<PAGE>   1




                                  UNITED STATES
                       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
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       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.
              AND ITS SUBSIDIARIES IDENTIFIED IN FOOTNOTE (1) BELOW
             (Exact name of registrant as specified in its charter)

 
            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)


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

           Securities registered pursuant to Section 12(b) of the Act:


<TABLE>
<CAPTION>
                   TITLE OF EACH CLASS                             NAME OF EACH EXCHANGE ON WHICH REGISTERED
                   -------------------                             -----------------------------------------
<S>                                                                <C>                                     
8 1/2% CONVERTIBLE SUBORDINATED DEBENTURES, DUE MARCH 31, 2007               AMERICAN STOCK EXCHANGE
</TABLE>


           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 this Form 10-K or any amendment to this
Form 10-K. [X]

     Aggregate market value of Common Stock held by non-affiliates of the
registrant on March 29, 1999, was $0.

     As of March 29, 1999, the Registrant had 58,743,069 shares of Common Stock,
$0.01 par value, outstanding.










(1)  THIS FORM 10-K IS ALSO BEING FILED BY THE CO-REGISTRANTS SPECIFIED UNDER
     THE CAPTION "CO-REGISTRANTS", EACH OF WHICH IS A WHOLLY-OWNED SUBSIDIARY OF
     GREYHOUND LINES, INC. AND EACH OF WHICH HAS MET THE CONDITIONS SET FORTH IN
     GENERAL INSTRUCTIONS I(1)(a) AND (b) OF FORM 10-K FOR FILING FORM 10-K IN A
     REDUCED DISCLOSURE FORMAT.

================================================================================


<PAGE>   2


CO-REGISTRANTS

This Form 10-K is also being filed by the following entities. Except as set
forth below, each entity has the same principal executive offices, zip code and
telephone number as that set forth for Greyhound Lines, Inc. on the cover of
this report:


<TABLE>
<CAPTION>
                                                                                    I.R.S. EMPLOYER      JURISDICTION
                                                              COMMISSION             IDENTIFICATION           OF
NAME                                                             FILE NO.                 NO.               INCORP.
----                                                         ------------           ---------------      -------------
<S>                                                          <C>                       <C>               <C>     
Atlantic Greyhound Lines of Virginia, Inc.                   333-27267-01              58-0869571        Virginia

GLI Holding Company                                          333-27267-04              75-2146309        Delaware

Greyhound de Mexico, S.A. de C.V.                            333-27267-05                 None           Republic of
                                                                                                         Mexico

Grupo Centro, Inc.                                           333-27267-06              75-2692522        Delaware

Los Buenos Leasing Co., Inc.                                 333-27267-07              85-0434715        New Mexico

Sistema Internacional de Transporte de Autobuses, Inc.       333-27267-08              75-2548617        Delaware

Texas, New Mexico & Oklahoma Coaches, Inc.                   333-27267-10              75-0605295        Texas
1313 13th Street
Lubbock, Texas 79408
(806) 763-5389

T.N.M. & O. Tours, Inc.                                      333-27267-11              75-1188694        Texas
(Same as Texas, New Mexico & Oklahoma Coaches, Inc.)

Vermont Transit Co., Inc.                                    333-27267-12              03-0164980        Vermont
106 Main Street
Burlington, Vermont 05401
(802) 862-9671
</TABLE>

As of December 31, 1998, Atlantic Greyhound Lines of Virginia, Inc. had 150
shares of common stock outstanding (at a par value of $50.00 per share); GLI
Holding Company had 1,000 shares of common stock outstanding (at a par value of
$0.01 per share); Greyhound de Mexico, S.A. de C.V. had 10,000 shares of common
stock outstanding (at a par value of $0.10 Mexican currency per share); Grupo
Centro, Inc. had 1,000 shares of common stock outstanding (at a par value of
$0.01 per share); Los Buenos Leasing Co., Inc. had 1,000 shares of common stock
outstanding (at a par value of $1.00 per share); Sistema Internacional de
Transporte de Autobuses, Inc. had 1,000 shares of common stock outstanding (at a
par value of $0.01 per share); Texas, New Mexico & Oklahoma Coaches, Inc. had
1,000 shares of common stock outstanding (at a par value of $0.01 per share);
T.N.M. & O. Tours, Inc. had 1,000 shares of common stock outstanding (at a par
value of $1.00 per share); and Vermont Transit Co., Inc. had 505 shares of
common stock outstanding (no par value). Each of the above named co-registrants
(1) have filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period such co-registrant was required to file such reports), and (2)
have been subject to such filing requirements for the past 90 days.


