 shares of Common
Stock offered by the Company were $15.4 million. The Company used $9.7 million
of the net proceeds it received to repurchase (the "Senior Note Repurchase")
$10.7 million aggregate principal amount of its 10% Senior Notes due 2001 (the
"Senior Notes") pursuant to a put/call agreement with one of the Company's
principal stockholders. The purchase price for the Senior Notes was based on
arm's-length negotiations. The Company used the remaining net proceeds from the
sale of the Common Stock for general corporate purposes. Pending use, the net
proceeds to the Company from the offering were invested in short-term,
interest-bearing securities or have been used to reduce the borrowings under the
New Credit Facility.

An amendment to the Company's Certificate of Incorporation was approved at
a special meeting of stockholders on December 21, 1994. The amendment increases
the number of shares of Common Stock of the Company authorized for issuance from
50,000,000 shares to 100,000,000 shares. The amendment was sought principally to
permit the consummation of a financial restructuring of the Company involving an
offer (the "Tender Offer") to convert the Company's 8.5% Convertible
Subordinated Debentures due March 31, 2007, into Common Stock of the Company at
an increased conversion rate and the offer (the "Rights Offering") pursuant to
which the existing holders of Common Stock had the right to subscribe for and
purchase, in the aggregate, $35 million of Common Stock, as well as to provide
for future flexibility to take advantage of business or financial opportunities.

On December 22, 1994, the Company announced the successful completion of
the Tender Offer for its Convertible Debentures with $89.0 million, or 90.0%, of
the outstanding Convertible Debentures being tendered and converted into
approximately 22.8 million shares of the Company's Common Stock. At December 31,
1994, the Company's $35 million Rights Offering for approximately 16.3 million
shares of Common Stock was fully committed and $19.9 million of the related
proceeds had been received. The Company received the balance of the proceeds of
the Rights Offering in January 1995. In connection with the Financial
Restructuring, the Company incurred approximately $6.8 million in professional
fees and prepaid $12.9 million in debt owed to MCIAC (see Note 18).

The Company is authorized to issue 10,000,000 shares of $.01 par value
preferred stock. The Board of Directors may designate and issue one or more
series of preferred stock from the authorized and unissued shares of preferred
stock. During 1994, the Company designated 500,000 shares of preferred stock as
"Series A" junior preferred stock in connection with the stockholders rights
plan discussed below. No preferred stock had been issued as of December 31,
1995.

On March 22, 1994, the Company's Board of Directors adopted a stockholder
rights plan (the "Rights Plan"). The Rights Plan provides for a dividend
distribution of a Preferred Stock Purchase Right (the "Rights") for each share
of Common Stock held by stockholders of record at the close of business on April
4, 1994. The Rights will become exercisable only in the event that, with certain
exceptions, an acquiring party accumulates 15% or more of the Company's voting
stock. The Rights have no voting rights and are not entitled to receive
dividends. The Rights will expire on March 22, 2004. Each Right will entitle the
holder to buy 1/100th of a share of Series A preferred stock at a price of $35.
The Series A preferred stock would also have

46
<PAGE> 49

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

one vote, voting together with the Common Stock upon issuance. In addition, upon
the occurrence of certain events, holders of the Rights will be entitled to
purchase either Common Stock or shares in an acquiring entity at 50% of the
market value. The Company will be entitled to redeem the Rights at $.01 per
Right at any time through the tenth day following the acquisition of a 15%
position in its voting stock.

The Company has adopted five stock option plans under which options to
purchase up to a total of 7,939,446 shares of Common Stock under the five plans
may be granted to officers, key employees and directors of the Company. The
following table sets forth option activity for the years ended December 31,
1995, 1994 and 1993:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES -------------------------------
AVAILABLE EXERCISE
FOR GRANT SHARES PRICE PER SHARE
---------- ---------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1992.................. 665,636 698,000 $ 9.81-$11.25
New shares authorized..................... 2,200,000 -- --
Options granted........................... (1,486,500) 1,486,500 $14.44-$20.63
Options exercised......................... -- (112,255) $ 9.81-$14.44
Terminated or cancelled................... 2,000 (2,000) $14.44
--------- ---------
Balance, December 31, 1993.................. 1,381,136 2,070,245 $ 9.81-$20.63
New shares authorized..................... 20,000 -- --
Options granted........................... (1,380,700) 1,380,700 $ 2.06-$10.50
Options exercised......................... -- (1,370) $ 9.81
Terminated or cancelled................... 1,537,324 (1,537,324) $ 2.84-$20.63
--------- ---------
Balance, December 31, 1994.................. 1,557,760 1,912,251 $ 2.06-$20.63
New shares authorized..................... 4,365,810 -- --
Options granted........................... (3,892,186) 3,892,186 $ 1.66-$ 4.19
Options exercised......................... -- (9,400) $ 2.84
Terminated or cancelled................... 673,650 (683,650) $ 1.66-$20.63
--------- ---------
Balance, December 31, 1995.................. 2,705,034 5,111,387 $ 1.66-$20.63
========= =========
</TABLE>

Of the 5,111,387 options outstanding at December 31, 1995, 14,744 have an
exercise price of $9.81, 11,057 have an exercise price of $11.20, 15,000 have an
exercise price of $11.25, 18,500 have an exercise price of $14.44, 130,000 have
an exercise price of $20.63, 60,000 have an exercise price of $10.25, 30,000
have an exercise price of $10.50, 50,000 have an exercise price of $5.44, 25,000
have an exercise price of $2.13, 602,800 have an exercise price of $2.84, 11,100
have an exercise price of $2.16, 400,000 have an exercise price of $2.06,
982,000 have an exercise price of $1.66, 51,666 have an exercise price of $1.84,
600,000 have an exercise price of $2.31, 188,520 have an exercise price of
$3.31, 1,666,000 have an exercise price of $3.09, 80,000 have an exercise price
of $3.25, and 175,000 have an exercise price of $4.19. Of the 5,111,387 options
outstanding at December 31, 1995, 683,986 options were exercisable at December
31, 1995.

17. COMMITMENTS AND CONTINGENCIES

LABOR LITIGATION

The Amalgamated Transit Union (the "ATU") strike in March 1990 resulted in
litigation before the National Labor Relations Board ("NLRB"). In early 1995, a
settlement among the ATU, the NLRB and the Company was finalized. The settlement
resulted in the dismissal of all litigation between the ATU, the NLRB and the
Company, with the exception of one issue related to the Company's granting, in
1990, of experience-

47
<PAGE> 50

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

based seniority ("EBS") to drivers hired with previous commercial driving
experience. The Company continued to litigate this issue before the NLRB. In
September 1994, an Administrative Law Judge ("ALJ") of the NLRB issued a ruling
finding that the granting of EBS to drivers with previous commercial driving
experience constituted an unfair labor practice by the Company. The Company
appealed the ALJ's ruling. In October 1995, the NLRB affirmed the ALJ's ruling.
The Company opted not to appeal the NLRB's decision and in December 1995
announced that it would eliminate EBS, effective in January 1996.

DEPARTMENT OF JUSTICE INVESTIGATION

In September 1995, the Company agreed with the DOJ to the entry of a
consent decree that would end the investigation. Under the provisions of the
consent decree, the Company has agreed not to enforce a provision in its bus
terminal lease agreements prohibiting a tenant bus carrier from selling its
tickets within 25 miles of the Company's terminal and has agreed not to adopt
any comparable provision. The Company rarely enforced this lease provision and
recently revised its lease agreements to eliminate the provision. The consent
decree was approved by a federal district court on February 28, 1996 and is now
final. The consent decree does not constitute an admission by the Company of any
violation of the law, liability or wrongdoing. Management of the Company
believes that the consent decree will have no material impact on the Company's
business, financial condition or results of operations.

OKLAHOMA SALES TAX CLAIM

48
<PAGE> 51

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OTC claim involved a proposed assessment of approximately $908,000 plus
additional interest from the date of the claim.

SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION

Between August and December 1994, seven purported class action lawsuits
were filed by purported owners of the Company's Common Stock, Convertible
Debentures and Senior Notes against the Company and certain of its former
officers and directors. The suits seek unspecified damages for securities law
violations as a result of statements made in public reports and press releases
and to securities analysts during 1993 and 1994 that are alleged to have been
false and misleading.

49
<PAGE> 52

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INSURANCE COVERAGE

The Interstate Commerce Commission (now the DOT) has granted the Company
authority to self-insure its automobile liability exposure for interstate
passenger service up to a maximum level of $5.0 million per occurrence. To
maintain self-insurance authority, the Company is required to maintain a
tangible net worth of $10.0 million (as of December 31, 1995, the Company's
tangible net worth was $129.8 million) and to maintain a $15.0 million trust
fund (currently fully funded) to provide security for payment of claims.
Subsequent to the self-insurance grant by the federal government, thirty-eight
states granted the Company the authority to self-insure its intrastate
automobile liability exposure. The Company maintains comprehensive automobile
liability and general liability insurance to insure its assets and operations
subject to a $1.5 million self-insured retention per occurrence. The Company
also maintains property insurance subject to a $0.1 million deductible per
occurrence, and maintains workers compensation insurance, subject to a $1.0
million deductible per occurrence.

Insurance coverage and risk management expense are a key component of the
Company's cost structure. The Company has embarked on an aggressive risk
reduction and claims reduction program. Due to a decrease

50
<PAGE> 53

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in the pending inventory of claims, certain insurance carriers have reduced
their collateral and security requirements for previous years' claims, which
resulted in a return of collateral and security to the Company of approximately
$8.5 million during April 1995 and approximately $14.0 million during December
1995. 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 materially adverse effect on the Company's financial
condition.

ENVIRONMENTAL MATTERS

The Company may be liable for certain environmental liabilities and
clean-up costs relating to underground fuel storage tanks and systems in the
various facilities presently or formerly owned or leased by the Company. Based
upon surveys conducted by Company personnel, 74 locations have been identified
as sites requiring potential clean-up and/or remediation as of December 31,
1995. The Company has estimated the clean-up and/or remediation costs of these
sites to be $4.3 million, of which $0.9 million is indemnifiable by the
predecessor owner of the Greyhound domestic bus operations now know as the Dial
Corp ("Dial"). The Company has no reason to believe that Dial will not fulfill
its indemnification obligations to the Company. However, if Dial does not
fulfill such obligations, the Company could have liability with respect to those
matters. Additionally, the Company has been designated as a potentially
responsible party by the EPA at three Superfund sites where the Company and
other parties face exposure for costs related to the clean-up of those sites.
Based on the EPA's enforcement activities to date, the Company believes its
liability at these sites will not be material because its involvement was as a
de minimis generator of wastes disposed of at the sites. In light of the minimal
involvement, the Company has been negotiating to be released from liability in
return for the payment of immaterial settlement amounts. The Company has
recorded a $1.0 million receivable from Dial for the indemnification at December
31, 1995, including costs associated with previously remediated sites. The
Company has also recorded a total environmental reserve of $4.2 million at
December 31, 1995 for noncapitalizable expenses related to the sites identified
for potential clean-up and/or remediation. The reserve amount for the remaining
sites is based on discounted cash flows at a discount rate of 8%. Management
believes that adequate accruals have been made related to all known
environmental matters.

At December 31, 1995, clean-up and/or remediation costs under the plan are
as follows (in thousands):

<TABLE>
<S> <C>
1996........................................................................ $2,030
1997........................................................................ 1,209
1998........................................................................ 469
1999........................................................................ 144
Thereafter.................................................................. 438
------
Total environmental expenditures............................................ 4,290
======
Amounts representing interest............................................... 73
------
Reserve for environmental expenditures...................................... $4,217
======
</TABLE>

POTENTIAL PENSION PLAN FUNDING REQUIREMENTS.

The most significant of the Company's five defined benefit pension plans is
the Greyhound Lines, Inc. Retirement and Disability Trust (the "ATU Plan") which
covers approximately 17,000 current and former employees, primarily drivers,
fewer than 1,500 of whom are active employees as of December 31, 1995. The ATU
Plan was closed to new participants in November 1983 and, as a result, over 79%
of the participants are 50 or more years old. For financial reporting and
investment planning purposes, the Company uses a mortality table that closely
matches the actual experience related to the existing participant population.

51
<PAGE> 54

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company is exploring whether it may be able to obtain general or
specific relief from this requirement.

OTHER LEGAL PROCEEDINGS

18. RELATED PARTY TRANSACTIONS

Motor Coach Industries International, Inc.

Transportation Manufacturing Operations, Inc. ("TMO"), a wholly owned
subsidiary of MCII, agreed to act as a standby purchaser in the Rights Offering.
Motor Coach Industries, Inc. ("MCI"), a subsidiary of TMO, is the Company's
principal supplier of new motor coaches. TMO assigned its standby purchase
obligations to Motor Coach Industries Limited, which purchased 6,004,144 shares
in the Rights Offering.

52
<PAGE> 55

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

be repaid arose out of the financing of 151 intercity coaches purchased by the
Company in 1994. The obligations thereunder currently bear interest at the prime
rate plus 1.5% per annum and mature over ten years. This pre-payment, in the
amount of $12.9 million, was made in February 1995 and resulted in the release
of liens on 64 buses which collateral is available for refinancing. In addition,
the Company has agreed that it will use its best efforts to refinance, on
commercially reasonable terms, all other amounts owed to MCIAC. At December 31,
1995, the aggregate principal amount owed to MCIAC was approximately $6.7
million.

As part of the standby purchase agreement, the Company granted TMO two
demand registration rights with respect to the shares purchased by it, and
agreed to bear all the expenses (other than discounts and commissions, fees and
expenses of TMO's counsel) of effecting the registration of those shares. The
Company filed a registration statement on Form S-3 relating to the sale of up to
10,004,144 shares of Common Stock which was declared effective on September 28,
1995, and on October 3, 1995, the sale of the stock was completed. Four million
shares were sold by the Company and 6,004,144 shares were sold by Motor Coach
Industries Limited, a selling stockholder. The Company did not receive any
portion of the proceeds from the sale of shares of Common Stock by the selling
stockholder.

The Company's President and Chief Executive Officer, Craig R. Lentzsch,
previously served as Executive Vice President and Chief Financial Officer of
MCII where he had been employed from 1992 to November 1994.

Universal Coach Parts, Inc.

Universal Coach Parts, Inc. ("UCP") is a nationwide distributor of service
parts and since December 1992 has provided inventory and inventory management
services for the Company. UCP is also a wholly owned subsidiary of MCII. For the
years ended December 31, 1995, 1994 and 1993, the Company paid $15.2 million,
$11.5 million, and $5.5 million, respectively, to UCP for the purchase of
inventory and inventory management services. Additionally, at December 31, 1995
and 1994, the Company included in its Consolidated Statements of Financial
Position, net amounts payable to UCP of $1.4 million and $1.5 million,
respectively.

Connor, Clark & Company, Ltd.

Connor, Clark & Company, Ltd. ("Connor Clark"), the Company's largest
shareholder, agreed to act as a standby purchaser with respect to up to 650,000
shares, all of which were purchased by it upon the conclusion of the Rights
Offering. As an inducement to serve as a Standby Purchaser, the Company paid
Connor Clark a commitment fee of approximately $14,000 (representing 1% of
Connor Clark's total standby purchase commitment) and a takedown fee of
approximately $70,000 (representing 5% of the exercise price) in respect of the
New Shares actually purchased by it pursuant to the standby purchase commitment.

Connor Clark and certain of its affiliates tendered an aggregate of
$1,338,000 principal amount of Convertible Debentures in the Tender Offer on the
same basis as the other holders of the Convertible Debentures.

Herbert Abramson, Director and Vice President of Connor Clark, served on
the Company's Board of Directors from September 21, 1994 until his resignation
on October 26, 1995.

Snyder Capital Management, Inc.

Snyder Capital Management, Inc. ("SCM"), on behalf of 49 accounts managed
by it (the "SCM Accounts"), committed to oversubscribe for up to an aggregate of
2,181,977 shares. Because the SCM Accounts exercised their oversubscription
privileges, and because there were sufficient unsubscribed shares available, the
SCM Accounts received all the shares for which they had oversubscribed before
any shares were taken by the standby purchasers.

