<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
--------------------------------------------------------------------------------
                                   FORM 10-Q

            [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934
              For the quarterly period ended September 30, 1996

                                     OR

           [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the transition period from     to
                                               -----   -----

                       Commission file number  1-10841

                            GREYHOUND LINES, INC.
             (Exact name of registrant as specified in its charter)

                    DELAWARE                            86-0572343           
        (State or other jurisdiction of               (I.R.S. employer       
         incorporation or organization)              identification no.)     


      15110 N. DALLAS PARKWAY, SUITE 600                 
                DALLAS, TEXAS                              75248    
   (Address of principal executive offices)             (Zip code)  
                                                                             

                                (972) 789-7000
             (Registrant's telephone number, including area code)


                                     NONE
  (Former name, former address and former fiscal year, if changed since last
                                   report)

     Indicate by check mark whether the registrant (1) has filed all reports
     required to be filed by Section 13 or 15(d) of the Securities Exchange Act
     of 1934 during the preceding 12 months (or for such shorter period
     registrant was required to file such reports), and (2) has been subject to
     such filing requirements for the past 90 days.
                      YES   X                               NO 
                          -----                                     -----

      APPLICABLE ONLY TO ISSUERS 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.


           CLASS OF COMMON STOCK           OUTSTANDING AT NOVEMBER 6, 1996
           ---------------------           -------------------------------
              $.01 PAR VALUE                     58,313,927  SHARES

<PAGE>   2
                    GREYHOUND LINES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                                                  PAGE NO.
                                                                                                  --------
PART I.  FINANCIAL INFORMATION
<S>              <C>                                                                                 <C>
  Item 1. Financial Statements:       
                   Interim Consolidated Statements of Financial Position as of
                     September 30, 1996 (Unaudited) and December 31, 1995 . . . . . . . . . .         4
                   Interim Consolidated Statements of Operations for the
                     Three and Nine Months Ended September 30, 1996 and 1995 (Unaudited)  . .         5
                   Condensed Interim Consolidated Statements of Cash Flows for the
                     Nine Months Ended September 30, 1996 and 1995 (Unaudited)  . . . . . . .         6
                   Notes to Interim Consolidated Financial Statements (Unaudited) . . . . . .         7

  Item 2. Management's Discussion and Analysis of Financial Condition and       
                   Results of Operations  . . . . . . . . . . . . . . . . . . . . . . . . . .        10


PART II.         OTHER INFORMATION

  Item 1. Legal Proceedings   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        16

  Item 6. Exhibits and Reports on Form 8-K  . . . . . . . . . . . . . . . . . . . . . . . . .        17


SIGNATURES        . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        18

</TABLE>




                                      2
<PAGE>   3





                    PART I.        FINANCIAL  INFORMATION

                    ITEM 1.        FINANCIAL  STATEMENTS





                                       3
<PAGE>   4





                    GREYHOUND LINES, INC. AND SUBSIDIARIES

            INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                 SEPTEMBER 30, DECEMBER 31,
                                                                                       1996        1995    
                                                                                 --------------------------
                                                                                   (UNAUDITED)
<S>                                                                               <C>             <C>
CURRENT ASSETS
   Cash and cash equivalents  . . . . . . . . . . . . . . . . . . . . . .         $   1,454       $  3,494
   Accounts receivable, less allowance for doubtful accounts
      of $228 and $217  . . . . . . . . . . . . . . . . . . . . . . . . .            33,668         29,912
      Inventories   . . . . . . . . . . . . . . . . . . . . . . . . . . .             3,907          3,615
   Prepaid expenses   . . . . . . . . . . . . . . . . . . . . . . . . . .            10,035          7,353
   Assets held for sale   . . . . . . . . . . . . . . . . . . . . . . . .             4,217          4,534
   Other current assets   . . . . . . . . . . . . . . . . . . . . . . . .             9,636          8,885
                                                                                  ---------       --------
      Total current assets  . . . . . . . . . . . . . . . . . . . . . . .            62,917         57,793

Prepaid Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . .            24,403         24,299
Property, Plant and Equipment, net of accumulated depreciation
   of $97,359 and $84,234   . . . . . . . . . . . . . . . . . . . . . . .           295,034        300,603
Investments in Unconsolidated Affiliates  . . . . . . . . . . . . . . . .             1,479          1,367
Insurance and Security Deposits . . . . . . . . . . . . . . . . . . . . .            80,288         76,586
Intangible Assets, net of accumulated amortization of $18,670 and $14,901            19,959         20,000
                                                                                  ---------       --------
      Total assets  . . . . . . . . . . . . . . . . . . . . . . . . . . .         $ 484,080       $480,648
                                                                                  =========       ========

CURRENT LIABILITIES
   Accounts payable   . . . . . . . . . . . . . . . . . . . . . . . . . .         $  17,932       $ 18,205
   Accrued liabilities  . . . . . . . . . . . . . . . . . . . . . . . . .            43,720         54,971
   Unredeemed tickets   . . . . . . . . . . . . . . . . . . . . . . . . .             7,469          9,140
   Current portion of reserve for injuries and damages  . . . . . . . . .            24,695         24,605
   Current maturities of long-term debt   . . . . . . . . . . . . . . . .            10,882          5,259
                                                                                  ---------       --------
      Total current liabilities   . . . . . . . . . . . . . . . . . . . .           104,698        112,180