<PAGE>   3


                     GREYHOUND LINES, INC. AND SUBSIDIARIES

                               INDEX TO FORM 10-K


<TABLE>
<CAPTION>
                                                                                     PAGE NO.
                                      PART I                                         --------
<S>      <C>                                                                         <C>
Item 1.  Business...................................................................     4
Item 2.  Properties.................................................................    10
Item 3.  Legal Proceedings..........................................................    11
Item 4.  Submission of Matters to a Vote of Security Holders........................    13

                                     PART II

Item 5.  Market for the Registrant's Common Equity and Related Stockholder Matters..    14
Item 6.  Selected Consolidated Financial Information................................    15
Item 7.  Management's Discussion and Analysis of Financial Condition
             and Results of  Operations.............................................    16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................    25
Item 8.  Financial Statements and Supplementary Data................................    27
Item 9.  Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure...............................................    59

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.........................    60
Item 11. Executive Compensation.....................................................    62
Item 12. Security Ownership of Certain Beneficial Owners and Management.............    66
Item 13. Certain Relationships and Related Transactions.............................    66

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............    67
</TABLE>


<PAGE>   4

                                     PART I
ITEM 1.  BUSINESS

GENERAL

     Greyhound Lines, Inc. and subsidiaries (the "Company") is the only
nationwide provider of scheduled intercity bus transportation services in the
United States. The Company serves the value-oriented customer by connecting
rural and urban markets throughout the United States, offering scheduled
passenger service to more than 2,600 destinations with a fleet of 2,677 buses
and approximately 1,800 sales locations. The Company also provides package
express service, charter bus service and, in many terminals, food service. For
the year ended December 31, 1998, the Company generated total operating revenues
of $846.0 million and EBITDA (as defined herein) of $83.2 million.

     The Company serves a diverse customer base, consisting primarily of low to
middle income passengers from a wide variety of ethnic backgrounds. Management
believes that the demographic groups that make up the core of the Company's
customer base are growing at rates faster than the U.S. population as a whole.
The Company believes that it is uniquely positioned to serve this broad and
growing market because (i) the Company's operating costs, which are lower on an
available-seat-mile basis than other modes of intercity transportation, enable
it to offer passengers everyday low prices, (ii) the Company offers the only
means of regularly scheduled intercity transportation in many of its markets,
and (iii) the Company provides additional capacity during peak travel periods to
accommodate passengers who lack the flexibility to shift their travel to
off-peak periods.

LAIDLAW MERGER

     On October 16, 1998, the Company entered into an Agreement and Plan of
Merger with Laidlaw Inc. ("Laidlaw") and its wholly owned subsidiary, Laidlaw
Transit Acquisition Corp. ("Laidlaw Transit"), which Agreement was amended on
November 5, 1998 (as amended, the "Merger Agreement").

     At a special meeting of the Company's stockholders held on March 16, 1999,
holders of the Company's Common Stock and Preferred Stock approved the Merger
Agreement. On that date, Laidlaw Transit was merged with the Company (the
"Merger"), with the Company, as the surviving corporation, becoming a subsidiary
of Laidlaw. As a result of the Merger, Laidlaw became the sole beneficial owner
of the Company's Common Stock, representing approximately 96% of the Company's
outstanding voting securities.

     After the Merger, holders of Common Stock received $6.50 in cash for each
share of Common Stock they held. The Company's 8 1/2% Convertible Exchangeable
Preferred Stock ("Preferred Stock") remains outstanding. However, following the
Merger, the Preferred Stock is no longer convertible into shares of Common
Stock. The Company's Preferred Stock is presently convertible into the right to
receive $33.33 per share in cash.

     The total purchase price Laidlaw paid for the shares of Greyhound's Common
Stock not previously purchased by Laidlaw, including outstanding stock options,
was approximately $402 million. The Greyhound Preferred Stock which remains
outstanding is convertible into the right to receive $33.33 in cash per share or
$80 million in the aggregate. Laidlaw had sufficient funds available under its
existing revolving credit facilities to fund all of its requirements in
connection with the Merger. Laidlaw's credit facilities are provided by a
syndicate of financial institutions for which Canadian Imperial Bank of Commerce
acts as administrative agent. Laidlaw may borrow up to an aggregate amount of
$1.7 billion under the facility for general corporate purposes, including
transactions contemplated by the Merger Agreement. The consideration payable to
stockholders of Greyhound as a result of the Merger was determined through
negotiations between Greyhound and Laidlaw.