53
<PAGE> 56

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In consideration for the committed oversubscription, the Company paid each
SCM Account a commitment fee equal to 1% of the aggregate exercise price for
each account's pro rata portion of the committed oversubscription (or
approximately $47,000 in the aggregate to the SCM Accounts taken as a whole). In
addition, each SCM Account received a fee equal to 5% of the exercise price
actually paid for any shares acquired pursuant to the committed oversubscription
(or approximately $235,000 in the aggregate to the SCM Accounts taken as a
whole).

Put/Call Agreement with Certain Shareholder

In June 1995, the Company entered into a Put/Call agreement with a certain
shareholder in which the shareholder was to purchase, on the market, up to $15.0
million face amount of the Company's Senior Notes. In December 1995, the Company
exercised its option to purchase the $10.7 million aggregate principal of its
Senior Notes held by the shareholder for the purchase price of $9.7 million, as
specified under the terms of the agreement. The completion of this transaction
satisfied each party's obligations under the agreement and it has been
terminated.

Frederick F. Richards

Frederick F. Richards, has been engaged by the Company as an independent
management consultant on an at will basis since November 1994, supplying
consulting services to the Company on a variety of operational and technology
issues. Mr. Richards received $160,000 for these services in 1995 from the
Company. Mr. Richards is the son-in-law of A. A. Meitz, a director of the
Company since November 21, 1995.

54
<PAGE> 57

GREYHOUND LINES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19. QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected unaudited quarterly financial data for the years ended December
31, 1995 and 1994 are as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1995 QUARTER QUARTER QUARTER QUARTER
---------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues...................... $131,793 $161,367 $198,946 $165,258
Operating expenses...................... 143,640 164,211 176,982 163,168
-------- -------- -------- --------
Operating income (loss)................. (11,847) (2,844) 21,964 2,090
Interest expense........................ 6,868 7,013 6,606 6,320
Income tax provision.................... 2 26 25 321
-------- -------- -------- --------
Net income (loss)....................... $(18,717) $ (9,883) $ 15,333 $ (4,551)
======== ======== ======== ========
Net income (loss) per share of Common
Stock:
Primary............................... $ (0.36) $ (0.18) $ 0.27 $ (0.08)
======== ======== ======== ========
Fully diluted......................... $ (0.36) $ (0.18) $ 0.27 $ (0.08)
======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1994
Operating revenues...................... $133,852 $151,073 $185,736 $145,670
Operating expenses...................... 152,598 178,145 167,074 183,990(a)
-------- -------- -------- --------
Operating income (loss)................. (18,746) (27,072) 18,662 (38,320)
Interest expense........................ 7,904 7,657 9,033 8,862
Income tax provision (benefit).......... (10,639) 10,656 17,039 (194)
-------- -------- -------- --------
Loss before extraordinary items......... (16,011) (45,385) (7,410) (46,988)
Extraordinary items..................... -- -- 3,158 (41,531)(b)
-------- -------- -------- --------
Net loss................................ $(16,011) $(45,385) $(10,568) $ (5,457)
======== ======== ======== ========
Loss per share of Common Stock:
Primary
Loss before extraordinary items.... $ (1.09) $ (3.10) $ (.51) $ (2.74)
Extraordinary items................ -- -- (.21) 2.42
-------- -------- -------- --------
Net loss........................... $ (1.09) $ (3.10) $ (.72) $ (0.32)
======== ======== ======== ========
Fully diluted
Loss before extraordinary items.... $ (1.09) $ (3.10) $ (.51) $ (2.74)
Extraordinary items................ -- -- (.21) 2.42
-------- -------- -------- --------
Net loss........................... $ (1.09) $ (3.10) $ (.72) $ (0.32)
======== ======== ======== ========
</TABLE>

- ---------------

(a) The Company recorded $37.8 million in certain operating charges in the
fourth quarter of 1994. Those charges related to the write-down to the
expected market value of certain real estate assets which were expected to
be classified as surplus, adverse claims development in 1994, certain
litigation exposure and costs related to the Company's strategic and
operational reorganization.

(b) Amount primarily represents a $41.9 million extraordinary gain related to
the conversion of the Convertible Debentures to Common Stock.

55
<PAGE> 58

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Greyhound Lines, Inc.:

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Greyhound Lines, Inc. and subsidiaries
included in this Form 10-K and have issued our reports thereon dated February
12, 1996. Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the index at
Item 8 (Schedule II) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Dallas, Texas
February 12, 1996

56
<PAGE> 59

SCHEDULE II

GREYHOUND LINES, INC. AND SUBSIDIARIES (A)
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1995:
Allowance for Doubtful Accounts... $ 840 $ 975 $ (1,011) $ (587)(b) $ 217
Inventory Reserves................ 61 48 -- -- 109
Accumulated Amortization of
Intangible Assets.............. 9,644 5,790 (533) -- 14,901
Reserves for Injuries and
Damages........................ 72,343 33,788 -- (40,470)(f) 65,661
------- ------- ------- -------- -------
Total Reserves and
Allowances.............. $ 82,888 $ 40,601 $ (1,544) $(41,056) $ 80,889
======= ======= ======= ======== =======
December 31, 1994:
Allowance for Doubtful Accounts... $ 707 $ 926 $ -- $ (793)(b) $ 840
Inventory Reserves................ -- 61 -- -- 61
Accumulated Amortization of
Intangible Assets.............. 5,533 4,777 -- (666)(g)(e) 9,644
Reserves for Injuries and
Damages........................ 41,770 66,355 -- (35,782)(f) 72,343
------- ------- ------- -------- -------
Total Reserves and
Allowances.............. $ 48,010 $ 72,119 $ -- $(37,241) $ 82,888
======= ======= ======= ======== =======
December 31, 1993:
Allowance for Doubtful Accounts... $ 1,039 $ 298 $ -- $ (630)(b) $ 707
Inventory Reserves................ 100 -- -- (100)(c) --
Accumulated Amortization of
Intangible Assets.............. 6,638 4,206 -- (5,311)(d)(e) 5,533
Reserves for Injuries and
Damages........................ 44,230 36,738 -- (39,198)(f) 41,770
------- ------- ------- -------- -------
Total Reserves and
Allowances.............. $ 52,007 $ 41,242 $ -- $(45,239) $ 48,010
======= ======= ======= ======== =======
</TABLE>

- ---------------

(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.

(b) Write-off of uncollectible receivables net of recovery of bad debt.

(d) Write-off of goodwill.

(e) Write-off of other assets and deferred costs.

(f) Payments of settled claims.

(g) Write-off of software.

57
<PAGE> 60

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

58
<PAGE> 61

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information regarding the directors
and executive officers of the Company as of March 14, 1996. All executive
officers hold office at the pleasure of the Board of Directors.

<TABLE>
<CAPTION>
NAME AGE OFFICE
- ------------------------------ --- ---------------------------------------------
<S> <C> <C>
Richard J. Caley.............. 69 Director (Class III)
Linda Chavez.................. 48 Director (Class III)
Craig R. Lentzsch............. 47 Director (Class I); President, and Chief
Executive Officer
A. A. Meitz................... 58 Director (Class III)
Frank L. Nageotte............. 69 Director (Class I)
Alfred E. Osborne, Jr......... 51 Director (Class II)
Stephen M. Peck............... 61 Director (Class II)
Thomas G. Plaskett............ 52 Director (Class I); Chairman of the Board
Ernest P. Werlin.............. 51 Director (Class II)
Bradley T. Harslem............ 43 Senior Vice President -- Information Services
and Chief Information Officer
Jack W. Haugsland............. 55 Executive Vice President and Chief Operating
Officer
J. Floyd Holland.............. 60 Senior Vice President -- Operations
Steven L. Korby............... 50 Executive Vice President, Chief Financial
Officer and Treasurer
</TABLE>

DIRECTORS

Richard J. Caley was appointed a Director of the Company on October 31,
1991. From 1978 to 1982, Mr. Caley served as President of Wilson Sporting Goods
Co., a division of PepsiCo Inc., and Chairman of the Board and Chief Executive
Officer of North American Van Lines. From 1971 to 1978, Mr. Caley served as
President of the PepsiCo Transportation Division. Mr. Caley retired in 1982,
although from May 15, 1989, to November 15, 1989, Mr. Caley served as President,
Chief Operating Officer and Director of HEM Pharmaceuticals.

Linda Chavez was elected to the Board of Directors on November 21, 1995.
Ms. Chavez has been President of the Center for Equal Opportunity since 1995.
From 1988 to 1995, Ms. Chavez was a Senior Fellow at the Manhattan Institute for
Policy Research. Ms. Chavez, a political commentator, writes a weekly column for
USA Today and has contributed articles to the Wall Street Journal, The New
Republic and the Washington Post. Ms. Chavez has appeared on The McLaughlin
Group and NewsHour with Jim Lehrer. In 1985, Ms. Chavez was appointed Director
of the Office of Public Liaison for the White House and from 1983 to 1985 was
Director of the U.S. Commission on Civil Rights.

Craig R. Lentzsch was elected to the Board of Directors on August 26, 1994.
Effective November 15, 1994, Mr. Lentzsch became President and Chief Executive
Officer of the Company. Mr. Lentzsch also served as Chief Financial Officer of
the Company from November 22, 1994 to April 10, 1995. Mr. Lentzsch previously
served as Executive Vice President and Chief Financial Officer of Motor Coach
Industries International, Inc. where he had been employed from 1992 to 1994; as
President and Chief Executive Officer of Continental Asset Services, Inc. from
1991 to 1992; as a private consultant to, and investor in, Storehouse, Inc. from
1983 to 1991 and Communications Partners, Ltd. from 1989 to 1991; as Vice
Chairman, Executive Vice President and a Director of the Company from March 1987
to December 1989; and as Co-founder and President of BusLease, Inc. from 1980 to
1989. Mr. Lentzsch also serves as a director of Hastings Books, Records and
Tapes and Enginetech, Inc.

59
<PAGE> 62

A.A. Meitz was elected to the Board of Directors on November 21, 1995. Mr.
Meitz is a retired Senior Vice President of Booz Allen & Hamilton where he was
employed from 1965 to 1994. From 1981 to 1983 Mr. Meitz served as a member of
that firm's board of directors. Mr. Meitz also serves as a director of: Banctec,
Inc., Associated Materials Corporation, and Northern Trust Bank of Texas. He is
a member of the Executive Board of the Cox School of Business at Southern
Methodist University. Mr. Meitz was also the Chairman of the Texas Senate
Advisory Committee on Business, Technology and Education from 1984 to 1985.

Frank L. Nageotte was elected to the Board of Directors on February 27,
1995. Mr. Nageotte was a director of Motor Coach Industries International, Inc.
from 1993 to 1995, and Greyhound Lines, Inc. from 1987 to 1990 and currently
serves as a director of Citizens Auto Stages. From 1982 to 1987 Mr. Nageotte
served as President and Chief Operating Officer of The Greyhound Corporation,
where he was the Chief Executive Officer of the Company's predecessor from 1978
to 1982. Mr. Nageotte worked for the Company's predecessor for 40 years.

Alfred E. Osborne, Jr. was elected to the Board of Directors on May 10,
1994. Since 1987, Dr. Osborne has served as Director of the Entrepreneurial
Studies Center and Associate Professor of Business Economics of the John E.
Anderson Graduate School of Management at the University of California at Los
Angeles. Dr. Osborne formerly served as Director of the MBA Program, Assistant
Dean and Associate Dean at UCLA. Dr. Osborne is also an independent general
partner of Technology Funding Venture Partners V and a director of First
Interstate Bank of California, Nordstrom, Inc., Readicare Inc., Seda Specialty
Packaging Corporation, The Times Mirror Company and United States Filter
Corporation.

Stephen M. Peck was elected to the Board of Directors on May 31, 1995. Mr.
Peck is currently a private investor. From March 1989 to December 1994, Mr. Peck
was a General Partner of SMP Associates, L.P., an investment partnership.
Formerly he was a Managing and Special Partner of Weiss, Peck & Greer and
participated in its founding in 1970. From 1986 to mid-1988 he served as Chief
Investment Officer and a director of Reliance Insurance Company. From May 1985
to January 1988, Mr. Peck served as a director of Tiger International. He was
elected a Governor of the New York Stock Exchange, Inc. in 1969, served as Vice
Chairman of the Board of Governors from May 1971 to July 1972, and served as
Chairman of its Surveillance Committee from December 1974 to May 1978. Mr. Peck
served as a member of the Audit Committee of the City of New York from February
1979 to February 1981. Mr. Peck is currently Chairman of the Boards of Trustees
of the Mount Sinai Hospital and School of Medicine, a member of the Board of
Trustees of the Manhattan Institute for Policy Research, and a member of the
Board of the Jewish Theological Seminary of America.

Thomas G. Plaskett was elected to the Board of Directors on May 10, 1994.
From August 9, 1994, to November 14, 1994, Mr. Plaskett served as Interim
President and Chief Executive Officer of the Company, and from October 19, 1994
to November 22, 1994, served as Acting Chief Financial Officer of the Company.
On February 27, 1995, Mr. Plaskett was elected as the Company's Chairman of the
Board. Since 1991, Mr. Plaskett has served as Managing Director of Fox Run
Capital Associates, an investment concern. Previously, Mr. Plaskett served as
President and Chief Executive Officer of Pan Am Corporation from 1988 to 1991
and as President and Chief Executive Officer of Continental Airlines from 1986
to 1987. Mr. Plaskett also serves as a director of Tandy Corporation, Neostar
Retail Group and Smart and Final, Inc.

Ernest P. Werlin was elected to the Board of Directors on May 31, 1995. Mr.
Werlin is currently President of High View Capital. He has also served as
Chairman of the Board of Directors of Jamesway Corporation since March 1995.
From 1992 to March 1995, Mr. Werlin was employed by Steinhardt Management. From
April 1990 to 1992, Mr. Werlin was a private investor. From January 1989 to
April 1990, Mr. Werlin was Managing Director of Stamford Capital. From August
1988 to December 1988, Mr. Werlin was an Associate Managing Director of Bear,
Stearns & Company. He was employed by Morgan Stanley & Company from April 1980
to May 1988 as the Chairman of the Fixed Income New Product Development
Committee and as Managing Director, Manager of Corporate Bond Trading desk and
Special Situations. From April 1978 to April 1980, Mr. Werlin served as
Co-Manager of the Corporate Bond Department of Donaldson, Lufkin & Jenrette. He
also served as Senior Administrator to the President of Lehman Brothers

60
<PAGE> 63

from June 1976 to April 1978. Additionally, from July 1991 to June 1992, Mr.
Werlin was a director of Todd Shipyards.

The Restated Certificate of Incorporation of the Company currently provides
that the Board of Directors shall consist of nine directors, divided into three
classes. The term of office of the Class II directors expires at the 1996 annual
meeting of stockholders, the term of those in Class III expires at the 1997
annual meeting of stockholders and the term of those in Class I expires at the
1998 annual meeting of stockholders. At each annual meeting of stockholders,
directors in the class to be elected at such meeting will be elected for three-
year terms to succeed those directors whose terms are expiring.

The Board of Directors has established an Executive Committee consisting of
Messrs. Plaskett (Chairman), Lentzsch and Nageotte, which committee possesses
the powers and discharges the duties of the Board of Directors during interim
periods between meetings of the full board. The Board of Directors also has
established an Audit Committee consisting of Mr. Osborne (Chairman), Ms. Chavez
and Messrs. Nageotte and Werlin; an Organization and Compensation Committee
consisting of Messrs. Caley (Chairman), Meitz, Osborne, Peck and Werlin; a
Committee on Directors consisting of Messrs. Lentzsch (Chairman), Caley, Peck
and Plaskett. Messrs. Caley, Lentzsch, Osborne and Plaskett served as members of
the Finance Committee until the Finance Committee was dissolved on May 31, 1995.
It is the Board's intent to periodically modify committee assignments and
chairmanships.

EXECUTIVE OFFICERS

In addition to Craig R. Lentzsch, the other executive officers of the
Company are as set forth below.

Bradley T. Harslem joined the Company in December 1993 and serves as Senior
Vice President -- Information Services and Chief Information Officer. He is
responsible for all of the Company's computer systems and for the operation of
the telephone sales centers. Prior to joining the Company, Mr. Harslem worked
for American Airlines, Inc. for 18 years in various engineering, finance,
planning, marketing and technology roles. He served as Vice President -- Sabre
Travel Information Network from 1991 to 1993; as Vice President -- Sabre
Computer Services from 1988 to 1991 and as Managing Director -- Marketing
Administration from 1987 to 1988.