Reserve for Injuries and Damages  . . . . . . . . . . . . . . . . . . . .            38,354         41,056
Long-Term Debt  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           191,900        172,671
Deferred Gains  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               652            920
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .             5,843          4,059
                                                                                  ---------       --------
      Total liabilities   . . . . . . . . . . . . . . . . . . . . . . . .           341,447        330,886
                                                                                  ---------       --------

Commitments and Contingencies (Note 3)
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; 58,312,677 and 58,277,318
      shares issued as of September 30, 1996 and December 31, 1995 respectively;
      par value $.01)   . . . . . . . . . . . . . . . . . . . . . . . . .               584            583
   Capital in excess of par value   . . . . . . . . . . . . . . . . . . .           228,972        228,422
   Retained deficit   . . . . . . . . . . . . . . . . . . . . . . . . . .           (82,313)       (74,633)
   Less:  Unfunded accumulated pension obligation   . . . . . . . . . . .            (3,572)        (3,572)
   Less: Treasury stock, at cost (109,192 shares)   . . . . . . . . . . .            (1,038)        (1,038)
                                                                                  ---------       -------- 
      Total stockholders' equity  . . . . . . . . . . . . . . . . . . . .           142,633        149,762
                                                                                  ---------       --------
           Total liabilities and stockholders' equity . . . . . . . . . .         $ 484,080       $480,648
                                                                                  =========       ========
</TABLE>





       The accompanying notes are an integral part of these statements.

                                      4
<PAGE>   5
                    GREYHOUND LINES, INC. AND SUBSIDIARIES

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


<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED               NINE MONTHS ENDED
                                                       ------------------               -----------------                 
                                                          SEPTEMBER 30,                    SEPTEMBER 30,
                                                          -------------                    -------------
                                                      1996             1995           1996            1995  
                                                  -----------      ----------      ---------       ---------
                                                          (UNAUDITED)                     (UNAUDITED)
<S>                                               <C>              <C>             <C>             <C>
OPERATING REVENUES
  Transportation Services
     Passenger services   . . . . . . . .         $    180,329     $   172,715     $ 445,229       $ 418,832
     Package express  . . . . . . . . . . .              8,394           9,171        25,055          26,816
  Food services . . . . . . . . . . . . . .              6,169           5,786        16,154          14,561
  Other operating revenues  . . . . . . . .             13,154          10,915        35,507          30,926
                                                  ------------     -----------     ---------       ---------
         Total operating revenues . . . . .            208,046         198,587       521,945         491,135
                                                  ------------     -----------     ---------       ---------

OPERATING EXPENSES
  Maintenance . . . . . . . . . . . . . . .             18,538          17,517        54,852          51,205
  Transportation  . . . . . . . . . . . . .             46,790          44,958       127,509         117,670
  Agents' commissions and station costs . .             36,666          35,311        98,351          92,875
  Marketing, advertising and traffic  . . .              6,771           6,378        18,599          18,821
  Insurance and safety  . . . . . . . . . .             10,323          15,796        32,274          39,990
  General and administrative  . . . . . . .             21,323          18,345        62,745          53,848
  Depreciation and amortization . . . . . .              7,696           7,062        22,624          21,560
  Operating taxes and licenses  . . . . . .             13,381          13,044        37,407          37,772
  Operating rents . . . . . . . . . . . . .             13,911          12,677        38,448          35,058
  Cost of goods sold - food services  . . .              3,863           3,518        10,350           9,447
  Other operating expenses  . . . . . . . .              2,397           2,017         6,103           5,616
                                                  ------------     -----------     ---------       ---------
         Total operating expense  . . . . .            181,659         176,623       509,262         483,862
                                                  ------------     -----------     ---------       ---------

OPERATING INCOME  . . . . . . . . . . . . .             26,387          21,964        12,683           7,273
Interest Expense  . . . . . . . . . . . . .              6,955           6,606        20,218          20,487
                                                  ------------     -----------     ---------       ---------
INCOME (LOSS) BEFORE INCOME TAXES   . . . .             19,432          15,358        (7,535)        (13,214)
Income Tax Provision  . . . . . . . . . . .                 34              25           145              53
                                                  ------------     -----------     ---------       ---------
NET INCOME (LOSS)   . . . . . . . . . . . .       $     19,398     $    15,333     $  (7,680)      $ (13,267)
                                                  ============     ===========     =========       ========= 

Income (Loss) Per Share of Common Stock:
  Primary   . . . . . . . . . . . . . . . .       $       0.33     $      0.27     $   (0.13)      $   (0.25)
                                                  ============     ===========     =========       ========= 
  Fully Diluted   . . . . . . . . . . . . .       $       0.33     $      0.27     $   (0.13)      $   (0.25)
                                                  ============     ===========     =========       ========= 
</TABLE>





       The accompanying notes are an integral part of these statements.

                                      5
<PAGE>   6
                    GREYHOUND LINES, INC. AND SUBSIDIARIES

           CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              NINE MONTHS ENDED SEPTEMBER 30,
                                                                                                            
                                                                                   1996             1995  
                                                                                ---------        ---------
                                                                                         (UNAUDITED)
<S>                                                                             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $  (7,680)       $ (13,267)
   Noncash expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      24,683           22,900
   Net changes in certain operating assets and liabilities  . . . . . . . . .     (26,785)          (6,272)
                                                                                ---------        --------- 
      Net cash provided by (used for) operating activities  . . . . . . . . .   $  (9,782)       $   3,361
                                                                                ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures  . . . . . . . . . . . . . . . . . . . . . . . . . . .     (28,997)         (12,411)
  Proceeds from assets sold . . . . . . . . . . . . . . . . . . . . . . . . .      13,752            6,157
  Other investing activities  . . . . . . . . . . . . . . . . . . . . . . . .      (1,713)            (114)
                                                                                ---------        ----------
      Net cash provided by (used for) investing activities  . . . . . . . . .     (16,958)          (6,368)
                                                                                ---------        --------- 