BUSINESS STRATEGY

     In late 1994 and early 1995, under the direction of a new management team,
the Company developed a "back-to-basics" operating strategy. This strategy
focused on providing a good, customer-oriented product with a capacity-


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<PAGE>   5

flexible, sound bus operation. The Company accomplished this by rebuilding its
infrastructure, expanding the frequency and convenience of its schedule
offerings, providing flexible scheduling of its equipment, drivers and other
resources to meet peak travel demand, introducing everyday low prices and
actively managing fares in individual markets. In response to these initiatives,
the Company has experienced year-over-year revenue growth in each of its last
fifteen consecutive quarters.

     Management believes the following represent significant growth
opportunities for the Company:

     o   CORE PASSENGER GROWTH. The Company believes that its revenues will
         continue to grow as its core demographic customer base expands, and
         that this customer base is growing at a rate that exceeds the U.S.
         population growth rate as a whole. The Company also believes that there
         are opportunities to obtain incremental revenues from its existing
         customer base through continued targeted advertising and promotional
         programs and refinements in pricing and schedule offerings designed to
         reinforce the Company's position as the low-cost alternative to other
         forms of intercity transportation.

     o   CHARTER BUSINESS. As the Company expands its fleet size and driver
         corps to support the growth of the core passenger business, it will
         provide a significant, complementary growth opportunity in the charter
         business.

     o   DOMESTIC ACQUISITIONS, INTERLINE RELATIONSHIPS AND INTERMODAL
         ALLIANCES. The bus transportation industry is highly fragmented.
         Accordingly, opportunities exist for the Company to acquire regional
         bus operators or to form strategic alliances with these carriers to
         increase its penetration of existing markets.

     o   HISPANIC MARKETS. Management believes the Spanish speaking markets in
         the U.S. and Mexico represent a significant growth opportunity. The
         Company believes that the most effective way to service passengers in
         this market is through joint ventures or other business combinations
         with Mexico-based bus carriers and U.S.-based bus carriers that
         primarily serve these markets. The Company has established a separate
         operating subsidiary that has completed joint ventures that provide
         through-bus service at all major gateways between the United States and
         Mexico.

     o   EXPRESS BUSINESS. The Company is implementing programs to rebuild its
         package express business and capitalize on the market niche
         opportunities, which leverages the Company's scheduled bus service.

     Additionally, the Company believes other revenue growth opportunities are
available, such as providing increased bus service to casino and commuter
markets and marketing selected products or services to its unique customer base.

MARKETS

     Passengers. While the Company's major passenger markets are large
metropolitan areas, its business is geographically fragmented with the 50
largest sales outlets accounting for approximately 48% of 1998 ticket sales, and
the 1,200 largest origin/destination city pairs producing only 43% of 1998
ticket sales. Demographic studies have shown that the Company's potential riders
are concentrated in the northeastern, southern and industrial mid-western 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. In
many cases, the Company's passengers report that they own automobiles considered
sufficiently reliable for a trip of a similar distance, but travel by bus
because they are traveling alone or because of the lower cost of bus travel. 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 service targets commercial
shippers and delivery companies that require rapid delivery of small parcels,
typically within 300 miles. Shipments include automotive repair parts, wholesale
foods, computer parts and forms, fresh flowers, eyeglasses, medical and dental
supplies, architectural and legal documents, and pharmaceutical products. With
its extensive network and multiple schedules, the Company is 


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<PAGE>   6

able to provide expedited service, especially to rural areas. Most shipments
arrive at their destination on the same day they are shipped or by 8 a.m. the
following morning.

     Food Service. The Company's food service division oversees many diverse
food service concepts, consisting of more than 160 locations. The Company offers
concepts ranging from cafeteria-style restaurants to quick grab `n go snack
bars.

MARKETING AND ADVERTISING

     The Company's marketing and advertising philosophy is geared toward
stimulating extra travel through price awareness, improving the awareness and
image of Greyhound among potential customers and inducing first-time and repeat
travel. The Company uses various means to advertise its passenger travel
business including radio, television and print media (primarily yellow pages).
Additionally, the Company offers convenient around-the-clock fare and schedule
quotations via a toll-free telephone number through its telephone information
centers. The Company's telephone centers handled 30.6 million calls in 1998, an
increase of 4.1% over 1997. The Company also markets its other passenger and
in-terminal services through advertising in the terminal facilities and in print
media. The Company has also established an internet web site that provides fare
and schedule information.