Jack W. Haugsland joined the Company on May 15, 1995 as Executive Vice
President and Chief Operating Officer. From 1992 to 1995 Mr. Haugsland was
President and Chief Executive Officer of Gray Line Worldwide. From 1990 to 1992
Mr. Haugsland held the position of Senior Vice President of Operations for the
Company; and from 1986 to 1990 Mr. Haugsland served as President of Greyhound
Travel Services, Inc., a former subsidiary of the Company. Mr. Haugsland began
employment with the Company's predecessor in 1964.

J. Floyd Holland has served as Senior Vice President -- Operations since
September 1994 and is responsible for equipment maintenance, engineering, driver
and bus operations and customer service. From October 1992 to September 1994, he
served as Vice President -- Maintenance of the Company. From July 1987 to
September 1992, he was Vice President -- Fleet Operations and was responsible
for fleet planning and allocation. From October 1979 to July 1987, Mr. Holland
served as Vice President of Operations and Transportation of Trailways. Mr.
Holland held various management positions with predecessor companies since he
began employment in 1958 with Trailways. Mr. Holland has been a member of the
Board of Directors and Executive Committee of the National Bus Traffic
Association since 1991.

Steven L. Korby joined the Company as Executive Vice President, Chief
Financial Officer and Treasurer effective April 13, 1995. Prior to joining the
Company, Mr. Korby was President of Armstrong Capital Corporation from 1994 to
1995 and served as Executive Vice President, Chief Financial Officer and Chief
Technology Officer of Neodata Corporation and its predecessors from 1983 to
1993.

There is no family relationship between any of the directors or nominees
for director and executive officers of the Company.

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<PAGE> 64

SECTION 16(A) DELINQUENT FILER DISCLOSURE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's Common Stock, to file with the Securities and Exchange Commission (the
"SEC") initial reports of beneficial ownership and reports of changes in
beneficial ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than 10% beneficial owners of the Company are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file. To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company and written representations
that no other reports were required, all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with for the year ended December 31, 1995, except that: (a) Frank
L. Nageotte, a director, filed a late Form 3 and a late Form 4 after being
appointed to the Board of Directors in February 1995; (b) Steven L. Korby,
Executive Vice President, Chief Financial Officer and Treasurer, filed an
amended Form 3 after joining the Company in April 1995; (c) Stephen M. Peck, a
director, filed a late Form 3 after being elected to the Board of Directors in
May 1995; and (d) Ernest P. Werlin, a director, filed a late Form 3 after being
elected to the Board of Directors in May 1995.

ITEM 11. EXECUTIVE COMPENSATION

"Executive Compensation" in the definitive proxy statement is incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

"Security Ownership of Certain Beneficial Owners and Management" in the
definitive proxy statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Motor Coach Industries International, Inc.

As an inducement to serve as a standby purchaser, the Company paid TMO a
commitment fee of approximately $137,000 (representing 1% of TMO's total standby
purchase commitment), and a takedown fee of approximately $387,000 (representing
3% of the price paid for the shares actually purchased by TMO pursuant to the
standby commitment). In addition, the Company extended the term of the Bus
Purchase Requirements Agreement dated March 18, 1987 between the Company, MCI
and Transit Bus International, Inc., which also is a subsidiary of MCII, from
March 18, 1997 to March 18, 1998. The Company must purchase at least 75% of its
new bus requirements, if any, pursuant to that agreement. The Company also has
agreed that it would prepay a portion of the "purchase price" to become due and
payable under a Conditional Sales Contract and Security Agreement entered into
in 1994 between the Company and MCI and assigned to MCI Acceptance Corp.
("MCIAC"), a wholly owned subsidiary of MCII. The Conditional Sales Contract to
be repaid arose out of the financing of 151 intercity coaches purchased by the
Company in 1994. The obligations thereunder currently bear interest at the prime
rate plus 1.5% per annum and mature over ten years. This pre-payment in the
amount of $12.9 million was made in February 1995 and resulted in the release of
liens on 64 buses which collateral is available for refinancing. In addition,
the Company has agreed that it will use its best efforts to refinance, on
commercially reasonable terms, all other amounts owed to MCIAC. At December 31,
1995, the aggregate principal amount owed to MCIAC was approximately $6.7
million.

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<PAGE> 65

Company filed a registration statement on Form S-3 relating to the sale of up to
10,004,144 shares of Common Stock which was declared effective on September 28,
1995, and on October 3, 1995, the sale of the stock was completed. Four million
shares were sold by the Company and 6,004,144 shares were sold by Motor Coach
Industries Limited, a selling stockholder. The Company did not receive any
portion of the proceeds from the sale of shares of Common Stock by the selling
stockholder.

Universal Coach Parts, Inc.

Universal Coach Parts, Inc. ("UCP") is a nationwide distributor of service
parts and since December 1992 has provided inventory and inventory management
services for the Company. UCP is also a wholly owned subsidiary of MCII. For the
years ended December 31, 1995, 1994 and 1993, the Company paid $15.2 million,
$11.5 million and $5.5 million, respectively, to UCP for the purchase of
inventory and inventory management services. Additionally, at December 31, 1995
and 1994, the Company included in its Consolidated Statements of Financial
Position, net amounts payable to UCP of $1.4 million and $1.5 million,
respectively.

Connor, Clark & Company, Ltd.

Herbert Abramson, Director and Vice President of Connor Clark, served on
the Company's Board of Directors from September 21, 1994 until his resignation
on October 26, 1995.

Snyder Capital Management, Inc.

Put/Call Agreement with Certain Shareholder

63
<PAGE> 66

Frederick F. Richards

64
<PAGE> 67

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) CERTAIN DOCUMENTS FILED AS PART OF THE FORM 10-K

1. AND 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES

The following financial statements and financial statements schedules are
set forth in Item 8 of the Form 10-K Annual Report. Financial Statement
Schedules not included in this Form 10-K Annual Report have been omitted because
they are not applicable or the required information is shown in the financial
statements or notes thereto. Fifty percent or less owned companies accounted for
by the equity method have been omitted because, considered in the aggregate,
they have not been considered to constitute a significant subsidiary.

<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Management Report on Responsibility for Financial Reporting................ 26
Report of Independent Public Accountants................................... 27
Consolidated Statements of Financial Position at December 31, 1995 and
1994..................................................................... 28
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1994 and 1993...................................................... 29
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993......................................... 30
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993...................................................... 31
Notes to Consolidated Financial Statements................................. 32
Report of Independent Public Accountants on Financial Statement Schedule... 56
Schedule II -- Valuation and Qualifying Accounts........................... 57
</TABLE>

3. EXHIBITS

<TABLE>
<C> <S>
3.1 -- Restated Certificate of Incorporation of Greyhound Lines, Inc.(4)
3.2 -- Restated Bylaws of Greyhound Lines, Inc.(4)
3.3 -- Article Fourth of the Restated Certificate of Incorporation of the
Registrant relating to its capital stock.(7)
3.4 -- Certificate of Amendment in the Restated Certificate of Incorporation
of the Registrant amending Article Fourth thereof.(8)
3.5 -- Certificate of Amendment in the Restated Certificate of Incorporation
of the Registrant amending Article Eighth thereof.(13)
3.6 -- Certificate of Designations of Series A Junior Preferred Stock of the
Registrant.(13)
3.7 -- Form of Certificate of Amendment to Certificate of Incorporation.(15)
4.1 -- Indenture governing the 8 1/2% Convertible Subordinated Debentures
due March 31, 2007, including the form of 8 1/2% Convertible
Subordinated Debentures due March 31, 2007.(5)
4.2 -- Indenture, dated October 31, 1991, between the Registrant and LaSalle
National Bank, as Trustee, with respect to $165,000,000 principal
amount of 10% Senior Notes due 2001, including form of 10% Senior
Notes Due 2001.(2)
4.3 -- First Supplemental Indenture to the Indenture between the Registrant
and LaSalle National Bank, as Trustee.(5)
4.4 -- Form of First Supplemental Indenture to the Indenture between the
Registrant and Shawmut Bank Connecticut, N.A., as Trustee.(16)
</TABLE>

65
<PAGE> 68

<TABLE>
<C> <S>
4.5 -- Rights Agreement, dated as of March 22, 1994, between the Registrant
and Mellon Securities Trust Company, as Rights Agent.(11)
4.6 -- Form of Promissory Note issued to holders of priority tax claims
against the Registrant, including a schedule of holders of such notes
and principal amounts thereof.(4)
4.7 -- Amended and Restated Loan and Security Agreement dated as of October
13, 1994 by and between Greyhound Lines, Inc. and Foothill Capital
Corporation.(15)
4.8 -- Amendment Number One to Amended and Restated Loan and Security
Agreement dated March 27, 1995 by and between Greyhound Lines, Inc.
and Foothill Capital Corporation.(17)
4.9 -- Second Amended and Restated Loan and Security Agreement dated as of
June 5, 1995 by and between Greyhound Lines, Inc. and Foothill
Capital Corporation.(19)
10.1 -- Acquisition Agreement dated December 22, 1986, among The Greyhound
Corporation, Greyhound Lines, Inc., the Registrant, GLI Holding
Company, GLI Bus Operations Holding Company and GLI Merger
Company.(1)
10.2 -- First Amendment to Acquisition Agreement dated January 31, 1987.(1)
10.3 -- Second Amendment to Acquisition Agreement dated March 18, 1987.(1)
10.4 -- Third Amendment to Acquisition Agreement dated March 18, 1987.(1)
10.5 -- Fourth Amendment to Acquisition Agreement dated September 18,
1987.(1)
10.6 -- Trademark License Agreement dated March 18, 1987, between The
Greyhound Corporation, GLI Holding Company and the Registrant.(1)
10.7 -- Assignment of Exhibit B Trademarks dated March 18, 1987, executed by
The Greyhound Corporation.(1)
10.8 -- Bus Purchase Requirements Agreement dated March 18, 1987, among the
Registrant, Greyhound Lines, Inc., Transportation Manufacturing
Corporation and Motor Coach Industries, Inc.(1)
10.9 -- Amendment to Bus Purchase Requirements Agreement.(21)
10.10 -- Master Lease dated March 18, 1987, between Greyhound Lines, Inc. and
GLI Realty Company.(1)
10.11 -- Trust Agreement dated as of October 31, 1991, between the Registrant
and Bank One, Texas, N.A., as trustee for Registrant's Employee Stock
Ownership Plan.(4)
10.12 -- Contested Claim Pool Trust Agreement to be entered into as of October
31, 1991, by and between the Registrant and Smith Barney Trust
Company, as trustee.(4)
10.13 -- Claims Treatment Agreement dated August 23, 1991, by and among Eagle
Bus Manufacturing, Inc., the Registrant, Trailways Commuter Transit,
Inc., GLI Bus Operations Holding Company, GLI Food Services, Inc.,
Southern Greyhound Lines Co., GLI Holding Company, Central Greyhound
Lines Co., Greyhound Travel Services, Inc., Eastern Greyhound Lines,
Co., and Western Greyhound Lines Co., on the one hand, and The Dial
Corp, on the other.(4)
10.14 -- Coach Purchase Agreement, dated December 23, 1992, between the
Registrant and Motor Coach Industries, Inc.(6)
</TABLE>

66
<PAGE> 69

<TABLE>
<C> <S>
10.15 -- Amendment No. 1 to the 1993 Coach Purchase Agreement, dated as of
February 4, 1993, by and among Greyhound Lines, Inc. and Motor Coach
Industries, Inc.(9)
10.16 -- Amendment No. 2 to the 1993 Coach Purchase Agreement, dated as of
June 25, 1993, by and among Greyhound Lines, Inc. and Motor Coach
Industries, Inc.(9)
10.17 -- Memorandum of Agreement, dated as of June 4, 1993, between Greyhound
Lines, Inc. and the International Association of Machinists and
Aerospace Workers.(9)
10.18 -- Interest Rate Swap Transaction Confirmations dated as of July 12,
1993, between the Registrant and Bankers Trust Company.(9)
10.19 -- Memorandum of Agreement, dated as of May 25, 1993, between the
Registrant and the Amalgamated Council of Greyhound Local Unions.(10)
10.20 -- Lease Agreement No. 1, dated as of December 29, 1993, between
Wilmington Trust Company and the Registrant.(10)
10.21 -- Lease Agreement No. 2, dated as of December 29, 1993, between
Wilmington Trust Company and the Registrant.(10)
10.22 -- Lease Agreement No. 3, dated as of December 29, 1993, between
Wilmington Trust Company and the Registrant.(10)
10.23 -- Lease Supplement No. 1-1, dated as of December 30, 1993, between
Wilmington Trust Company and the Registrant.(10)
10.24 -- Lease Supplement No. 2-1, dated as of December 30, 1993, between
Wilmington Trust Company and the Registrant.(10)
10.25 -- Lease Supplement No. 3-1, dated as of December 30, 1993, between
Wilmington Trust Company and the Registrant.(10)
10.26 -- Tax Indemnification Agreement, dated as of December 29, 1993, between
Nationsbanc Lease Investments, Inc. and the Registrant.(10)
10.27 -- Pledge Agreement, dated as of December 29, 1993, among the
Registrant, Wilmington Trust Company and Nationsbanc Lease
Investments, Inc.(10)
10.28 -- Participation Agreement, dated as of December 29, 1993, among
Nationsbanc Lease Investments, Inc. and the Registrant.(10)
10.29 -- Greyhound Lines, Inc. 1991 Management Incentive Stock Option Plan.(4)
10.30 -- Greyhound Lines, Inc. 1993 Management Incentive Stock Option Plan.(8)
10.31 -- Greyhound Lines, Inc. 1993 Non-Employee Director Stock Option
Plan.(10)
10.32 -- Greyhound Lines, Inc. Supplemental Executive Retirement Plan.(21)
10.33 -- Coach Purchase Agreement, dated as of December 31, 1993, between the
Registrant and Motor Coach Industries, Inc.(12)
10.34 -- Conditional Sale Contract and Security Agreement, dated as of May 10,
1994, between the Registrant and Motor Coach Industries, Inc.(13)
10.35 -- Lease Agreement, dated as of March 28, 1994, between Wilmington Trust
Company and the Registrant.(12)
10.36 -- Lease Supplement No. 1, dated as of March 28, 1994, between
Wilmington Trust Company and the Registrant.(12)
10.37 -- Pledge Agreement, dated as of March 28, 1994, among the Registrant,
Wilmington Trust Company and Cargill Leasing Corporation.(12)
10.38 -- Participation Agreement, dated as of March 28, 1994, among Cargill
Leasing Corporation and the Registrant.(12)
10.39 -- Bill of Sale, dated as of March 28, 1994, between the Registrant and
Wilmington Trust Company.(12)
</TABLE>

67
<PAGE> 70

<TABLE>
<C> <S>
10.40 -- Tax Indemnification Agreement, dated as of March 28, 1994, between
Cargill Leasing Corporation and the Registrant.(12)
10.41 -- Lease Agreement, dated as of March 29, 1994, between Wilmington Trust
Company and the Registrant.(12)
10.42 -- Lease Supplement No. 1, dated as of March 29, 1994, between
Wilmington Trust Company and the Registrant.(12)
10.43 -- Pledge Agreement, dated as of March 29, 1994, among the Registrant,
Wilmington Trust Company and Cargill Leasing Corporation.(12)
10.44 -- Participation Agreement, dated as of March 29, 1994, among Cargill
Leasing Corporation and the Registrant.(12)
10.45 -- Bill of Sale, dated as of March 29, 1994, between the Registrant and
Wilmington Trust Company.(12)
10.46 -- Tax Indemnification Agreement, dated as of March 29, 1994, between
Cargill Leasing Corporation and the Registrant.(12)
10.47 -- Conditional Sale Contract and Security Agreement, dated as of June
28, 1994, between the Registrant and Motor Coach Industries, Inc.(14)
10.48 -- First Amendment to the Registrant 1993 Non-Employee Director Stock
Option Plan.(14)
10.49 -- Amendments to Interest Rate Swap Agreement, dated as of October 6,
1994 between the Registrant and Bankers Trust Company.(14)
10.50 -- Form of Letter Agreements with various holders of Convertible
Debentures relating to, among other things, the Conversion.(16)
10.51 -- Employment Agreement dated November 15, 1994, between Registrant and
Craig R. Lentzsch.(17)
10.52 -- Amendment Number Two to Bus Purchase Requirements Agreement dated
December 21, 1994 by and between Greyhound Lines, Inc. and Motor
Coach Industries.(17)
10.53 -- Second Amendment to Greyhound Lines, Inc. 1993 Non-Employee Director
Stock Option Plan.(18)
10.54 -- Greyhound Lines, Inc. 1995 Long Term Stock Incentive Plan.(19)
10.55 -- Greyhound Lines, Inc. 1995 Director's Stock Incentive Plan.(19)
10.56 -- Employment Agreement dated July 25, 1995 between Registrant and
Steven L. Korby.(19)
10.57 -- Employment Agreement dated September 18, 1995 between Registrant and
John Werner Haugsland.(20)
10.58 -- 1995 Bus Purchase Agreement.(21)
11 -- Computation of Registrant's earnings per share for the year ended
December 31, 1993.(15)
11.1 -- Computation of Registrant's earnings per share for the year ended
December 31, 1994.(17)
11.2 -- Computation of Registrant's earnings per share for the year ended
December 31, 1995.(21)
22 -- Subsidiaries of the Registrant.(21)
23.1 -- Consent of Arthur Andersen LLP.(21)
27 -- Financial Data Schedule as of and for the year ended December 31,
1995.(21)
</TABLE>

68
<PAGE> 71

- ---------------

(1) Incorporated by reference from the Annual Report Form 10-K/A for the year
ended December 31, 1994.