CASH FLOWS FROM FINANCING ACTIVITIES
  Payments on debt and capital lease obligations  . . . . . . . . . . . . . .      (3,249)         (17,320)
  Proceeds from long-term borrowings  . . . . . . . . . . . . . . . . . . . .       3,600              ---
  Proceeds from issuance of Common Stock or Rights Offering   . . . . . . . .         125           11,685
  Net change in revolving credit facility . . . . . . . . . . . . . . . . . .      24,224              ---
                                                                                ---------        ---------
      Net cash provided by (used for) financing activities  . . . . . . . . .      24,700           (5,635)
                                                                                ---------        --------- 

NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . .      (2,040)          (8,642)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD  . . . . . . . . . . . . . . .       3,494            9,454
                                                                                ---------        ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD  . . . . . . . . . . . . . . . . . .   $   1,454        $     812
                                                                                =========        =========
</TABLE>





       The accompanying notes are an integral part of these statements.

                                      6
<PAGE>   7
                    GREYHOUND LINES, INC. AND SUBSIDIARIES

              NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                              SEPTEMBER 30, 1996
                                 (UNAUDITED)


1.  INTERIM CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of management, the unaudited Interim Consolidated Financial
Statements of Greyhound Lines, Inc. and Subsidiaries (the "Company") include
all adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the Company's financial position as of September 30, 1996, and
the results of its operations for the three and nine months ended September 30,
1996 and 1995 and cash flows for the nine months ended September 30, 1996 and
1995.  Due to the seasonality of the Company's operations, the results of its
operations for the interim period ended September 30, 1996 may not be
indicative of total results for the full year.  Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations promulgated by the Securities and
Exchange Commission.  The unaudited Interim Consolidated Financial Statements
should be read in conjunction with the audited Consolidated Financial
Statements of Greyhound Lines, Inc. and Subsidiaries and accompanying notes for
the year ended December 31, 1995.

2.  SIGNIFICANT ACCOUNTING POLICIES

EARNINGS (LOSS) PER SHARE

Primary earnings (loss) per common share are calculated by dividing net income
(loss) by the weighted average shares of common stock of the Company ("Common
Stock") and Common Stock equivalents outstanding during the period.  Common
Stock equivalents reflect the assumed exercise of only those outstanding stock
options which would be dilutive.  The calculation of fully diluted earnings
(loss) per share of Common Stock includes the additional effect of conversion
of the Company's 8.5% Convertible Subordinated Debentures due 2007 (the
"Convertible Debentures") if conversion has a dilutive effect.  For the nine
months ended September 30, 1996 and 1995, however, 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 excluded from the
final determination of the weighted average shares outstanding at September 30,
1996 and 1995.  The weighted average shares outstanding used in the calculation
of primary and fully diluted earnings (loss) per share of Common Stock for the
three and nine months ended September 30, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED              NINE MONTHS ENDED
                                                     ------------------              -----------------
                                                       SEPTEMBER 30,                   SEPTEMBER 30,
                                                       -------------                   -------------
                                                    1996           1995             1996           1995   
                                                 ----------     ----------       ----------     ----------
<S>                                              <C>            <C>              <C>            <C>
Primary . . . . . . . . . . . . . . . . . .      59,444,196     56,041,151       58,239,881     53,422,096
Fully diluted . . . . . . . . . . . . . . .      59,444,196     56,041,151       58,239,881     53,422,096
</TABLE>

CERTAIN RECLASSIFICATIONS

Certain reclassifications have been made to the prior period statements to
conform them to the September 1996 classifications.

3.  COMMITMENTS AND CONTINGENCIES

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 (defined herein) against the Company and certain of its former
officers and directors.  The suits sought unspecified damages for securities
laws violations as a result of





                                      7
<PAGE>   8
statements made in public reports and press releases and to securities analysts
during 1993 and 1994 that were 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) were
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
were pending under a case styled In re Greyhound Securities Litigation, Civil
Action 3-94-CV-1793-G.  A joint pretrial order was entered in the class action
litigation which consolidated 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 the Company, 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, Lynch and Taff were subsequently dismissed from the case by the
plaintiffs.  In September 1995, the various defendants filed motions to dismiss
plaintiffs' complaints. In October 1995, plaintiffs filed a motion seeking to
certify the class of plaintiffs.

On October 3, 1996, the Court ruled in favor of the Company and all other
defendants, granting defendants' motions to dismiss.  Pursuant to the Court's
order, the complaints were dismissed, with leave granted to the plaintiffs to
refile amended complaints within 20 days thereafter.  On October 23, 1996, an
amended complaint was filed.  All seven class representatives involved in the
prior complaints were dropped from the case.  A new purported class plaintiff,
John Clarkson, was named and a motion was filed seeking leave to permit Mr.
Clarkson to intervene as the new class representative.  The amended complaint
alleges a class period of May 4, 1993 to October 26, 1993 and was filed only on
behalf of holders of Common Stock.  The amended complaint names the same
defendants involved in the dismissed cases (the Company, Messrs. Schmieder,
Doyle, Duty and Seaquist and Smith Barney Incorporated); no new defendants were
added and none were dropped.  The defendants have until December 12, 1996 to
file a reply to plaintiff's motion for intervention.  The Court has advised the
parties that no responsive pleading need be filed to the amended complaint
until such time as the Court rules on the motion for intervention filed by 
Mr. Clarkson.