OPERATIONS

     The Company utilizes approximately 150 company-operated bus terminals and
approximately 1,650 agency-operated terminals and/or sales agencies which are
managed either by five subsidiaries or 11 districts which are lead by district
managers of customer service. Maintenance garages are maintained at 14 strategic
locations and are supplemented by company-operated service islands and fueling
points. The Company currently has approximately 5,250 drivers based in 88
different locations across the country. The drivers report to driver supervisors
who are organized into 11 districts reporting to district managers of driver
operations. The scheduling and dispatch of the Company's buses and driver corps
is a coordinated and centralized function performed by the Company's resource
management group. This group's purpose is to serve as a liaison between
management and the field in the planning and execution of daily operations
through the Company's existing network. This is accomplished through the
management of national dispatch operations for equipment and drivers, rental of
additional buses to cover peak demand periods, planning and coordinating extra
sections with the field and analyzing and implementing pooling arrangements with
other carriers. This group also plans the fleet size and driver requirements by
location during the year and assists in determining the resource needs based on
the sales plan each year.

     Information technology is an integral component of the Company's
operations. The Company's information systems support, among other things, its
scheduling and pricing, dispatch, operations planning, bus maintenance,
telephone information center, customer service, point of sale, payroll and
finance functions. As of December 31, 1998, the Company's automated fare and
schedule quotation and ticketing system, called TRIPS, was in use at 324
locations.

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, and in certain
markets, regional bus companies and trains. During the past few years, airlines
have increased their penetration in intermediate-haul markets (450 to 1,000
miles), which has resulted in the bus industry, in general, reducing prices in
these markets in order to compete. Additionally, airline discount programs have
attracted certain long-haul passengers away 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 typically are more
restrictive and less readily available than travel provided by the Company.


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<PAGE>   7

However, the Company has also instituted numerous advance purchase programs, in
order to attract the price sensitive customer. Price, destination choices and
convenient schedules are the ways in which the Company meets this competitive
challenge.

     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 threat through price and convenient
scheduling.

     Additionally, the Company experiences competition from regional bus
companies. Price, frequency of service and convenient scheduling are the current
strategies of the Company to meet this competition. The Company's competitors
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 the market represented by
Spanish speaking customers in the U.S. is growing. As of January 1, 1997,
barriers to entry into the cross-border intercity bus market between the U.S.
and Mexico were reduced under the North American Free Trade Agreement ("NAFTA").
Entry into either market is still regulated by the respective U.S. and Mexican
regulatory authorities. The U.S. government currently has a moratorium on grants
of cross-border authority to Mexican-owned or controlled carriers of freight and
passengers. There is no current indication as to when the moratorium will be
lifted; however, should the moratorium be lifted, the Company could experience
significant new competition on routes to, from and across Mexican border points.
Nevertheless, certain U.S.-based operators are providing cross-border service
into Mexico at this time. NAFTA also permits U.S. carriers to make
non-controlling, minority investments in Mexican-owned carriers and permits
Mexican carriers to make non-controlling, minority investments in U.S.-owned
carriers. In addition to bringing new competition, the Company believes that the
changes under NAFTA will increase the volume of bus travel along both sides of
the border and provide the Company with a growth opportunity. The Company
believes that the most effective way to service passengers in this market is
through joint ventures or other business combinations with Mexico-based bus
carriers and U.S.-based bus operators that primarily serve these
Spanish-speaking markets. The Company has established a separate operating
subsidiary that has completed joint ventures that provide through-bus service at
all major gateways between the United States and Mexico.

     Package Express. The Company faces intense competition in its package
express service from local courier services, the U.S. Postal Service and
overnight express and ground carriers. The Company continues to develop programs
to meet this competition and rebuild its package express business. These
programs focus on system upgrades to improve service, billing and tracking for
its customers, localized marketing strategies, and local or regional alliances
with, or acquisitions of, pick up and delivery carriers. Due to the incremental
nature of the package express business, the Company is able to provide same-day
package express service at distances of up to 300 miles at a substantially lower
price than those charged by other delivery services. Management believes that if
this capability is conveniently aligned with pick up and delivery services at
both ends, the revenue potential of a value-priced, door-to-door, same-day
delivery service will enable package express revenues to grow.