(2) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1991.

(3) Incorporated by reference to the Company's Registration Statement on Form
10 (File No. 1-10841) relating to the Common Stock and Senior Notes.

(4) Incorporated by reference from the Registration Statement on Form S-1 (File
Nos. 33-45060-01 and 33-45060-02) regarding the Registrant's 8 1/2%
Convertible Subordinated Debentures Due 2007.

(5) Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-47908) regarding the Registrant's Common Stock and 10%
Senior Notes Due 2001 held by the Contested Claims Pool Trust.

(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992.

(7) Incorporated by reference from the Company's Registrant Statement on Form
S-3 (File No. 33-61044).

(8) Incorporated by reference from the Company's Registrant Statement on Form
S-8 (File No. 33-63506) regarding the Registrant's 1991 and 1993 Management
Stock Option Plans.

(9) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993.

(10) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.

(11) Incorporated by reference from the Registrant's Quarterly Report on Form
8-K regarding the Rights Agreement dated March 22, 1994.

(12) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994.

(13) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994.

(14) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.

(15) Incorporated by reference from the Registration Statement on Form S-1 (File
No. 33-56131) regarding the Registrant's Common Stock.

(16) Incorporated herein by reference from the Registrant's Issuer Tender Offer
Statement on Schedule 13E-4 (File No. 5-41800).

(17) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.

(18) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995.

(19) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995.

(20) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.

(21) Filed herewith.

(B) REPORTS ON FORM 8-K

The Company filed no current reports on Form 8-K with the Securities and
Exchange Commission during the quarter ended December 31, 1995, nor was it
required to do so.

69
<PAGE> 72

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Dallas
and the State of Texas, on March 15, 1996.

GREYHOUND LINES, INC.

By: /s/ CRAIG R. LENTZSCH
-------------------------------------
Craig R. Lentzsch
President and Chief Executive Officer
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ---------------
<C> <S> <C>
/s/ THOMAS G. PLASKETT Chairman of the Board March 15, 1996
- --------------------------------------------- of Directors
Thomas G. Plaskett

/s/ RICHARD J. CALEY Director March 15, 1996
- ---------------------------------------------
Richard J. Caley

/s/ LINDA CHAVEZ Director March 15, 1996
- ---------------------------------------------
Linda Chavez

/s/ CRAIG R. LENTZSCH Director, President and March 15, 1996
- --------------------------------------------- Chief Executive Officer
Craig R. Lentzsch

/s/ A. A. MEITZ Director March 15, 1996
- ---------------------------------------------
A. A. Meitz

/s/ FRANK L. NAGEOTTE Director March 15, 1996
- ---------------------------------------------
Frank L. Nageotte

/s/ ALFRED E. OSBORNE, JR. Director March 15, 1996
- ---------------------------------------------
Alfred E. Osborne, Jr.

/s/ STEPHEN M. PECK Director March 15, 1996
- ---------------------------------------------
Stephen M. Peck

/s/ ERNEST P. WERLIN Director March 15, 1996
- ---------------------------------------------
Ernest P. Werlin

/s/ STEVEN L. KORBY Executive Vice President, March 15, 1996
- --------------------------------------------- Chief Financial Officer
Steven L. Korby and Treasurer (Principal
Financial and Accounting
Officer)
</TABLE>

70
<PAGE> 73
Index to Exhibits

Exhibit No. Description
___________ ___________

<TABLE>
<C> <S>
10.9 -- Amendment to Bus Purchase Requirements Agreement.
10.32 -- Greyhound Lines, Inc. Supplemental Executive Retirement Plan.
10.58 -- 1995 Bus Purchase Agreement.
11.2 -- Computation of Registrant's earnings per share for the year ended
December 31, 1995.
22 -- Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP.
27 -- Financial Data Schedule as of and for the year ended December 31,
1995.
</TABLE>

<PAGE> 1
EXHIBIT 10.9

AMENDMENT TO BUS PURCHASE
REQUIREMENTS AGREEMENT

This Amendment to Bus Purchase Requirements Agreement (the
"Amendment") is made and entered into as of June 30, 1988, by and among
Greyhound Lines, Inc., a Delaware corporation formerly known as GLI Operating
Company ("Lines"), Transportation Leasing Co., a California corporation
formerly known as Greyhound Lines, Inc. ("Transportation"), Transportation
Manufacturing Corporation, a Delaware corporation ("TMC"), Motor Coach
Industries, Inc., a Delaware corporation ("MCI") (Lines, Transportation, TMC,
and MCI, collectively, being called herein the "Parties"), Texas, New Mexico &
Oklahoma Coaches, Inc., a Texas corporation (the "Texas Carrier"), T.N.M.&O.
Tours, Inc., a Texas corporation, and Vermont Transit Co., Inc, a Vermont
corporation (the "Vermont Carrier").

W I T N E S S E T H:

WHEREAS, the Parties entered into that certain Bus Purchase
Requirements Agreement (the "Requirements Agreement") dated March 18, 1987, the
term of which was extended by that certain letter agreement (the "Letter
Agreement") dated June 15, 1987, executed by GLI Holding Company, a Delaware
corporation ("GLI Holding"), and The Greyhound Corporation, an Arizona
corporation
<PAGE> 2
("Greyhound") (the Letter Agreement and the Requirements Agreement,
collectively, being called herein the "Agreement");

WHEREAS, GLI Holding, T & V Holding Company, a Delaware corporation
("T&V"), TNMO Acquisition, Inc., a Texas corporation (the "Texas GLI Sub"),
Greyhound, and the Texas Carrier have entered into that certain Acquisition
Agreement (the "Texas Acquisition Agreement") dated as of June 27, 1988,
pursuant to which the Texas GLI Sub will be merged with and into the Texas
Carrier;

WHEREAS, GLI Holding, T&V, VT Acquisition, Inc., a Vermont corporation
(the "Vermont GLI Sub"), Greyhound, and the Vermont Carrier have entered into
that certain Acquisition Agreement (the "Vermont Acquisition Agreement") dated
as of June 27, 1988, pursuant to which the Vermont GLI Sub will be merged with
and into the Vermont Carrier;

WHEREAS, the Texas Acquisition Agreement and the Vermont Acquisition
Agreement are conditioned upon the amendment of the Agreement to provide for
the obligation of the Texas Carrier, the Texas Carrier's subsidiary, and the
Vermont Carrier (the "New Parties") to purchase 75% of their motor coaches from
TMC or MCI on the same terms and conditions as provided for in the Agreement;

2
<PAGE> 3
NOW,THEREFORE, the undersigned hereby agree that the Agreement is
amended as follows:

Parties. The first paragraph of the Agreement is amended to add the
following before the period at the end of the first sentence thereof:

, Texas,New Mexico & Oklahoma Coaches, Inc., a Texas corporation
("TNMO"), T.N.M.O. Tours, Inc., a Texas corporation (" Tours"), and
Vermont Transit Co., Inc., a Vermont corporation ("Vermont") (with
TNMO, Tours, and Vermont being referred to herein collectively as the
"New GLI Entities" and GLI Operating and the New GLI Entities being
referred to herein collectively as the "GLI Entities")

Section 1. Section 1 of the Agreement is amended to add the following
at the end thereof:

For calendar years 1988 through 1992, the New GLI Entities shall
purchase pursuant to the terms of this Agreement not less than 75% of
their aggregate motor coaches for each such year of the type
manufactured by TMC or MCI as of August 1 of each of the preceding
years or planned to be manufactured by TMC or MCI in such year (not
including vans and the like made by

3
<PAGE> 4
major manufacturers) which shall be manufactured by TMC or MCI (which
buses shall be included in the term "Buses"). For purposes of
determining compliance with the minimum purchase requirements of this
Agreement, Buses purchased by the New GLI Entities during 1988,
whether before or after June 30, 1988, shall be included. TMC and MCI
agree to sell to each of the New GLI Entities Buses on the terms set
forth herein.

Section 3. The term "GLI Operating" appearing in second sentence of
Section 3 of the Agreement is amended to read "any GLI Entity."

Section 4. The second, third, and fourth sentences of Section 4 of the
Agreement are hereby amended to read in their entirety as follows:

The initial amount paid by any GLI Entity or used to ascertain lease
rental amounts shall be based on their aggregate annual requirements
estimate of all GLI Entities.

For the purposes of calculating the discount, such estimate shall
include buses ordered under the Bus Purchase Agreement but shall not
include Buses

4
<PAGE> 5
purchased by the New GLI Entities during 1988 before June 30, 1988.

If at the end of any calendar year, the GLI Entities have purchased
and leased in the aggregate more or less than the estimated number of
Buses, then the purchase price for all Buses purchased during such
calendar year shall be appropriately adjusted in accordance with the
foregoing table, and TMC and/or MCI or the appropriate GLI Entity, as
the case may be, shall promptly pay any difference to the other(s) for
Buses purchased or, for Buses leased, Seller or an affiliate of Seller
shall make appropriate adjustment to the lease rental amounts,
retroactively to the inception of the lease.

Section 5. The first three sentences of Section 5 of the Agreement are
hereby amended to read in their entirety as follows:

The GLI Entities shall provide TMC with their best estimate for Buses
during each calendar year for which they are to purchase Buses
hereunder. Such estimate for 1988, 1989, 1990, 1991, and 1992 shall
be delivered no later than June 1 of the year prior to such year;
provided, however that the estimate with respect to 1988 need not have
included Buses to be purchased by

5
<PAGE> 6
the New GLI Entities and the estimate for 1989 need not be given prior
to August 1, 1988. The GLI Entities shall provide TMC with a firm
order no later than August 1 of the prior year, which order shall
include the specifications (including options and accessories) of the
Buses to be purchased.

Section 6. Section 6 of the Agreement is hereby amended to read in its
entirety as follows:

6. Buses. Each GLI Entity reserves the right to request that TMC
incorporate minor modifications in the options and accessories
requesting in the firm order with respect to the Buses by written
notice to TMC within a reasonable time for implementing such
modifications. The appropriate GLI Entity will bear the cost of
making such modifications.

Sections 7 and 8. Sections 7 and 8 of the Agreement are hereby
amended so that the term "GLI Operating" appearing therein is replaced
with the term "each GLI Entity" in each instance.

Section 9. Section 9 of the Agreement is hereby amended so that the
term "GLI Operating" appearing therein is replaced with the term "any GLI
Entity."

6
<PAGE> 7
Section 15. Section 15 of the Agreement is hereby amended so that the
term "GLI Operating" appearing therein is replaced with the term "any GLI
Entity" and the address shown for GLI Operating has added, at the beginning
thereof, the term "c/o Greyhound Lines, Inc."

IN WITNESS WHEREOF, this Amendment has been executed by the
undersigned on this 30th day of June, 1988.

TRANSPORTATION LEASING CO. GREYHOUND LINES, INC.

By: /s/ RICHARD C. STEPHAN BY: /s/ L. J. MCCABE
------------------------------- -------------------------------
Richard C. Stephan L. J. McCabe
Vice President Vice President

TRANSPORTATION MANUFACTURING MOTOR COACH INDUSTRIES, INC.
CORPORATION

By: /s/ RONALD G. NELSON By: /s/ RONALD G. NELSON
------------------------------- -------------------------------
Ronald G. Nelson Ronald G. Nelson
Treasurer Treasurer

TEXAS, NEW MEXICO & OKLAHOMA VERMONT TRANSIT CO., INC.
COACHES, INC.

By: /s/ RONALD G. NELSON By: /s/ RONALD G. NELSON
------------------------------- -------------------------------
Ronald G. Nelson Ronald G. Nelson
Vice President Vice President

<PAGE> 8
T. N. M. &O. TOURS, INC.

By:
------------------------------

<PAGE> 1
EXHIBIT 10.32

GREYHOUND LINES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(JANUARY 1, 1994 RESTATEMENT)
<PAGE> 2

GREYHOUND LINES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(JANUARY 1, 1994 RESTATEMENT)

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I. Establishment and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1 Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Article II. Definitions and Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Article III. Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

3.1 Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Duration of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Article IV. Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

4.1 Determination of Vested Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Article V. Benefits Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

5.1 Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.2 Form and Timing of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.3 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4 Pre-Retirement Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.5 Termination for Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.6 Non-compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.7 Change in Control Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Article VI. Amount of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

6.1 Calculation of Plan Benefit Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 Prior Plan Account Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 Investment Earnings Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Article VII. Administration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

7.1 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.2 Compensation and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.3 Rules; Claims Review Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.4 Finality of Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Article VIII. Trust Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

8.1 Trust Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>

<PAGE> 3
<TABLE>
<S> <C>
Article IX. Amendment; Termination; Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

9.1 Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Merger, Consolidation, or Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Article X. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

10.1 Nonalienation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.2 Incompetency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.3 Effect of Mistake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.4 Effect on other Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.5 Plan Not an Employment Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.7 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

APPENDIX A Initial Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 4
1

GREYHOUND LINES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(January 1, 1994 Restatement)

ARTICLE I. ESTABLISHMENT AND PURPOSE

1.1 Establishment. Effective January 1, 1993, Greyhound Lines,
Inc. ("Sponsor") established the Greyhound Lines, Inc. Supplemental Executive
Retirement Plan (the "Prior Plan"). Effective January 1, 1994 with respect to
individuals who were Employees on or after February 1, 1995, the Sponsor hereby
restates the Prior Plan in its entirety, to provide as set forth herein (as
herein restated, hereafter referred to as the "Plan"). The restated Plan as
embodied herein shall not apply to any individual who was a participant in the
Prior Plan and whose employment with the Sponsor terminated prior to February
1, 1995; instead, the benefit, if any, payable to such an individual shall be
determined under the provisions of the Prior Plan.

1.2 Purpose. The purpose of the Plan is to provide unfunded
deferred compensation benefits to a select group of management or highly
compensated employees within the meaning of Section 201(2) of the Employee
Retirement Income Security Act of 1974, as amended.

ARTICLE II. DEFINITIONS AND CONSTRUCTION

2.1 Definitions. Whenever used in the Plan, the following words
and phrases shall have the meanings set forth below unless a different meaning
is plainly required by the context.

(a) "Accounts" shall mean the separate accounts
maintained to record the contributions and earnings credits of Participants
under the Plan. The following terms designate the Accounts under the Plan and
are defined as provided below in this Section 2.1.

(i) "Employer Contribution Account" shall mean the
separate bookkeeping account of a Participant consisting of credits to reflect
the Employer Contributions credited by the Employer pursuant to Section 6.1.

(ii) "Prior Plan Account" shall mean the separate
bookkeeping account of a Participant reflecting credit for the accrued benefit
under the Prior Plan, together with income, gains and losses allocated thereto
and less distributions made therefrom.

(b) "Annual Base Salary" shall mean a Participant's base
salary actually
<PAGE> 5

earned by a Participant for services performed for the Sponsor or its
affiliates for a calendar year. Base salary shall include any amounts excluded
from gross income of an Employee under Code Sections 125, 401(k), 402(a) (8),
or 402(h). Base salary will not include bonuses, incentives, fringe benefits
or other perquisites.