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 was pending.  In September 1995, the defendants'
motion was granted, and the matter was transferred and was consolidated into
the class action litigation described above.

On October 29, 1996, a purported class action lawsuit was brought by a
purported holder of Common Stock against the Company, certain of its former
officers and directors and Smith Barney and Morgan Stanley.  The suit seeks
unspecified damages for alleged federal and Texas state securities laws
violations in connection with a Common Stock offering made by the Company in
May 1993.  The suit, filed in the 44th Judicial District Court of Dallas
County, Texas, is styled John Clarkson v. Greyhound Lines, Inc., Frank
Schmieder, J. Michael Doyle, Robert R. Duty, Don T. Seaquist, Smith Barney,
Inc. and Morgan Stanley & Company, Inc., Case No. 96-11329-B.  An answer to the
suit must be filed by the Company on or before November 25, 1996.





                                      8
<PAGE>   9
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 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 has fully cooperated with the SEC's
investigation of these matters.  The Company has had no contact with the SEC in
connection with the investigation since January 1996.  The probable outcome of
this investigation cannot be predicted at this stage in the proceeding.

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, 76 locations have been identified as
sites requiring potential clean-up and/or remediation as of September 30, 1996.
The Company has estimated the clean-up and/or remediation cost of these sites
to be $5.4 million of which approximately $1.0 million is indemnifiable by the
predecessor owner of the Greyhound domestic bus operations now known as Viad
Corp (formerly known as the Dial Corp).  The Company has no reason to believe
that Viad will not fulfill its indemnification obligations to the Company.
However, if Viad 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 Environmental Protection
Agency (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 total environmental reserve of $3.5 million, at September 30, 1996,
a portion of which has also been recorded as a receivable from Viad for
indemnification.  The environmental reserve relates to sites identified for
potential clean-up and/or remediation and represents the present value of cash
flows for noncapitalized expenses discounted at 8%.  Management believes that
adequate accruals have been made related to all known environmental matters.


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 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.





                                      9
<PAGE>   10
ITEM 2.      MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS

CAPITAL RESOURCES AND LIQUIDITY

Public Offering and Senior Note Repurchase.  Net proceeds to the Company from
the sale of four million shares of Common Stock in October of 1995 were $15.4
million.  The Company used a portion of the net proceeds to repurchase (the
"Senior Note Repurchase") $10.7 million aggregate principal amount of its 10%
Senior Notes due 2001 (the "Senior Notes") and the remaining net proceeds were
used for general corporate purposes.

Capital Structure and Leverage. The Company had $191.9 million in long-term
debt outstanding (net of current portion of long-term debt of $10.9 million and
excluding $19.6 million of issued and undrawn standby letters of credit) at
September 30, 1996, which primarily consisted of the Company's Senior Notes.
Also included in long-term debt were outstanding borrowings of $24.2 million
under the Credit Facility (hereinafter defined).  Although the Company
generally requires significant cash flows to meet its debt and other continuing
obligations, the Senior Note Repurchase has reduced 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 have been reduced from $8.2
million to $7.6 million (each January 31 and July 31).  Additionally, the
Senior Notes sinking fund requirements for 1996, in the amount of $8.0 million,
have been met through a portion of 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 and as a result, the cash required for the July
1997 sinking fund payment has been reduced from $10.0 million to approximately
$5.7 million (and is reflected in the balance of current maturities of
long-term debt of $10.9 million at September 30, 1996).  The sinking fund
payment due July 1998 will be $15.0 million and increases annually, thereafter.
During the remainder of 1996, the Company will also require $2.8 million in the
aggregate for other debt service, $0.8 million of which is interest and $10.9
million for bus, real estate and other operating lease obligations.

Cash Flows and 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 facility acquisitions,
replacements or upgrades.  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.  For the first quarter of
1996, operating activities used net cash of $28.3 million, while operating
activities for the second and third quarters provided positive cash flow of
$6.9 million and $11.6 million, respectively, resulting in net cash used for
operating activities of $9.8 million for the nine months ended September 30,
1996.  The cash used for the net changes in certain operating assets and
liabilities (a component of net cash used for operating activities) for the
nine months ended September 30, 1996 reflects the expected level of activity in
these accounts during this period of the year.  The cash provided by the net
changes in certain operating assets and liabilities for the comparable period
in 1995, is primarily the result of the Company's efforts to conserve cash
during the early period in its turnaround.

The net cash required for operating activities, as well as cash required for
investing activities, were primarily funded by cash provided by revolving
advances under the Company's Credit Facility and the sale-leaseback in April,
1996 of 51 buses which had been purchased in 1995.  At September 30, 1996, the
Company had cash and cash equivalents of $1.5 million and available borrowing
capacity of $22.2 million under the Credit Facility for general purposes.
Additionally, the Company had sufficient unpledged collateral which could have
been pledged under the terms of the Credit Facility to increase total available
borrowing capacity to $23.2 million at September 30, 1996.

Availability under the Credit Facility is limited to the aggregate of the
following:  (1) revolving advances of up to $2.5 million based on a formula of
certain eligible accounts receivable; (2) revolving advances of up to $47.5
million (the "Fixed Asset Advances") based on the value of certain fixed asset
collateral currently pledged to Foothill; and (3) a bus purchase facility of up
to $30.0 million (the "Bus Purchase Facility").  The Credit Facility limits
letters of credit and letters of credit guarantees to $35.0 million. Borrowings
under the Credit Facility mature on January 15, 1999, although the availability
under the Fixed Asset Advances will be subject to quarterly reductions
commencing October 1997, unless additional collateral is pledged.  The 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





                                      10
<PAGE>   11
under the Bus Purchase Facility or other financing.  The Credit Facility allows
the Company to dispose of certain non- core real estate properties.  In
addition, non-bus capital expenditures are limited to $30.0 million annually
with no spending limitations on bus purchases.  At September 30, 1996, the
Credit Facility provided for revolving loans, letters of credit and letter of
credit guarantees up to a maximum commitment of $80.0 million.  As of September
30, 1996, the Company had pledged sufficient collateral  to activate up to
$66.0 million of total availability, and there were approximately $19.6 million
in issued and undrawn standby letters of credit outstanding and outstanding
borrowings of $24.2 million under the Credit Facility.

The 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
September 30, 1996, the Company was in compliance with these covenants.  In
addition, the 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 Credit Facility was reduced from 2.0% above the prime rate
to 1.75% above prime effective February 1, 1996.

The Company is currently in the process of amending the Credit Facility to
increase the maximum availability to $105 million, subject to obtaining
additional syndication commitments, and to include a provision for real estate
purchases to be financed by the Credit Facility. Finalization of the amended 
agreement should be completed by the end of the fourth quarter.

The Company is party to two floating rate interest rate swap agreements entered
into in July 1993.  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 $4.1
million in total from September 30, 1996 through the remaining term of the
five-year agreements.  Pursuant to an amendment finalized in April 1996, 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.  In conjunction with the amendment, the counterparty has agreed
to reduce the real estate collateral requirements beginning in 1997.

At September 30, 1996, the Company's insurance coverage relating to personal
injury and property damage claims is collateralized by a pledge of $35.8
million in cash and $8.8 million in letters of credit to the insurance
companies providing the coverage.  A decision by the Company's insurers to
modify the Company's insurance program substantially, by either increasing the
cost of coverage, reducing availability or increasing its collateral
requirements, could have a material adverse effect on the future liquidity and
operations of the Company.  Nevertheless, the Company has embarked on an
aggressive risk reduction and claims reduction program, which it anticipates
will reduce the cost of insurance claims.  And, over time this should reduce
the level of collateral and security required by the insurance carriers.

The Company has five defined benefit pension plans.  The most significant plan
is the jointly sponsored Amalgamated Transit Union/Greyhound Lines, Inc.
Retirement and Disability Trust (the "ATU Plan").  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.  If the
Company is required to measure the pension liability, for ERISA funding
purposes, utilizing a mortality table prescribed by legislation enacted by
Congress in 1994, 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.  The Company is exploring whether it may be able
to obtain general or specific relief from this requirement.  Management
believes, however, that the ATU Plan is currently adequately funded to meet any
future benefit obligations.

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 Credit Facility.  If
liabilities of a pension fund exceed assets, the Company would be required to
record a charge to equity under Generally Accepted Accounting Principles
("GAAP").  If the Company were required to record a substantial reduction to
equity due to a substantial decline in interest rates, 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.   Further discussion of the Company's pension plan is included in the
1995 Form 10-K.





                                      11
<PAGE>   12
Capital Expenditures. The Company's operations require significant capital and
maintenance expenditures related to the Company's bus fleet, real properties
and applications software.  For the nine months ended September 30, 1996, the
Company's capital expenditures totalled $29.0 million, $9.8 million of which
related to the purchase of buses.

The Company has 2,150 buses in its fleet as of September 30, 1996.
Approximately 36% of these buses are owned and the remaining buses are leased
from various lessors.  From December 1995 to September 30, 1996, the Company
took delivery of approximately 220 buses from Motor Coach Industries
International, Inc. (MCII), all of which were initially subject to interim
operating leases (180 day maximum term).  In May 1996, 50 of these buses were
converted to long-term operating leases.  Additionally, 34 of these buses were
purchased by the Company in July and September of 1996.  The remaining buses
continue to be financed by MCII under interim operating leases.

The average age of the bus fleet is 6.7 years at September 30, 1996.  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.  Additionally, older buses are generally more expensive to repair
and maintain.  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 the first ten months of 1996, the Company has retired 193
buses which were between 12 and 16 years old.  In addition, the Company plans
to retire 39 additional  buses by year-end,  which along with scheduled
deliveries of new buses  will  decrease the average age of the bus fleet to 6.1
years at December  31, 1996.  To replace these buses and to support the planned
increase in miles to be operated, the Company expects to acquire approximately
300 new buses during 1996 and 1997  at an aggregate value of approximately $75
million.  As of September 30, 1996, 168 buses have been received.  Of the
remainder, approximately 65 of these buses are to be delivered in the fourth
quarter of 1996 and the Company will take delivery of the rest in early 1997. 
The Company intends to finance these purchases through cash flows provided by
operations or the Credit Facility, operating leases and vendor financing, to
the extent available.  Availability of vendor or other financing may cause the
Company to reduce the number of buses to be acquired.

In May 1996, the Company purchased the terminal facility that it had been
leasing in Columbus, Ohio from Viad for $4.0 million, and in September 1996
purchased its terminal in Pittsburgh, Pennsylvania for $4.0 million.  The
terminal purchase in Pittsburgh was financed through a real estate mortgage for
$3.6 million.  These two operationally critical facilities were purchased from
Viad in anticipation of lease terminations in early 1997.

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 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 1.  LEGAL
PROCEEDINGS."