(c) "Beneficiary" or "Beneficiaries" means the person or
persons to whom a benefit is payable following the death of the Participant
pursuant to Section 5.4. Such person (including a trust or an estate) shall be
designated by the Participant, who may name contingent or successive
Beneficiaries. Each designation will revoke all prior designations by the
Participant. All designations shall be made in the form and manner prescribed
by the Committee. If no Beneficiary is designated or if no Beneficiary
survives the Participant, the death benefit shall be paid to the Participant's
surviving spouse. If the Participant is not survived by a spouse, the death
benefit shall be paid to the Participant's estate.

(d) "Board of Directors" means the Board of Directors of
the Sponsor.

(e) "Change in Control" means (i) the acquisition by any
person (defined for the purposes of this Section to mean any person within the
meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder as from time to time amended (the
"Exchange Act"), other than the Sponsor or an employee benefit plan created by
the Board of Directors for the benefit of Employees of the Sponsor, either
directly or indirectly, of the beneficial ownership (determined under Rule
13d-3 of the Regulations promulgated by the SEC under Section 13(d) of the
Exchange Act) of securities issued by the Sponsor having 30% or more of the
voting power of all the voting securities issued by the Sponsor in the election
of directors at the next meeting of the holders of voting securities to be held
for such purpose; (ii) the election of a majority of the directors elected at
any meeting of the holders of voting securities of the Sponsor who are persons
who were not nominated for such election by the Board of Directors or a duly
constituted committee of the Board of Directors having authority in such
matters; (iii) the approval by the stockholders of the Sponsor of the merger or
consolidation with another person, other than a merger or consolidation in
which the holders of the Sponsor's voting securities issued and outstanding
immediately before such merger or consolidation continue to hold voting
securities in the surviving or resulting corporation (in the same relative
proportions to each other as existed before such event) comprising 80% or more
of the voting power for all purposes of the surviving or resulting corporation;
or (iv) the approval by the stockholders of the Sponsor of a transfer of
substantially all of the assets of the Sponsor to another person other than a
transfer to a transferee, 80% or more of the voting power of which is owned or
controlled by the Sponsor or by the holders of the Sponsor's voting securities
issued and outstanding immediately before such transfer in the same relative
proportions to each other as existed before such event.

(f) "Committee" means the Compensation Committee of the
Board of Directors, or such other committee as the Board of Directors shall
appoint to administer the Plan.

(g) "Employee" means a person who is employed by the
Sponsor, its affiliates or subsidiaries.

(h) "Normal Retirement Age" means age 60.

2
<PAGE> 6

(i) "Participant" means an Employee who has been
designated as a Participant under the Plan by the Committee.

(j) "Plan" means the Greyhound Lines, Inc. Supplemental
Executive Retirement Plan, as restated effective January 1, 1994 with respect
to individuals who were Employees on or after February 1, 1995 and as set forth
herein, and as it may be amended from time to time.

(k) "Plan Year" means the calendar year.

(l) "Service" means an Employee's employment with the
Sponsor or its affiliates or subsidiaries, measured in completed months from
his Service Start Date.

(m) "Service Start Date" means a Participant's date of
hire or other date established by the Committee as the start date for computing
a Participant's Service. Each Participant's Service Start date shall be
reflected in Appendix A.

(n) "Sponsor" means Greyhound Lines, Inc. or any
successor thereto.

(o) "Trust" means one or more trusts which may be
established by the Sponsor for the purpose of meeting its obligations under the
Plan, but subject to the claims of general creditors of the Sponsor upon the
Sponsor's bankruptcy or insolvency.

(p) "Trust Agreement" means any agreement in the nature
of a trust (or in the nature of a custodial agreement) between the Sponsor and
the Trustee that may be established to form part of the Plan to receive, hold,
invest, and dispose of Trust assets.

(q) "Trustee" means the individuals or entity acting as
trustee or custodian under any Trust Agreement at any time of reference. Where
there is more than one Trustee serving at any time, the term "Trustee" shall
mean all such Trustees. The Trustee shall be a fiduciary under the Trust
Agreement.

(r) "Valuation Date" shall mean the last day of each
calendar quarter.

(s) "Year of Service" means 12 months of Service, whether
or not consecutive.

2.2 Gender and Number. Except when otherwise indicated by the
context, any masculine terminology when used in the Plan shall also include the
feminine gender, and the definition of any term in the singular shall also
include the plural.

3
<PAGE> 7

ARTICLE III. PARTICIPATION

3.1 Participants. Participation in the Plan shall be extended to
such executives and other key management Employees as the Committee, in its
discretion, shall designate from time to time. The initial Participants in this
Plan, and their applicable Service Start Dates are set forth in Appendix A
hereto. The Committee shall designate, in writing, any other Employees who are
to become Participants in the Plan, and Appendix A shall be amended to reflect
the participation and Service Start Date of any such participants. The
Committee shall have the power to terminate future accrual of additional Plan
benefit credits; provided, however, that except as provided in Sections 5.5 and
5.6, no such termination of future benefit credits shall reduce the amount
already credited to a Participant; and provided further, that except in cases
where the provisions of Section 5.5 or 5.6 apply, a Participant whose future
benefit credit accrual is terminated shall continue to earn Years of Service as
long as he continues to be an Employee.

3.2 Duration of Participation. Each Participant shall continue as
a Participant under the Plan until the final payment is made under the Plan.

ARTICLE IV. VESTING

4.1 Determination of Vested Percentage. A Participant shall have
a vested interest in his Account under the Plan in accordance with the
following schedule:

<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
less than 5 0%
5 or more 100%
</TABLE>

Notwithstanding the foregoing, a Participant who is actively employed by the
Sponsor, an affiliate or subsidiary shall have a fully-vested interest in his
Account upon the earlier of (i) attainment of Normal Retirement Age while
actively employed by the Sponsor, an affiliate or a subsidiary, (ii)
qualification for a Disability Benefit as described in Section 5.3 of the Plan,
(iii) qualification for a Pre-Retirement Death Benefit as described in Section
5.4 of the Plan, (iv) entitlement to a Change in Control benefit pursuant to
Section 5.7, or (v) satisfaction prior to February, 1995 of the vesting
requirements under the Prior Plan. Subject to Sections 5.5 and 5.6 of the
Plan, once a Participant satisfies the vesting requirements of the Plan or the
Prior Plan, he shall always be considered vested under the Plan.

4
<PAGE> 8

ARTICLE V. BENEFITS ELIGIBILITY

5.1 Termination Benefit. Subject to the provisions of Sections
5.5 and 5.6 of the Plan, a Participant shall be entitled to the payment of a
benefit equal to the vested portion of his Account balance if his employment
with the Sponsor and its affiliates and subsidiaries is terminated, whether
voluntarily or involuntarily. Subject to the provisions of Sections 5.3, 5.4
and 5.7, if a Participant's employment with the Sponsor or an affiliate or
subsidiary is terminated prior to the Participant becoming vested in his Plan
Account, no benefits shall be payable under the Plan.

5.2 Form and Timing of Payment. All payments of benefits pursuant
to the Plan will made in the form of a single lump sum within 60 days following
entitlement to benefit payments under the Plan. The value of a Participant's
Account shall be determined as of the Valuation Date immediately preceding
payment to the Participant. In the event a Participant dies after becoming
entitled to a Termination Benefit described in Section 5.1 but before such
benefit is paid to him, such benefit shall be paid to his Beneficiary.

5.3 Disability Benefit. A Participant who becomes disabled while
actively employed by the Sponsor, an affiliate or a subsidiary shall receive a
distribution of his Account balance. For purposes of this Section 5.3, a
Participant shall be considered to be disabled if the Committee determines that
the Participant suffers from a condition, due to injury or sickness, that
prevents the Participant from performing each of the material duties of the
Participant's regular occupation.

5.4 Pre-Retirement Death Benefit. If a Participant dies before a
payment of benefits has been made under the Plan and while he is actively
employed by the Sponsor or an affiliate or subsidiary, his Account balance
shall be paid to his Beneficiary.

5.5 Termination for Cause. Notwithstanding any other provision of
this Plan, if the Committee determines that the Participant engaged in any act
of fraud or dishonesty against the Sponsor or its affiliates or subsidiaries
which, in the opinion of the Committee, would constitute a felony involving a
breach of trust (such as theft or embezzlement) under the Federal law or the
laws of the State of Texas, or which, in the opinion of the Committee, is
injurious to the business or financial condition of the Sponsor, then all
rights which the Participant or his Beneficiaries have under this Plan, other
than a right to Change in Control Benefits under Section 5.7, shall be
forfeited, and any liability of the Sponsor for payment of benefits hereunder
shall terminate.

5.6 Non-compete. Notwithstanding any other provision of this
Plan, if the Participant enters into a business or employment which the
Committee in its sole discretion determines to be detrimentally competitive to
the Sponsor's (or an affiliate's or a subsidiary's) business or substantially
injurious to the Sponsor's (or an affiliate's or a subsidiary's) financial
interests, then all rights which the Participant or his Beneficiaries have
under this Plan, other than a right to Change in Control Benefits under
Sections 5.7, shall be forfeited and any liability of the Sponsor for payment
of benefits hereunder shall terminate.

5.7 Change in Control Benefits. Following a Change in Control, as
defined in Section 2.1 (e) of the Plan, a Participant whose benefits under the
Plan have not commenced as of the date of the Change in Control shall be
entitled to a fully vested and non-forfeitable

5
<PAGE> 9

Change in Control Benefit if (i) the Participant's employment with the Sponsor
or its affiliates or subsidiaries is terminated involuntarily within the two
year period following the Change in Control, or (ii) the Participant's
professional duties or authority are substantially diminished (other than at
the Participant's request) within the two year period following the Change in
Control, or (iii) the Participant's total available compensation payable by the
Sponsor and its affiliates or subsidiaries to the Participant is reduced (other
than with the written consent of the Participant) within the two year period
following the Change in Control and the Participant at any time thereafter
(either before or after the expiration of such two year period) terminates
employment (either voluntarily or involuntarily) with the Sponsor and its
affiliates. For purposes of (iii) above, a Participant's total available
compensation shall be considered to have been reduced if:

(a) the Participant's total available monthly
compensation falls below the level which was available to the Participant
during the last full calendar month immediately preceding the Change in
Control; provided, however, that (A) any previously deferred compensation that
was available for payment to the Participant during such calendar month shall
be disregarded, and provided further that (B) any bonus or other extraordinary
item of compensation that was available for payment to the Participant during
such calendar month shall be disregarded; or

(b) the Participant's total compensation (exclusive of
previously deferred compensation but inclusive of bonuses and other
extraordinary items of income) available for payment to the Participant during
the twelve month period immediately following the Change in Control is less
than such compensation (exclusive of previously deferred compensation but
inclusive of bonuses and other extraordinary items of income) available for
payment to the Participant during the twelve month period immediately preceding
the Change in Control.

The amount of the Change in Control Benefit shall equal an amount
determined under Sections 6.1 and 6.2 of the Plan, as of the date of the Change
in Control. A Participant who becomes entitled to a Change in Control Benefit
shall be entitled to receive payment of such benefit following termination of
employment with the Sponsor and its affiliates and subsidiaries. Such payment
shall be made in accordance with Section 5.2.

To the extent a Participant continues in employment with the Sponsor
or its affiliates following a Change in Control and subsequently becomes
entitled to a benefit under the provisions of the Plan other than this Section
5.7, such Participant shall be entitled to the benefit which produces the
greatest benefit at the Participant's actual retirement or other separation
from service.

ARTICLE VI. AMOUNT OF BENEFITS

6.1 Calculation of Plan Benefit Credits. The annual amount
credited to the Employer Contribution Account of a Participant as of the last
day of each Plan Year shall equal the Participant's Annual Base Salary for such
Plan Year multiplied by a percentage, which percentage shall be:

(a) 20 percent in the case of the President and Chief Executive
Officer, Chief Financial Officer, or Chief Operating Officer
of the Sponsor;

6
<PAGE> 10

(b) 20 percent for the individuals who, as of January 1, 1995,
held the positions of Senior Vice President Operations, Vice
President Customer Satisfaction, and Vice President Network
Operations of the Sponsor, but only for so long as such
individuals hold these specifically enumerated positions with
the Sponsor; and

Notwithstanding the foregoing, prior to the beginning of each Plan Year, the
Committee may establish in writing minimum levels of financial or operating
performance that must be achieved for the Plan Year if a Participant is to be
credited with an amount for such Plan Year.

6.2 Prior Plan Account Benefit. In addition to the benefit
credits described in Section 6.1, the amount credited to the Prior Plan Account
of a Participant shall equal:

(a) For a Participant in the Prior Plan who satisfied the
requirements under the Prior Plan for a vested benefit, an
amount equal to the greater of (i) the net present value as of
December 31, 1994 of the benefit accrued under the Prior Plan,
or (ii) the amount that would be credited to such
Participant's Account under the provisions of Section 6.1 of
this Plan, taking into account Annual Base Salary from the
effective date of commencement of Participation in the Prior
Plan until December 31, 1994; and

(b) For a Participant who was a Participant in the Prior Plan but
who failed to satisfy the requirements under the Prior Plan
for a vested benefit on or prior to December 31, 1994, an
amount equal to the amount that would be credited to such
Participant's Account under the provisions of Section 6.1 of
this Plan, taking into account Annual Base Salary from the
effective date of commencement of Participation in the Prior
Plan until December 31, 1994.

6.3 Investment Earnings Credit. In the event that a Trust is
established to assist the Sponsor in meeting its obligations to pay benefits
under the Plan, Accounts will be credited with an allocable portion of earnings
or losses of such Trust as of each Valuation Date. If or to the extent amounts
accrued as benefit credits under the Plan are not set aside in a Trust,
Accounts shall be credited as of each Valuation Date with an amount
representing an investment return rate on 10-year Treasury notes determined as
of the Valuation Date, or such other rate as is determined from time to time by
the Sponsor.

ARTICLE VII. ADMINISTRATION OF THE PLAN

7.1 Administration. The Plan shall be administered by the
Committee. A majority of the members of the Committee shall constitute a
quorum and the acts of a majority of the members present, or acts approved in
writing by a majority of the members without a meeting, shall be the acts of
the Committee. The Committee shall have that authority which is expressly
stated in the Plan as vested in the Committee, and authority to make rules to
administer and interpret the Plan to decide questions arising under the Plan,
and to take such other action as may be appropriate to carry out the purposes
of the Plan.

7
<PAGE> 11

7.2 Compensation and Expenses.

(a) Compensation. No additional compensation shall be
paid to a member of the Committee for service on the Committee. Any member of
the Committee may receive reimbursement by the Sponsor of expenses properly and
actually incurred.

(b) Expenses. All expenses of the Committee shall be
paid by the Sponsor. Such expenses shall include any expenses incident to the
functioning of the Committee, including but not limited to, fees of actuaries,
accountants, counsel, and other specialists, and other costs of administering
the Plan.

7.3 Rules; Claims Review Procedures.

(a) General. The Committee shall adopt and establish
such rules and regulations with respect to the administration of the Plan as it
deems necessary and appropriate. The Committee shall also prescribe such
administrative forms as it deems necessary to carry out the provisions of the
Plan. All determinations with respect to a Participant's right to any benefit
under the Plan shall be made by the Committee.

(b) Denial of Claim. If a claim for benefits is wholly
or partially denied, the claimant shall be given notice in writing of the
denial within a reasonable time after the receipt of the claim, but not later
the 90 days after the receipt of the claim. However if special circumstances
require an extension, written notice of the extension shall be furnished to the
claimant before the termination of the 90 day period. In no event shall the
extension exceed a period of 90 days after the expiration of the initial 90 day
period. The notice of the denial shall contain the following information:

(1) the specific reasons for the denial,

(2) specific reference to pertinent Plan provisions
on which the denial is based,

(3) a description of any additional material or
information necessary for the claimant to perfect his claim and an explanation
of why such material or Information is necessary.

(4) an explanation that a full and fair review by the
Committee of the denial may be requested by the claimant or his authorized
representative by filing a written request for a review with the Committee
within 60 days after the notice of the denial is received, and

(5) if a request for review is filed, the claimant or
his authorized representative may review pertinent documents and submit issues
and comments in writing within the 60- day period described in paragraph (4)
above.