THIRD QUARTER 1996 AND 1995 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 second quarter reflecting a loss or minimal net income and the first
quarter typically being a net loss period.  The third quarter, which includes
the summer peak travel season, generally provides the largest contribution to
the Company's annual operating income.





                                      12
<PAGE>   13
The following table presents certain of the Company's consolidated operating
statistics for the three and nine months ended September 30, 1996 and 1995:

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                        ------------------                   -----------------
                                                           SEPTEMBER 30,       PERCENTAGE      SEPTEMBER 30,       PERCENTAGE
                                                          -------------        ----------      -------------       ----------
                                                        1996          1995       CHANGE      1996        1995       CHANGE
                                                        ----          ----       ------      ----        ----       ------
<S>                                                  <C>          <C>            <C>       <C>        <C>           <C>
Regular Service Miles (000) . . . . . . . . . . . . .   75,892       74,842        1.4      196,850     191,992      2.5
Total Bus Miles (000) . . . . . . . . . . . . . . . .   76,721       75,390        1.8      200,710     194,408      3.2
Passenger Miles (000) (a) . . . . . . . . . . . . .  1,894,668    1,877,135        0.9    4,650,896   4,531,176      2.6
Available Seat Miles (000)  . . . . . . . . . . . .  3,491,032    3,442,732        1.4    9,055,100   8,831,632      2.5
Passengers Carried (000)  (a) . . . . . . . . . . . . .  5,320        5,186        2.6       13,630      13,108      4.0
Average Trip Length (miles) (a) . . . . . . . . . . . . .  356          362       (1.7)         341         346     (1.4)
Load Factor (% of available seats filled) (a) . . . . .   54.3         54.5       (0.4)        51.4        51.3      0.2
Yield (Revenue Per Passenger Mile) (cents) (a)  . . . .   9.52         9.20        3.5         9.57        9.24      3.6
Passenger Revenue Per Regular Service Mile (dollars)  .   2.38         2.31        3.0         2.26        2.18      3.7
Total Operating Revenue per Total Bus Mile (dollars)  .   2.71         2.63        3.0         2.60        2.53      2.8
Total Operating Expense per Total Bus Mile (dollars)  .   2.37         2.34        1.3         2.54        2.49      2.0
Cost per Total Bus Mile (cents):                                                                               
    Maintenance . . . . . . . . . . . . . . . . . . . .   24.2         23.2        4.3         27.3        26.3      3.8
    Transportation  . . . . . . . . . . . . . . . . . .   61.0         59.6        2.3         63.5        60.5      5.0
    Insurance and Safety  . . . . . . . . . . . . . . .   13.5         21.0      (35.7)        16.1        20.6    (21.8)
Station Costs as a % of Total Revenue (%) . . . . . . .   17.6         17.8       (1.1)        18.8        18.9     (0.5)
</TABLE>                                                               
                                                                              
(a)  See Operating Revenues for discussion of 1995 and 1996 restatements.

Operating Income (Loss).  Operating income for the three months ended September
30, 1996, was $26.4 million, an increase of $4.4 million ( or 20.1%), compared
to income of $22.0 million for the same period in 1995.  For the nine months
ended September 30, 1996, operating income increased by $5.4 million (74.4%) to
$12.7 million compared to $7.3 million of operating income for the year ago
period.  Operating revenues increased $9.5 million (or 4.8%) and $30.8 million
(or 6.3%) for the three and nine months ended September 30, 1996, while
operating expenses increased $5.0 million (or 2.9%) and $25.4 million (or 5.2%)
for the three and nine months ended September 30, 1996, compared to the same
periods in 1995.

Operating Revenues.  Passenger service revenues increased $7.6 million (or
4.4%) and $26.4 million (or 6.3%) for the three and nine months ended September
30, 1996, compared to the same periods in 1995 due primarily to increased
ridership.  The number of passengers carried increased 2.6% and 4.0% for the
quarter and nine months ended September 30, 1996 compared to the same periods
in 1995.  The increased passenger revenues during the third quarter continue to
reflect growth over the prior year in sales to passengers traveling 1,000 miles
or less, partially offset by a slight decrease, versus last year, in sales for
trips over 1,000 miles.  The Company attributes the modest decline in sales for
very long haul trips (over 1,000 miles) to additions of seat capacity available
at very aggressive, advance purchase pricing by the airline industry in certain
markets.  Further, the Company realized substantial increases in this travel
segment during 1995, compared to 1994, and as a result, current very long haul
sales remain at levels substantially higher than those realized in 1994, in
spite of the increased intense competition from the airline industry.  In
total, revenues and ridership continue to grow, and management believes the
overall increases reflect the continued emphasis on everyday low pricing,
improvements in handling customer telephone calls, more convenient bus
schedules and capacity flexible operations.  Successful implementation of
premium pricing for weekend travel and extra premium pricing for holiday
travel, as well as price increases on short haul fares, and a mix shift to
higher yielding short haul traffic also improved revenue through the positive
impact on yield.  Yield increased to 9.52 cents and 9.57 cents per mile for the
three and nine months ended September 30, 1996 versus 9.20 cents and 9.24 cents
per mile last year.  In order to stimulate long-haul traffic, the Company has
implemented additional advance purchase discount fares effective October 1996.
If successful, these fares may have the combined impact of stimulating
long-haul travel and reducing long haul prices, thereby reducing yields 
compared to current levels.  Various 1995 and 1996 traffic statistics including
passenger miles, passengers carried, average trip length, load factor and yield
have been adjusted and restated from that previously published to provide
consistent comparisons.

Package express delivery service revenues declined $0.8 million (or 8.5%) and
$1.8 million (or 6.6%) for the three and nine months ended September 30, 1996,
compared to the same periods in 1995.  The Company has increased its focus on
this segment of the business in 1996 in order to slow and eventually
reverse the decline of package express revenues which has occurred over the
last few years.  In 1994, the Company reduced the number of routes and the
number of hours the terminals were opened.  These reductions resulted in
decreased convenience and level of service





                                      13
<PAGE>   14
for the package express customers.  As a result, many customers discontinued
the use of the Company's package express service during late 1994 and 1995 and
began using competitors' services.  During 1996, service improvements were
initiated through increased hours of service, more convenient schedules, and
improved billing.  Additionally, the Company has implemented, in certain
markets, a centralized telephone customer service department dedicated to 
package express service.

Food Service revenues increased $0.4 million (or 6.6%) and $1.6 million (or
10.9%) for the three and nine months ended September 30, 1996, compared to the
same periods in 1995 due primarily to the addition of three new locations and
the general increase in passenger activity.

Other operating revenues increased approximately $2.2 million (or 20.5%) and
$4.6 million (or 14.8%) for the three and nine months ended September 30, 1996,
compared to the same periods in 1995 due primarily to an increase in charter
revenue ($0.9 million and $2.2 million, respectively) and various other
revenues including fees earned from prepaid ticket orders.

Operating Expenses.  Total operating expenses increased $5.0 million (or 2.9%)
and $25.4 million (or 5.2%) for the three and nine months ended September 30,
1996, compared to the same periods in 1995.  Regular service miles operated for
the three and nine months ended September 30, 1996, compared to the same
periods in 1995 increased by 1.1 million miles (or 1.4%) and 4.9 million miles
(or 2.5%), respectively.

Maintenance costs increased $1.0 million (or 5.8%) and $3.6 million (or 7.1%)
for the three and nine months ended September 30, 1996 compared to the same
periods in 1995.  On a cost per mile basis, expenses increased 4.3% from 23.2
cents per mile in the third quarter of 1995 to 24.2 cents per mile during the
third quarter of 1996.  Similarly, the cost per mile for the nine months ended
September 30 increased 3.8% from 26.3 cents per mile to 27.3 cents per mile
from 1995 to 1996.  These increases primarily reflect the Company's efforts to
accelerate engine changes and other maintenance for buses that are susceptible
to engine failures.  Also contributing to the increase was a contractual pay
rate increase for hourly maintenance employees and the opening of an additional
maintenance facility in March 1996.

Transportation expenses increased $1.8 million (or 4.1%) and $9.8 million (or
8.4%) for the three and nine months ended September 30, 1996, compared to the
same periods in 1995.  This increase is partly attributable to an increase in
regular service miles operated of 1.4% and 2.5%, respectively.  The remainder
reflects higher fuel prices (an impact of $1.3 million and $3.7 million,
respectively, versus last year), a contractual wage increase for drivers, and
additional drivers' supervisory staff.   The Company expects fuel prices to
remain high through the remainder of 1996.  To mitigate the potential for a
similar exposure in 1997, the Company has contracted for delivery of a portion
of its 1997 fuel purchases at rates below current levels.

Agents' commissions and station costs increased $1.4 million (or 3.8%) and $5.5
million (or 5.9%) for the three and nine months ended September 30, 1996,
compared to the same periods in 1995, primarily due to increased ticket
commission expenses as a result of increased sales. Additionally, the
conversion of 41 company operated facilities to commission agencies during 1996
also increased commission expense, however, these increased expenses were
offset by decreases in facility costs, utilities and supplies, as these costs
became the responsibility of the agent upon conversion. Calls handled increased
by 942,000 (or 13.0%) and 2,337,000 (or 13.0%) for the three and nine months
ended September 30, 1996.  Increased costs associated with the higher call
volumes were offset by savings realized from lower long-distance rates and the
discontinuance of a third party provider of telephone customer services.

Marketing, advertising and traffic costs increased $0.4 million (or 6.2%) and
decreased $0.2 million (or 1.2%) for the three and nine months ended September
30, 1996, compared to the same periods in 1995.  The increases are due
primarily to the timing of advertising expenditures.

Insurance and safety costs decreased $5.5 million (or 34.6%) and $7.7 million
(or 19.3%) for the three and nine months ending September 30, 1996, compared to
the same periods in 1995.  The impact of increased exposure (due to running
more miles than prior year) was more than offset by continued favorable claims
experience in both automobile and general liability expense and workers'
compensation expense.  The favorable trend reflects the impact of the Company's
proactive claims management and risk reduction programs.  As these programs
become more established, improvements may continue.





                                      14
<PAGE>   15
General and administrative expenses increased $3.0 million (or 16.2%) and $8.9
million (or 16.5%) for the three and nine months ended September 30, 1996,
compared to the same periods in 1995.  Contributing to this increase is the
impact of $1.5 million in pension income recorded in the second and third
quarters of 1995, while no pension income has been recorded in 1996.
Additionally, as part of the Company's efforts to improve controls, accounting
salaries have increased $0.5 million and $1.2 million, respectively, for the
quarter and nine months ended September 30, 1996, as compared to 1995.
Year-to-date, information technology and general management salaries, and
higher benefit costs related to overall increased headcounts have also
contributed to the increase.