(c) Decision after review. The decision of the Committee
with the respect of the review of the denial shall be made promptly, but not
later than 60 days after the Committee receives the request for review.
However, if special circumstances require an extension of time, a decision
shall be rendered not later than 120 days after the receipt of the

8
<PAGE> 12

request for review. A written notice of the extension shall be furnished to
the claimant prior to the expiration of the initial 60-day period. The
claimant shall be given a copy of the decision, which shall state, in a manner
calculated to be understood by the claimant, the specific reasons for the
decision and specific references to the pertinent Plan provisions on which the
decision is based.

7.4 Finality of Determinations. Subject to Section 7.3, all
determinations of the Committee as to any matter arising under the Plan,
including questions of construction and interpretation shall be final, binding
and conclusive upon all interested parties.

7.5 Indemnification. To the extent permitted by law and the
Sponsor's by-laws, the members of the Committee, its agents, and the officers,
directors and employees of the Sponsor shall be indemnified and held harmless
by the Sponsor against and from any and all loss, cost, liability, or expense
that may be imposed upon or may be reasonably incurred by them in connection
with or resulting from any claim, action, suit, or proceeding to which they may
be a party or in which they may be involved by reason of any action taken or
failure to act under the Plan and against and from any and all amounts paid by
them in settlement (with the Sponsor's written approval) or paid by them in
satisfaction of a judgment in any such action, suit or preceding. The
foregoing provision shall not be applicable to any person if the loss, cost
liability or expense is due to such person's willful misconduct.

ARTICLE VIII. TRUST PAYMENTS

8.1 Trust Payments.

(a) General. Any obligation of the Sponsor to pay
benefits hereunder shall be an unsecured promise and any right to enforce such
obligation shall be solely as a general creditor of the Sponsor. For the
convenience and benefit of the Sponsor and to the extent not inconsistent with
the foregoing sentence, the Sponsor may establish one or more irrevocable
trusts to hold assets to meet its obligations under the Plan to Participants.
However, in the event of a Change in Control as defined in Section 2.1(e) of
the Plan, the Sponsor shall immediately transfer such amounts to a Trust as are
necessary to pay all Plan benefits, and shall continue to transfer such
additional amounts as become necessary to pay Plan benefits following the
Change in Control.

(b) Trust Assets. The property comprising the assets of
a Trust established under subsection (a) shall, at all times, remain the
property of the Trust. The Trustee shall distribute the assets comprising the
Trust in accordance with the provisions of the Plan and Trust as instructed by
the Committee, but in no event shall the Trustee distribute the assets of the
Trust to or for the benefit of the Sponsor, except as provided in the Trust in
the case of insolvency or bankruptcy of the Sponsor or after the satisfaction
of all the Sponsor's obligations under the Plan to the Participants.

9
<PAGE> 13

ARTICLE IX. AMENDMENT; TERMINATION; MERGER

9.1 Amendment and Termination. The Board of Directors or the
Committee acting on behalf of such Board, may amend, modify or terminate the
Plan at any time and in any manner; provided, however that, that no such
amendment, modification or termination shall, without the express written
consent of each affected Participant, eliminate, reduce or adversely affect the
form or timing of payment of any benefit which the Participant (or a
Beneficiary) was entitled to receive under the provisions of the Plan
immediately prior to the date of the amendment or termination. Any such
protected benefit shall continue to be an obligation of the Sponsor and shall
be paid as scheduled. Notwithstanding the provisions of Section 4.1, the
Account of a Participant shall become fully vested upon the termination of the
Plan.

9.2 Merger, Consolidation, or Acquisition. In the event of a
merger, consolidation or acquisition where the Sponsor is not the surviving
corporation (and a Change in Control has not occurred), if the successor or
acquiring corporation elects to terminate the Plan, the provisions of Section
9.1 relating to Plan termination shall be applicable. In the event of a
merger, consolidation or acquisition that results in a Change in Control, the
provisions of Section 5.7 shall be applicable.

ARTICLE X. GENERAL PROVISIONS

10.1 Nonalienation. Neither the Participant nor his Beneficiary
may sell, assign, pledge, transfer, or otherwise convey the right to receive
any payments under, or interest in, this Plan.

10.2 Incompetency. Every person receiving or claiming benefits
under the Plan shall be conclusively presumed to be mentally competent until
the date on which the Committee receives a written notice, in a form and manner
acceptable to it, that such person is incompetent. In the event a guardian of
the estate of any person receiving or claiming benefits under the Plan shall be
appointed by a court of competent jurisdiction, benefit payments shall be made
to such guardian provided that proper proof of appointment and continuing
qualification is furnished in a form and manner acceptable to the Committee.
Any such payment so made shall be a complete discharge of any liability
therefor under the Plan.

10.3 Effect of Mistake. In the event of a mistake or misstatement
as to the eligibility or compensation or participation of a Participant, or the
amount of benefit payments made or to be made to or with respect to a
Participant, the Committee shall cause an adjustment to be made so as to
correct such mistake and provide for the correct amount of benefit payments
with respect to such Participant, to the extent allowed by law.

10.4 Effect on other Plans. Amounts accrued or paid under the Plan
shall not be considered as part of a Participant's compensation for the purpose
of any other benefit plan maintained by the Sponsor.

10.5 Plan Not an Employment Contract. The Plan is not an
employment contract. It does not give to any person the right to be continued
in employment, and all Employees remain subject to change of salary, transfer,
change of job, discipline, layoff, discharge or any other change of employment
status.

10
<PAGE> 14

10.6 Severability. In the event any provision of the Plan shall be
held invalid or illegal for any reason, any illegality or invalidity shall not
affect the remaining parts of the Plan, but the Plan shall be construed and
enforced as if the illegal or invalid provision had never been inserted, and
the Sponsor shall have the privilege and opportunity to correct and remedy such
questions of illegality or invalidity by amendment as provided in the Plan.

10.7 Applicable Law. The Plan shall be governed and construed in
accordance with the laws of the State of Texas, except to the extent such laws
are preempted by an applicable Federal law.

IN WITNESS WHEREOF, the Sponsor has caused this instrument to be
executed by its duly authorized officers effective as of January 1, 1994 with
respect to individuals who were Employees on or after January 1, 1995.

GREYHOUND LINES, INC.

By: /s/ CRAIG LENTZSCH
------------------------------------

Title:
---------------------------------

ATTEST:

By:
--------------------------------------

Title:
-----------------------------------

11
<PAGE> 15

APPENDIX A
INITIAL PARTICIPANTS FOR REVISED PLAN
EFFECTIVE JANUARY 1, 1994

The Employees listed below have been designated by the Board of Directors as
the initial Participant's under the revised SERP Plan as of January 1, 1994:

<TABLE>
<CAPTION>
===================================================================================
SERVICE COMPANY CONTRIBUTION
PARTICIPANT NAME START DATE CONTRIBUTION EFFECTIVE DATE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Craig Lentzsch 2/7/80 20% 11/15/94
- -----------------------------------------------------------------------------------
Floyd Holland 11/25/58 20% 1/1/94
- -----------------------------------------------------------------------------------
Ralph Borland 6/18/72 20% 1/1/94
- -----------------------------------------------------------------------------------
John Taylor 12/27/88 20% 1/1/94
- -----------------------------------------------------------------------------------
Brad Harslem 12/6/93 10% 1/1/94
- -----------------------------------------------------------------------------------
Stuart Robinson 11/15/94 10% 11/15/94
- -----------------------------------------------------------------------------------
Martha Smither 5/16/94 10% 5/16/94
- -----------------------------------------------------------------------------------
Mark Southerst 7/1/88 10% 1/24/95
- -----------------------------------------------------------------------------------
Dan Weston 2/1/94 10% 2/1/94
===================================================================================
</TABLE>

<PAGE> 1

EXHIBIT 10.58

[MOTOR COACH INDUSTRIES LOGO]

September 26, 1995

Mr. Steven L. Korby
Executive Vice President and CFO
Greyhound Lines, Inc.
15110 North Dallas Parkway
Dallas, Texas 75248

Re: 1995 Bus Order -- Amendment #2

Dear Steve:

Reference is made to that certain letter from George Aucott to you
dated May 31, 1995 respecting the 1995 Bus Order, as amended ("Letter") and the
New Coach Lease (GLI-1995) between Greyhound Lines, Inc., as Lessee, and MCI
Acceptance Corp., as Lessor, ("Lease"). All initially capitalized terms used in
this Amendment #2 without definition have the same meaning herein as in the
Letter or the Lease, as applicable.

We have agreed that anything contained in the Letter or the Lease to
the contrary notwithstanding, effective as of May 31, 1995, we will amend the
Letter and the Lease as follows:

1. As to each Coach, the Initial Term of the Lease will commence
on the date Lessee takes delivery of the Coach and will end on
December 31, 1995, and the Basic Term of the Lease will
commence on January 1, 1996 and will end on December 31, 2002.

2. Lessee will pay interest during the Interim Term as follows:
(a) Prime Rate through September 30, 1995, and (b) Prime Rate
plus 1-1/2 percent from October 1, 1995 through December 31,
1995. The 102nd Coach will not be assessed interest during the
Interim Term.

3. Lessee will pay a rental rate of $3,425.00 per Coach per month
($3,352.64 per Coach per month if GLI orders during 1995 for
purchase and/or lease at least 151 coaches that are eligible
for discount under the Requirements Agreement).

4. The Lease is assignable by Lessor on or after January 1, 1996
(but not before such date) without GLI's consent.

5. Lessee may elect anytime on or before December 31, 1995 to
purchase some or all of the Coaches or to have some or all of
the Coaches purchased on its behalf rather

<PAGE> 2
than to lease them. The purchase price will be the Gross
Purchase Price of $257,862.00 per Coach, less any discount
allowed under the Requirements Agreement. The purchase price
must be paid in cash on or before the purchase date. The
discount allowed under the Requirements Agreement shall be
based on 151 coaches (including the purchase of 50 coaches
currently being negotiated by the parties) provided GLI orders
during 1995, for purchase and/or lease at least 151 coaches
(subject to adjustment in the event GLI does not actually
purchase and/or lease all 151 coaches).

6. Lessor may require GLI to purchase up to 50 Coaches at anytime
on or between October 1, 1995 and December 31, 1995 by giving
GLI at least seven days advance written notice. The number of
requests to purchase and the number of Coaches per request is
entirely at Lessor's discretion. The purchase price will be
paid in cash on the purchase date and will be the same as is
set forth in Item 5, above; provided, however, it is
understood that in the event Coaches are purchased, any
discount applicable under the Requirements Agreement to
Coaches being purchased will be applied against the Gross
Purchase Price of those Coaches, and any discount applicable
to Coaches remaining under lease will be pro rated over the
term of the Lease.

7. For purposes of calculating the Discounted Future Payment
described in Section 3 of the Lease, the rent will be the
actual rent owed for the applicable Coach and will be
discounted back from December 31, 2002.

If you agree that this letter states the understanding of the parties,
please so acknowledge in the space provided below and return an originally
executed copy of this Amendment #2 to me.

Sincerely,

/s/ ALBERT J. ABRAM

Albert J. Abram
Treasurer
Motor Coach Industries, Inc.
MCI Acceptance Corp.

ACKNOWLEDGED AND ACCEPTED
as of May 31, 1995

By: /s/ STEVEN L. KORBY
---------------------------------
Steven L. Korby
Executive Vice President and CFO
Greyhound Lines, Inc.

<PAGE> 3

[MCII LOGO] TM
Motor Coach Industries International, Inc.

John R. Nasi
President & Chief Operating Officer

July 11, 1995

Mr. Craig Lentzsch
President
Greyhound Lines, Inc.
15110 North Dallas Parkway
Dallas, TX 75248

Re: 1995 Bus Order - Amendment #1 - Rev.

Dear Craig:

Reference is made to that certain letter from George W. Aucott to you dated May
31, 1995 respecting the 1995 Bus Order ("Letter") and the New Coach Lease
(GLI-1995) between Greyhound Lines, Inc., as Lessee, and MCI Acceptance Corp.
as Lessor ("Lease").

We have agreed that effective May 31, 1995 the warranty term on the Coaches (as
defined in the Letter and the Lease) is "24 months or 200,000 miles, whichever
come first, beginning on the date of delivery of each [C]oach, as stated in
Specification #0512, Revised April 5, 1995 (as referenced in the Letter) and
not "twenty-four (24) months, unlimited mileage" (as stated in Attachment B to
the Lease).

If you agree that this letter states the understanding of the parties, please
so acknowledge in the space provided below and return originally executed copy
of this letter agreement to me.

Sincerely,

/s/ JOHN R. NASI
-------------------------------
President
Motor Coach Industries, Inc.
MCI Acceptance Corp.

ACKNOWLEDGED AND ACCEPTED
as of May 31, 1995

By: /s/ CRAIG LENTZSCH
----------------------------
Craig Lentzsch
President
Greyhound Lines, Inc.

Approved as to form

By MES
------------
Attorney

<PAGE> 4
[MCII LOGO] TM
Motor Coach Industries International, Inc.

John R. Nasi
President & Chief Operating Officer

June 21, 1995
Mr. Craig Lentzsch
President
Greyhound Lines, Inc.
15110 North Dallas Parkway
Dallas, TX 75248

Re: 1995 Bus Order - Amendment #1

Dear Craig:

We have agreed that effective May 31, 1995 the warranty term on the Coaches (as
defined in the Letter and the Lease) is "12 months or 200,000 miles, whichever
come first, beginning on the date of delivery of each [C]oach," as stated in
Specification #0512, Revised April 5, 1995 (as referenced in the Letter) and
not "twenty-four (24) months, unlimited mileage" (as stated in Attachment B to
the Lease.

If you agree that this letter states the understanding of the parties, please
so acknowledge in the space provided below and return originally executed copy
of this letter agreement to me.

Sincerely,

/s/ JOHN R. NASI
-----------------------------
President
Motor Coach Industries, Inc.
MCI Acceptance Corp.

ACKNOWLEDGED AND ACCEPTED
as of May 31, 1995

By: /s/ CRAIG LENTZSCH
------------------------
Craig Lentzsch
President
Greyhound Lines, Inc.

<PAGE> 5
[MCII LOGO] TM
Motor Coach Industries International, Inc.

George W. Aucott May 31, 1995
Chairman & Chief Executive Officer

Mr. Craig Lentzsch
President
Greyhound Lines, Inc
15110 N. Dallas Parkway
Dallas, Texas 75248

Re: 1995 Bus Order

Dear Craig:

Motor Coach Industries, Inc. ("MCI") understands our agreement for the
lease or purchase (as the case may be) of new coaches as follows:

In consideration of MCI's manufacturing 102 new 1995 MCI MC-12 motor
coaches ("Coach" or "Coaches"), Greyhound Lines, Inc. ("GLI") agrees to lease
the Coaches from MCI or its designee, and MCI agrees to lease the Coaches to
GLI, as follows:

1. The Coaches will meet Specification #0512, Revised April 5,
1995.

2. MCI will deliver the first 50 Coaches on or before June 24,
1995, and will deliver the remaining 52 Coaches on or before
July 17, 1995. MCI acknowledges that the summer months
constitute GLI's prime business season and that time is of the
essence respecting timely delivery of the Coaches. MCI will
inform GLI if it believes deliveries will be delayed and, in
such event (without limiting GLI's remedies hereunder or
under the lease) will help GLI locate temporary substitute
units.

3. Coach bus numbers will run consecutively beginning with number
2606.

4. Prior to delivery of the first Coach, GLI will execute a lease
agreement substantially in the form of Exhibit 1, attached
hereto and hereby made a part hereof, which will become
effective as to each Coach upon delivery of the Coach to GLI
and will provide that GLI will lease the Coaches for an
Initial Term beginning at delivery, plus a Basic Term of 84
months beginning October 1, 1995 at a rental rate of $3425.00
per month per Coach payable monthly in advance. In addition,
upon delivery of each of the 102 Coaches the last three
months' rent of the Basic Term will be pre-paid together with
the first month's rent of the Basic

<PAGE> 6
Term, all to be held by the lessor without interest ("Pre-paid
Rent"). The lessor may, in its sole discretion, elect to lease
the Coaches to GLI under one lease or a series of leases, each
of which will be assignable on or after October 1, 1995 by the
lessor without GLI's consent.