Depreciation and amortization increased by $0.6 million (or 9.0%) and $1.1
million (or 4.9%) for the three and nine month periods ended September 30,
1996, compared to the same periods in 1995, partly due to the depreciation on
102 buses which the Company purchased in December 1995, the depreciation on 34
additional buses purchased in 1996, and the depreciation related to capital
expenditures made subsequent to September 30,1995.  These increases were
partially offset by the sale-leaseback of 51 buses in April of 1996.

Operating taxes and licenses increased $0.3 million (or 2.6%) and decreased
$0.4 million (or 1.0%) for the three and nine month periods ending September
30, 1996, compared to the same periods in 1995.  The quarterly increase is
partly due to an increase in fuel and oil taxes as a result of operating more
miles in 1996.  Also, payroll related taxes have increased as a result of
increased salaries and wages related primarily to drivers, accounting personnel
and telephone agents.  Year-to-date, these increases were more than offset by
the impact of a reserve recorded in the first quarter of 1995 for past sales
taxes owed on interstate bus tickets sold in Oklahoma and the favorable
settlement of this liability in the second quarter of 1996.

Operating rental expense increased by $1.2 million (or 9.7%) and $3.4 million
(or 9.7%) for the three and nine months ended September 30, 1996, compared to
the same periods in 1995.  This increase is primarily attributable to the
acquisition of 185 buses under operating leases during the first nine months of
1996.


Interest Expense.  For the nine months ended September 30, 1996, interest
expense was $20.2 million compared to $20.5 million for the 1995 period.
Interest expense decreased due to a $0.9 million reduction in interest expense
on the Senior Notes as a result of the repurchase of $10.7 million of Senior
Notes in December 1995.  Increased interest expense related to the increase in
borrowings under the Credit Agreement during the first nine months of 1996 was
partially offset by the favorable impact on interest expense of the settlement
of the Oklahoma sales tax dispute.  The weighted average of the Company's
effective interest rate on long-term debt outstanding as of September 30, 1996
was 12.37%.





                                      15
<PAGE>   16
                         PART II.  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION

Between August 1994 and May 1995, seven purported class action lawsuits and one
non-class action lawsuit 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 were subsequently consolidated
and amended.  In November 1994, a shareholder derivative lawsuit was filed
against present directors and former officers and directors of the Company and
the Company as a nominal defendant.  In October 1996, a purported class action
lawsuit was filed by a purported owner of the Company's Common Stock against
the Company and certain of its former officers and directors.  In January 1995,
the Company received notice that the Securities and Exchange Commission is
conducting a formal, non-public investigation into possible securities laws
violations allegedly involving the Company and certain other parties.  The
foregoing litigation and SEC investigation relate to securities laws violations
alleged to have occurred in 1993 and 1994.  See Note 3 to the Interim
Consolidated Financial Statements for the three and nine months ended September
30, 1996, included elsewhere in this filing.

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 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.





                                      16
<PAGE>   17
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
(a)  EXHIBITS
<S>      <C>
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. (3)

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. (1)

4.3      -  First Supplemental Indenture to the Indenture between the Registrant and LaSalle National Bank, as Trustee.
            (3)

4.4      -  Form of First Supplemental Indenture to the Indenture between the Registrant and Shawmut Bank Connecticut,
            N.A., as Trustee. (6)

4.5      -  Rights Agreement, dated as of March 22, 1994, between the Registrant and Mellon Securities Trust Company, as
            Rights Agent. (4)

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. (2)

4.7      -  Second Amended and Restated Loan and Security Agreement dated as of June 5, 1995 by and between Greyhound
            Lines, Inc. and Foothill Capital Corporation. (5)

4.8      -  Amendment Number One to Second Amended and Restated Loan and Security Agreement dated as of April 12, 1996
            by and between Greyhound Lines, Inc. and Foothill Capital Corporation. (7)

11.1     -  Computation of Registrant's earnings per share for the three and nine months ended September 30, 1995. (8)

11.2     -  Computation of Registrant's earnings per share for the three and nine months ended September 30, 1996. (9)

27       -  Financial Data Schedule as of and for the nine months ended September 30, 1996. (9)


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


(1)      Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September
         30, 1991.
(2)      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.
(3)      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.
(4)      Incorporated by reference from the Registrant's Quarterly Report on Form 8-K regarding the Rights Agreement
         dated March 22, 1994.
(5)      Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
         1995.
(6)      Incorporated herein by reference from the Registrant's Issuer Tender Offer Statement on Schedule 13E-4 (File
         No. 5-41800).
(7)      Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
         1996.
(8)      Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September
         30, 1995.
(9)      Filed herewith.
</TABLE>

(b)  REPORTS ON FORM 8-K

     During the quarter ended September 30, 1996, the Company filed no current
     reports on Form 8-K with the Securities and Exchange Commission, nor was
     it required to do so.





                                      17
<PAGE>   18
                                  SIGNATURES


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


Date:  November 12, 1996




                                        GREYHOUND LINES, INC.


                                        By:  /s/  Steven L. Korby        
                                             -------------------------   
                                             Steven L. Korby                
                                             Executive Vice President,      
                                             Chief Financial Officer        
                                                                         
                                                                         
                                             (Duly Authorized Officer    
                                             and Principal Financial     
                                             and Accounting Officer)     
                                                          





                                      18
<PAGE>   19
                              INDEX TO EXHIBITS



Exhibit                          
Number                            Exhibits
-------                           --------

11.2     -       Computation of Registrant's earnings per share for the three
                 and nine months ended September 30, 1996.
                                    
27       -       Financial Data Schedule as of and for the nine months ended
                 September 30, 1996.