5. In the event GLI decides prior to October 1, 1995 to purchase
some or all of the Coaches or to have some or all of the
Coaches purchased on its behalf rather than to lease them, GLI
or its designated purchaser will pay the lessor under the
lease described in Item 4, above, $257,862 per Coach ("Gross
Purchase Price"), less any discount allowed under the Bus
Purchase Requirements Agreement entered into as of March 18,
1987, as amended ("Requirements Agreement"), ("Net Purchase
Price") on or before September 30, 1995. In the event of such
a purchase, the purchaser will execute and deliver standard
purchase documents for up to 101 Coaches and such other
documents as may be reasonably requested under the
circumstances. At such time as GLI purchases 101 Coaches, the
102nd Coach will be transferred to and owned by GLI in
consideration of purchasing 101 Coaches and without further
consideration. In the event GLI elects to purchase the Coaches
or have the Coaches purchased on its behalf, all Pre-paid Rent
for the Basic Term, but not interest from the Initial Term,
will be applied to payment of the purchase price of those
Coaches which are purchased. If GLI purchases 101 Coaches,
prepaid rent on the 102nd Coach will be applied towards the
Net Purchase Price of the 101st Coach.

6. MCI's Limited Warranty will be assigned to GLI or its
designated purchaser.

This letter agreement is binding on and will inure to the benefit of
the parties and their respective successors and assigns. Notwithstanding the
foregoing, GLI may not assign all or any part of this letter agreement without
the prior written consent of MCI, in its sole discretion; provided, however,
that no consent will be required in connection with the financing of the
purchase price of the Coaches in accordance with Item 5, above, respecting
purchase of the Coaches or the warranty provisions of Item 6, above. Except as
provided herein, any attempt by GLI to assign any obligations under this letter
agreement without the prior written consent of MCI will be null and void. This
letter agreement must be assumed by any corporation resulting from a merger or
consolidation with GLI, or any person or entity which acquires or succeeds to a
majority of the stock or assets of GLI, in each such event whether by contract,
operation of law or otherwise.

This letter agreement will be interpreted and enforced in accordance
with the laws (except those respecting choice of law) of the State of North
Dakota. GLI and MCI each agree to submit to the personal jurisdiction of the
State and Federal courts of the State of North Dakota.

The Coaches leased or purchased hereunder apply against GLI's
obligations for 1995 under the Requirements Agreement; provided, however, in
the event that any provision of the Requirements Agreement is determined to be
void, voidable or unenforceable, this letter agreement will remain in full
force and effect.

<PAGE> 7
GLI understands that MCI must manufacture the Coaches and intends that
MCI rely on this letter agreement in proceeding to order parts and material and
to manufacture the Coaches so that they can be delivered for leasing in
accordance with this letter agreement.

If the above states your understanding and agreement, please
acknowledge in the space provided below and return an originally executed
duplicate copy of this letter agreement to me.

Sincerely,

/s/ GEORGE W. AUCOTT

George W. Aucott
Chairman
Motor Coach Industries, Inc.

Acknowledged and Agreed:
GREYHOUND LINES, INC.

/s/ CRAIG R. LENTZSCH
- ----------------------------
Name: Craig R. Lentzsch
Title: President and CEO
Date:

<PAGE> 8

EXHIBIT 1

NEW COACH LEASE
(GLI - 1995)

MCI Acceptance Corp, having its principal office at Dallas, Texas, (Lessor) and
Greyhound Lines, Inc., having its principal office at Dallas, Texas (Lessee)
hereby agree as follows:

1. Lease of Equipment. Lessor hereby leases to Lessee, and Lessee
hereby hires from Lessor, for the term and upon the terms and conditions
hereinafter set forth in this New Coach Lease ("Lease"), 102 new 1995 MCI MC-12
model motor coaches as shown on Attachment "A" to this Lease ("Equipment,"
"Coach" or "Coaches"), less any Coaches when purchased pursuant to Section 3,
below.

2. Acceptance. Lessee represents that it is knowledgeable about
the Equipment herein leased and maintains a staff competent to place and keep
said Equipment in working order. Lessor agrees that Lessee was given an
opportunity to inspect the Equipment as fully as Lessee desired, prior to its
acceptance by Lessee. Removal of the Equipment by Lessee from the
manufacturer's plant shall be conclusive evidence of its acceptance by Lessee
in condition satisfactory to Lessee under this Lease. Upon acceptance, this
Lease becomes noncancelable, except as expressly provided hereinafter. Lessor
shall have no liability for any delivery, installation, or testing of the
Equipment. LESSOR NO EXPRESSED OR IMPLIED WARRANTY OR UNDERTAKING WITH RESPECT
TO SUITABILITY, DURABILITY, FITNESS FOR USE OR MERCHANTABILITY OF THE
EQUIPMENT, FOR THE PURPOSES AND USES OF THE LESSEE OR OTHERWISE. Lessor
represents that the Equipment is covered by the manufacturer's warranty set
forth on Attachment "B" to this Lease for a warranty period beginning as
respects each Coach on the date Lessee takes delivery of the Coach and ending
as provided in the warranty. Lessor will assist Lessee in making any warranty
claims against the Equipment manufacturer. Lessee shall be entitled to no
remedy against Lessor (unless Lessor is the manufacturer) regarding the
manufacture or delivery of the Coaches. In no event may Lessee terminate this
Lease or withhold rentals due in respect to a claim concerning the condition of
the Equipment.

3. Term. As respects each Coach, the term of this Lease shall
commence on the date Lessee takes delivery of the Coach, as shown on Attachment
"A," and end on September 30, 2002 (with the period prior to October 1, 1995
being the "Initial Term," and the period from October 1, 1995 to September 30,
2002 being the "Basic Term.") unless sooner terminated as hereinafter provided.
Lessee may elect at any time during the Initial Term of this Lease to terminate
the Lease as to some or all of the Coaches by paying (or causing its financing
party to pay) Lessor cash upon termination for each such Coach in accordance
with that certain letter agreement dated May 31, 1995 from George W. Aucott to
Craig Lentzsch respecting the "1995 Bus Order" ("Letter Agreement"). Promptly
after receipt of payment, Lessor will provide Lessee (or its financing party)
title documents for each such Coach transferring ownership "AS IS - WHERE IS"
and "WITH ALL FAULTS," but free of all liens and encumbrances caused by Lessor.
As long as Lessor has not sold or assigned this Lease during the Basic Term,
Lessee may prepay (in whole but not in part) the entire rent and other amounts
due and to become due under the Lease, including residual, calculated using an
assumed discount rate of ten percent as follows: (a) the

1
<PAGE> 9
present value of (i) $3,425 rent per Coach for each month remaining on the
Lease term, plus (ii) $73,153.11 residual value per Coach discounted back from
September 30, 2002 to the pre-payment date described in Section 4 of this
Lease, multiplied by (b) one, plus one percent for each year remaining on the
Lease term ("Discounted Future Payment"). As long as MCI Acceptance Corp. is
the Lessor, the prepayment penalty will be the actual prepayment penalty
incurred by MCI Acceptance Corp. with respect to the applicable Coaches rather
than the prepayment penalty described in Part (b) of the Discounted Future
Payment formula in this Section. For the purpose of calculating the number of
years remaining on the Lease term, each consecutive twelve month period will be
counted as one year, and any remaining period of less than twelve months will
be counted as an additional year.

By Way of Example

[(a)(1), which is the Discounted Future Rents +
(ii), which is the Discounted Residual] x [(b), which
is one plus the applicable Prepayment Penalty
Percentage] = Discounted Future Payment. As long as
MCI Acceptance Corp. is the Lessor, the prepayment
penalty will be the actual prepayment penalty
incurred by MCI Acceptance Corp. with respect to the
applicable Coaches rather than the prepayment penalty
described in Part (b) of the Discounted Future
Payment formula in this Section.

<TABLE>
<CAPTION>
Years and Partial Year Remaining
Prepayment Penalty Percentage on Lease Term
----------------------------- -------------
<S> <C>
7% 7
6% 6
5% 5
4% 4
3% 3
2% 2
1% 1
</TABLE>

ONCE THIS LEASE HAS BEEN SOLD OR ASSIGNED THERE IS NO FURTHER PREPAYMENT
OPTION.

4. Coach Rental. During the Basic Term Lessee will pay Lessor
$3,425 per month in advance as rent for each Coach. Lessor and Lessee
acknowledge that the rent for the Coaches for the first month and the last
three months of the Basic Term will be pre-paid upon delivery of each Coach.
Lessee will not pay rent during the Interim Term; provided, however, during the
Interim Term Lessee Will pay interest as follows:

A. Lessee will pay monthly in arrears on the last day of each
month, for each Coach delivered, the "Prime Rate" divided by
360, times the Net Purchase Price (as defined in the Letter
Agreement) for each of the first 101 Coaches delivered, for
each day from the delivery date of the Coach through the

2
<PAGE> 10
earlier of September 15, 1995 or the date the Coach's purchase
price is paid in full. The 102nd Coach will not be assessed
interest during the Interim Term.

B. Lessee will pay on September 30, 1995, for each Coach
delivered, the "Prime Rate" plus 4.5% divided by 360, times
the Net Purchase Price (as defined in the Letter Agreement)
for each of the first 101 Coaches delivered, for each day from
and including September 16, 1995 through the earlier of
September 30, 1995 or the date the Coach's purchase price is
paid in full. The 102nd Coach will not be assessed interest
during the Interim Term.

As used herein "Prime Rate" means the Prime Rate quoted in The Wall Street
Journal, as it may change from day to day; and in the event it is no longer so
quoted, such similar annual percentage rate as is generally accepted by the
financial community for such purposes. The foregoing notwithstanding, Lessee
will pre-pay the rent for 102 Coaches for the first month of the Basic Term and
the last three months of the Basic Term upon receipt of delivery of each Coach,
in accordance with the Letter Agreement.

5. Excess Mileage Charges. None.

6. Tires. Prior to the date required by the Coach manufacturer
Lessee shall provide tires for each Coach to the manufacturer for installation
on the Coach. The tires shall be of correct size, and in good and roadworthy
condition, and meet all federal and state motor vehicle safety standards.
Lessee shall be responsible for all repair or replacement of tires during the
Lease term. Upon Lessee's return of the Equipment to Lessor, Lessor will, at
its option (a) keep the tires and compensate the owner of the tires at their
fair market value, or (b) return the tires to Lessee, freight collect, within
30 days.

7. Security Deposit. None.

8. Payment Terms. All sums payable by Lessee hereunder shall be
paid on or before the due date at 1250 Slocum Street, Dallas, Texas 75207, or
such other place as Lessor may designate from time to time. Any sum payable
hereunder on an unspecified due date shall be payable on demand without the
right of setoff.

9. Indemnification. Lessee assumes all risk for the use,
operation, and storage of the Equipment, and agrees to assume liability for,
and to indemnify and hold Lessor harmless from and against, and agrees to
defend Lessor against, any and all losses, damages, claims, costs, penalties,
liabilities, and expenses, including, but not limited to, court costs and
attorney's fees, for injuries to or deaths of persons and damage to property,
howsoever arising from, incident to, or incurred because of the Equipment or the
selection, use, operation, storage, maintenance, repair, leasing, possession,
or ownership thereof, whether such persons be agents or employees of Lessee,
Lessor or of other persons and whether such damage be to property of Lessee,
Lessor, or of other persons; provided, however, if Lessor is the manufacturer
of the Equipment, Lessee does

3
<PAGE> 11
not hereby agree to indemnify, defend or hold Lessor harmless from its
negligence, acts or omissions as such manufacturer. Anything contained
in this indemnity provision to the contrary notwithstanding, Lessee will not be
required to indemnify Lessor for any loss or liability with respect to any
Equipment arising from acts or events which occur after the Equipment has been
returned to Lessor in accordance with this Lease, or loss or liability
resulting from the negligence of Lessor while inspecting the Equipment or
Lessee's books and records whether on Lessee's premises or otherwise. The
indemnities contained herein will survive the expiration or termination of this
Lease. To secure performance hereunder, Lessee shall, at its sole expense, keep
the Equipment in good repair, insure the Equipment and otherwise observe, at
Lessee's sole expense, its covenants elsewhere contained in the Lease. Further,
Lessee hereby authorizes Lessor to pay, at Lessor's election, any insurer, tax
authority, repairman (including its own staff) or other person any sum or
expense which Lessee is required to pay or absorb hereunder and which is paid
by Lessor in good faith to secure itself with respect to Lessee's undertaking
in this Lease to indemnify Lessor, and Lessee will reimburse Lessor on demand
for any such payment.

10. Insurance. Lessee represents and warrants that it now has in
force, and covenants that it will keep in force with insurers reasonably
satisfactory to Lessor (i) comprehensive general liability insurance (including
contractual liability) and comprehensive automobile liability insurance against
claims for personal injury and property damage to the extent of at least
$5,000,000.00, and (ii) catastrophic property insurance insuring the Coaches
against those risks covered by fine and extended coverage insurance to the
extent of at least the replacement cost of the Coaches. The deductible under
the comprehensive insurance will not be greater than $1,500,000 per occurrence
and the deductible under the property insurance will not be greater than
$250,000 per occurrence. Lessee will obtain and deliver to Lessor, current
certificates of insurance evidencing the above and will cause its liability
insurers to name Lessor in its insurance policies as an additional insured
party and/or loss payee, as applicable, (entitled also to 30 day notice of
cancellation) without Lessor thereby incurring any liability for payment of
premiums therefor. The parties herein agree that naming of Lessor as an insured
or loss payee shall not affect in any way any recovery to which Lessor would be
entitled under the policy or policies were it not so named. Lessee agrees to
cause the aforementioned insurance coverage to continue in effect from the time
of delivery and acceptance of the Equipment by Lessee until the safe return of
the Equipment to Lessor. Subject only to the limitation that Lessor act in good
faith, Lessor may hereafter, by notice, require Lessee to provide other or
additional insurance with insurers in form and amount reasonably satisfactory
to Lessor; provided, however, that such other or additional insurance shall not
be inconsistent with that maintained on other buses and coaches in Lessee's
fleet. Notwithstanding the foregoing, Lessee shall be entitled to self-insure
the foregoing coverage to the extent permitted by the United States Interstate
Commerce Commission ("ICC") or any federal or state agency that may succeed the
ICC with respect to jurisdiction over motor coach common carriers and
applicable state authorities.

11. Lessee's Miscellaneous Covenants. The Lessee shall, at its
own expense:

A. Obtain any and all license plates, tags, and permits
required for the acceptance, use and operation by
Lessee of the Equipment;

4
<PAGE> 12
B. Keep the Equipment and all its parts and components
free and clear of all liens and encumbrances and, in
particular, pay any and all taxes or government
charges now or hereafter imposed on or in respect to
the Equipment or its use or otherwise in connection
with the Lease, except for taxes based on Lessor's
net income;

C. Furnish all fuel, oil, replacement tires, consumables,
parts and supplies in connection with the operation
and maintenance of the Equipment;

D. (i) Mark the Equipment in accordance with applicable
law to indicate that it is operated by and in the
service of Lessee and leased from the Lessor, and
(ii) only mark the equipment (whether pursuant to
Section 11.D.(i) or otherwise) with pressure
sensitive decals; provided, however, Lessee shall not
make any alteration or addition to, or affix any
accessory to, the Equipment (including without
limitation the application of pressure sensitive
decals) that could impair the originally intended
function of the Equipment or that is not readily
removable without causing damage to the Equipment
without the prior written consent of Lessor, all such
additions or accessories remaining the property of
Lessee if removed prior to returning the Equipment to
Lessor;

E. Hold and use the Equipment in a safe and careful
manner and in all cases following the manufacturer's
recommended standards of care and maintenance, comply
with all applicable laws regarding its use and
possession, and permit the Equipment to be operated
only by safe, competent, qualified licensed drivers,
and under no circumstances shall Lessee operate,
maintain or store the Equipment with less care than
Lessee applies to its other leased or owned coaches;

F. Keep and maintain the Equipment and all equipment
thereon in good repair, condition and working order,
and in all cases following the manufacturer's
recommended standards of care and maintenance and the
standards set forth on Attachment "C" [it being
understood that Lessee may change the standards set
forth on Attachment C from time to time so long as
the changes are not inconsistent with reasonably
prudent industry practice, the changes are applicable
to all buses and coaches in Lessee's fleet, no
material reduction in preventive maintenance is made
without Lessor's consent (which may not be
unreasonably withheld), and Lessor is given prompt
notice of all changes];

G. Maintain exclusive control over the Equipment
(subject to the right to pool or operate the
Equipment under and pursuant to the terms of any
"Through Service Agreements" entered into by Lessee
in the ordinary and customary course of its business,
so long as (i) Lessee remains responsible for and
complies with all of its obligations under this
Lease, and (ii) such Through

5
<PAGE> 13
Service Agreements are applicable to a substantial
portion of Lessee's fleet, and not just to the
Equipment), use the Equipment only in the ordinary
course of Lessee's business and in strict compliance
with any insurance policies and manufacturer's
warranties (if applicable); not lend, sublease, sell
or make assignment of the Equipment or assign any
rights or duties respecting the Equipment or the
Lease, and keep the Equipment at all times within the
limits of the Continental United States, Canada and
Mexico;

H. Promptly advise Lessor of any materially defective
Equipment and the nature of the defect;

I. Promptly advise Lessor of any accident involving the
Equipment, and of all correspondence, notices and
documents received by Lessee in connection with any
claim or demand involving or relating to the
Equipment and charging any or all of Lessee, Lessor,
Motor Coach Industries, Inc. or Motor Coach
Industries International, Inc. with liability;

J. Record and maintain complete and accurate records of
all maintenance, preventative maintenance and
warranty work, and of all other matters normally kept
by coach operators, and permit Lessor to inspect and
copy such records at any reasonable time;

K. Acknowledging that Lessor is entitled to and will
conduct periodic inspections of the Equipment and
Lessee's records concerning the Equipment and this
Lease, garage the Equipment at periodic intervals at
Lessee's facilities in the United States and, on
reasonable demand by Lessor, cause the Coaches to be
returned to such facility/facilities at reasonable
intervals to facilitate or permit repossession or
periodic inspection by Lessor (Lessor being hereby
authorized to enter freely upon Lessee's premises for
such purposes);

L. Promptly notify Lessor of any change in the principal
business office of Lessee, and upon Lessor's request
provide Lessor with a list of the locations of the
facilities where the Equipment is garaged;

M. Immediately upon Lessor's request, Lessee will
provide its most recent public 10-Q and 10-K
reports or, if Lessee is not required to file 10-Q
or 10-K reports then Lessee will provide consolidated
income statements, balance sheets, cash flow
statements and stockholders equity statements, all in
reasonable detail and with corresponding prior period
numbers, certified by the Chief Financial Officer for
all quarterly statements and additionally, audited,
for each fiscal year end, by an independent
accounting firm acceptable to the Lessor which
independent accounting firm has given an unqualified
opinion. 10-Q's or quarterly financial statements
shall be received by the Lessor within 60 days of the
first three fiscal quarter ends

6
<PAGE> 14
and 10-K's or annual audited statements shall be
received by the Lessor within 100 days of the fiscal
year end. In the event Lessee is in default hereunder
or under any agreement or document referred to in
Section 15(d) hereof, immediately upon Lessor's
request Lessee will provide the most recent, and, if
requested, within ten days after the end of such
calendar month Lessee will provide such month's,
consolidated and consolidating balance sheets of
Lessee and its subsidiaries as at the end of the
applicable month and the related consolidated and
consolidating statements of income and cash flows.

The covenants set forth above are material conditions of this Lease. Lessee's
breach of any covenant is a material breach of this Lease. Lessor's failure at
any time to require strict performance by Lessee of any of the provisions
herein shall not waive or diminish Lessor's right thereafter to demand strict
compliance with that or any other provision. Waiver of any default shall not
waive any other default. Lessor's rights hereunder are cumulative and not
alternative.

12. Loss and Damage. Lessee hereby assumes and shall bear the
entire risk of loss, theft, destruction or damage to the Equipment from any and
every cause whatsoever. Lessee shall notify Lessor immediately upon the
occurrence of any such event. In the event of damage, Lessee shall immediately
repair the Equipment to good working order and condition. In the event of
irreparable damage, loss, theft, or destruction to the Equipment, Lessee shall
either (a) purchase the Equipment within ten days of the destruction or damage
in its then condition for an amount equal to the Discounted Future Payment
(except that the residual value per Coach will be discounted back to the actual
payment date; and as long as MCI Acceptance Corp. is the Lessor, the prepayment
penalty will be the actual prepayment penalty incurred by MCI Acceptance Corp.
with respect to the applicable Coaches rather than the prepayment penalty
described in Part (b) of the Discounted Future Payment formula set forth in
Section 3 of this Lease) or for the fair market value, whichever is greater, or
(b) within ten days of the damage or destruction replace the Equipment with
Equipment of the same or a comparable model of the same or a later year which
is in proper working order with no damage and only with normal wear and tear.

13. Return and Repossession. Upon expiration, termination or other
event requiring Lessee to return the Equipment, Lessee will return the
Equipment in as good a condition as received, less normal wear and tear. Lessee
shall arrange for, prepay and absorb the costs of returning the Equipment to
the nearest facility/facilities of Hausman Bus Sales, Inc. or to any reasonable
place Lessor may designate. LESSEE WAIVES ANY RIGHTS LESSEE MAY HAVE TO PRIOR
NOTICE OR OPPORTUNITY TO BE HEARD IN COURT REGARDING LESSOR'S RIGHT TO
REPOSSESS THE EQUIPMENT FROM LESSEE, and in the event that Lessor's
repossession should for any reason prove wrongful as to Lessee, Lessee's sole
remedy shall be the right to terminate the Lease as of the date of such
wrongful repossession and/or to recover damages.

14. Late Charges and Interest. Lessor shall be entitled to a late
charge on each rental payment not received within one week of the due date in
the amount of eighteen percent

7
<PAGE> 15
per annum or the highest-rate allowed by law, if less, prorated on a daily
basis, from the due date until paid.

15. Default. The following are events of default hereunder: (a)
(i) nonpayment of any rent or other amount due Lessor hereunder within ten days
after receipt by Lessee of written notice of default; (a) (ii) nonperformance
under any other provision herein within twenty days after Lessor has made
written demand therefore; (b) Lessee's bankruptcy, receivership, insolvency,
assignment for the benefit of creditors or similar action or condition relating
to Lessee or Lessee's property which causes Lessor in good faith to deem itself
insecure with respect to the collection of the total rent for the unexpired
term of the Lease; (c) without Lessor's prior written consent, Lessee attempts
to remove or sell or transfer or encumber or sublet or part with possession of
the Equipment; or (d) Lessee is in default under any agreement, sub-lease or
lease agreement with or any note payable to Motor Coach Industries
International, Inc. ("MCII") or any of its subsidiaries or affiliates, or is
more than 60 days in arrears of payment for any trade items (except good faith
disputes) purchased from MCII or any of its subsidiaries or affiliates;
provided, however, with respect to the Bus Purchase Requirements Agreement
entered into as of March 18, 1987, as amended, Lessee will not be deemed to be
in default thereunder for purposes of this Lease unless and until either (i) a
judgment against Lessee has been rendered by a court of competent jurisdiction,
or (ii) Lessee has agreed in writing that it is in default under such Agreement
and to terms of settlement of such default, and the judgment or settlement
amount is not satisfied within 30 days or such later date as may be required or
agreed to.

16. Remedies on Default. Whenever an event of default has occurred
or is continuing, Lessor or its agents shall have the right, but not the
obligation, to exercise, by way of example and not by way of limitation, one or
more of the following remedies:

A. to declare due and payable an amount equal to the
Discounted Future Payment (except that the residual
value per Coach will be discounted back to the actual
payment date; and as long as MCI Acceptance Corp. is
the Lessor, the prepayment penalty will be the actual
prepayment penalty incurred by MCI Acceptance Corp.
with respect to the applicable Coaches rather than
the prepayment penalty described in Part (b) of the
Discounted Future Payment formula set forth in
Section 3 of this Lease), and to sue for and recover
same from Lessee;

B. to take possession of the Equipment, wherever
located, without demand or notice and without any
court order or other legal or administrative
process;

C. to lease or to sell the Equipment;

D. to sue for and/or otherwise recover from Lessee all
costs of taking possession, storing, repairing and
selling the Equipment;

E. to sue for and recover damages incurred by Lessor as
a result of Lessee's default;

8
<PAGE> 16
F. to sue for and/or otherwise recover after sale of
Equipment an amount equal to the Discounted Future
Payment (except that the residual value per Coach
will be discounted back to the actual payment date;
and as long as MCI Acceptance Corp. is the Lessor,
the prepayment penalty will be the actual prepayment
penalty incurred by MCI Acceptance Corp. with respect
to the applicable Coaches rather than the prepayment
penalty described in Part (b) of the Discounted
Future Payment formula set forth in Section 3 of this
Lease) less the net proceeds of such sale;

G. to terminate the Lease as to the Equipment, take such
Equipment into Lessor's inventory and sue for or
otherwise recover actual damages; and

H. to pursue any other remedy now or hereafter existing
at law or in equity by reason for Lessee's
default(s).

17. Notices. Notices shall be addressed as follows: to Lessor at
1250 Slocum Street, Dallas, Texas 75207; to Lessee, attention Contract
Administration Department, at 15110 North Dallas Parkway, Dallas, Texas 75248;
or to such other place as either designate by written notice. Notices shall be
in writing and their delivery may be given (i) in person or by expedited
courier service or (ii) by mailing same First Class, Postage Prepaid, in which
case notice shall be deemed to have been received 48 hours after the Post
Office stamp date.

18. Law. The Lease shall be governed by and construed in
accordance with the laws of the State of North Dakota. Lessor and Lessee each
agree to submit to the personal jurisdiction of the state and federal courts of
the State of North Dakota. If any provision of the Lease shall be found by a
court of competent jurisdiction to be void or unenforceable, in that it imposes
a restraint upon the Lessee more extensive than the legitimate interests of the
Lessor sought to be protected, the Lessor waives such provision, but only to
the extent that such provision is found by such court to be void or
unenforceable. The Lessor and the Lessee agree that such provision may and
should be modified by such court so that it becomes reasonable and enforceable
and, as modified, will be enforced as any other provision hereof, all the other
provisions hereof continuing in full force and effect. Such a modification,
however, will be effective only in the legal proceeding of which it is a part
and only on the facts to which it is applied; all provisions herein will be
applied as written, to the extent enforceable, in any other legal proceeding or
on any other facts.

19. Power/Authority/Consent of Signer and Lessee. The undersigned
officer of Lessee on behalf of Lessee represents and warrants that Lessee has
statutory and corporate power and authority, and has obtained all government or
other consents, necessary and desirable, to enter into and perform under this
Lease.

20. Assignment by Lessee. This Lease is binding on and will inure
to the benefit of the parties and their respective successors and assigns.
Notwithstanding the foregoing, Lessee may not assign all or any part of this
Lease without the prior written consent of Lessor, in its sole

9
<PAGE> 17
discretion. Any attempt by Lessee to assign any obligations under this Lease
without prior written consent of Lessor will be null and void. This Lease must
be assumed by any corporation resulting from a merger or consolidation with
Lessee, or any person or entity which acquires or succeeds to a majority of the
stock or assets of Lessee in each such event whether by contract, operation of
law or otherwise.

21. Assignment by Lessor. Lessor may assign this Lease at any time
during the Basic Term without Lessee's prior written consent; provided,
however, if Lessor is the manufacturer of the Equipment, no such assignment
will relieve Lessor of its obligations under the manufacturer's Limited
Warranty. If Lessor sells, assigns or otherwise transfers the Lease to any
third party in such a manner that such third party becomes entitled to only a
portion of the rent owed hereunder ("Reduced Rent") and Lessor is entitled to
the remainder of such rent, then Lessor and Lessee will enter into good faith
negotiations intended to provide Lessee with some benefit of the Reduced Rent.

22. Entire Agreement. This Lease, plus any attachments, riders or
other documents specifically referred to herein, constitutes the entire
agreement between the parties. Any change, amendment or modification shall not
be effective unless executed in writing by both parties.

LESSEE: GREYHOUND LINES, INC. LESSOR: MCI ACCEPTANCE CORP.

By: /s/ CRAIG LENTZSCH By: /s/ ALBERT J. ABRAM
------------------------ ------------------------
Name: Name: Albert J. Abram
Title: Title: Treasurer

<PAGE> 1
EXHIBIT 11.2
PAGE 1 OF 1

GREYHOUND LINES, INC. AND SUBSIDIARIES

COMPUTATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
--------------------
<S> <C>
PRIMARY LOSS PER SHARE

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,818,000)
==============

Shares
Weighted average number of common shares issued . . . . . . . . . . . . . . . . 54,704,569
Less weighted average treasury stock . . . . . . . . . . . . . . . . . . . . . . (109,192)
Assuming exercise of options reduced by the number of common shares which
could have been purchased with the proceeds from exercise of such options . . --- *
--------------
Weighted average number of common shares outstanding, as adjusted . . . . . . . 54,595,377
--------------

Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.33)
==============

FULLY DILUTED LOSS PER SHARE

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,818,000)
Plus interest expense on Convertible Debentures . . . . . . . . . . . . . . . . . . --- **
--------------
Adjusted net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,818,000)
==============

Shares
Weighted average number of common shares issued . . . . . . . . . . . . . . . . 54,704,569
Less weighted average treasury stock . . . . . . . . . . . . . . . . . . . . . . (109,192)
Assuming exercise of options reduced by the number of common shares which
could have been purchased with the proceeds from exercise of such options . . --- *
Assuming conversion of Convertible Debentures into shares of Common Stock . . . --- **
--------------
Weighted average number of common shares outstanding, as adjusted . . . . . . . 54,595,377
--------------

Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.33)
==============
</TABLE>

* Option exercises not considered in calculation as exercise would not have a
dilutive effect.

** Not used in calculation of weighted average number of common shares due to
the antidilutive effect of the assumed conversion of the Convertible
Debentures.

<PAGE> 1
EXHIBIT 22

C O N F I D E N T I A L

August 1, 1995
---------------------
GREYHOUND LINES, INC.
---------------------

- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------- -------------- ------------------- ------------------- -------------------
AMARILLO TRAILWAYS AZABACHE, INC. EAGLE BUS GREYHOUND DE MEXICO WILMINGTON UNION
BUS COMPANY CENTER, MANUFACTURING, INC. S.A. DE. C.V. BUS STATION
INC. (75%) (99.96%) CORPORATION (24.6%)
- ------------------- -------------- ------------------- ------------------- -------------------

------------------ ---------------- ----------- ------------------
ATLANTIC GREYHOUND CONTINENTAL GLI HOLDING UNION BUS STATION
LINES OF VIRGINIA, PANHANDLE LINES, COMPANY OF OKLAHOMA CITY,
INC. INC. (50%) OKLAHOMA (40%)
------------------ ---------------- ----------- ------------------

--------------------
FCA INSURANCE
LIMITED
--------------------

--------------------
T & V HOLDING
COMPANY
--------------------

--------------------
TEXAS, NEW MEXICO
& OKLAHOMA
COACHES, INC.
--------------------

----------------------
T.N.M.&.O. TOURS, INC.
----------------------

--------------------
VERMONT TRANSIT
CO., INC.
--------------------

</TABLE>

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 No. 33-63506 and No. 33-63507.

Dallas, Texas
March 14, 1996

<ARTICLE> 5
<LEGEND>
ART. 5 FDS FOR YEAR 10-K
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,494
<SECURITIES> 0
<RECEIVABLES> 30,129
<ALLOWANCES> 217
<INVENTORY> 3,615
<CURRENT-ASSETS> 57,793
<PP&E> 384,837
<DEPRECIATION> 84,234
<TOTAL-ASSETS> 480,648
<CURRENT-LIABILITIES> 112,180
<BONDS> 172,671
<COMMON> 583
0
0
<OTHER-SE> 149,179
<TOTAL-LIABILITY-AND-EQUITY> 480,648
<SALES> 0
<TOTAL-REVENUES> 657,364
<CGS> 0
<TOTAL-COSTS> 459,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,807
<INCOME-PRETAX> (17,444)
<INCOME-TAX> 374
<INCOME-CONTINUING> (17,818)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,818)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)

</TABLE>