     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 industry as a whole, with peaks during the summer months
and the Thanksgiving and Christmas holiday periods. As a result, the Company's
cash flows are also seasonal with a disproportionate amount of the Company's
annual cash flows being generated during the peak travel periods. Therefore, an
event that adversely affects ridership during any of these peak periods could
have a material adverse effect on the Company's financial condition and results
of operations for that year. The day of the week on which certain holidays
occur, the length of certain holiday periods, and the date on which certain
holidays occur within a fiscal quarter, may also affect the Company's quarterly
results of operations.



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<PAGE>   8

WORKFORCE

     At March 22, 1999, the Company employed approximately 13,400 workers,
consisting of approximately 4,500 terminal employees, 5,250 drivers, 1,500
supervisory personnel, 800 mechanics, 850 telephone information agents and 500
clerical workers. Of the total workforce, approximately 11,000 are full-time
employees and approximately 2,400 are part-time employees.

     At March 22, 1999, approximately 49% of the Company's employees were
represented by collective bargaining agreements. The Amalgamated Transit Union
(the "ATU") represents approximately 5,800 of the Company's employees, including
drivers, telephone information agents in the Omaha location, terminal workers in
eight locations (approximately 220 employees) and about half of the Company's
mechanics. The largest ATU agreement, which covers the drivers and maintenance
employees, expires on January 31, 2004. The International Association of
Machinists and Aerospace Workers (the "IAM") represents approximately 370 of the
Company's employees, including the remaining mechanics. The IAM agreements
expire on October 1, 1999. The Company also has bargaining agreements with the
International Brotherhood of Teamsters, which represent approximately 250
employees at six terminal locations and the United Transportation Union, which
represents employees at one of the Company's subsidiaries. Additionally during
1998, the ATU and Teamsters attempted to unionize employees in six terminal
locations. The unions succeeded in organizing employees at three terminals.

TRADEMARKS

     The Company owns the Greyhound name and trademarks and the "image of the
running dog" trademarks worldwide, except in Canada. The Company believes that
this name and the 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 United States Department of
Transportation (the "DOT"). Failure to maintain a satisfactory safety rating,
designate agents for service of process 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 of the
Company and its right to provide transportation. DOT regulations also 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 is subject to periodic and random inspections and audits by the DOT or,
pursuant to cooperative arrangements with the DOT, by state police or officials,
to determine whether the Company's drivers, buses and records are in compliance
with the DOT's regulations. 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 requirements 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 and 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 exempt from compliance with, EPA
regulations, but, on occasion, the Company has been cited and fined for
non-compliance with noise or emission standards. Additionally, there is
currently litigation pending in California seeking to enforce the posting of
public health warnings at locations where diesel fuel emissions are present.


     Surface Transportation Board. The Company is also regulated by the 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 or control of, another motor carrier of passengers. The Company must
maintain reasonable through routes with other motor 


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carriers of passengers, and, if found not to have done so, the STB can prescribe
them. The Company is party to certain agreements, which are subject to STB
authorization and supervision, for the adoption of mileage guides, rules,
divisions or general rate adjustments.

     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 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, speed and traffic
regulations and other local standards not inconsistent with federal
requirements.

     Other. The Company is subject to regulation under the Americans with
Disabilities Act (the "ADA"). Under final regulations issued by DOT in September
1998, beginning in October 2000, all new buses received by the Company for its
fixed route operations will have to be equipped with wheelchair lifts.
Additionally, by October 2006, one-half of the Company's fleet involved in fixed
route operations will be required to be lift-equipped, and by October 2012, such
fleet will need to be entirely lift-equipped. The regulations do not require the
retrofitting of existing buses with lift equipment. Nor do the regulations
require the purchase of accessible used buses. Moreover, beginning in October
2001, until the fleet is fully equipped, the Company will be required to provide
an accessible bus to any disabled passenger who provides at least 48 hours
notice. Also beginning in October 2001, larger charter/tour operators will be
required to provide an accessible bus to any disabled passenger who provides at
least 48 hours notice. The Company currently estimates that a built-in lift
device will add $20,000 to $40,000 to the cost of a new bus and that maintenance
and employee training costs will increase. The Company does not expect such
maintenance and training costs to be materially higher than the costs currently
incurred in complying with the interim bus access regulations promulgated under
the ADA. Passenger revenues could also be impacted by the loss of seating
capacity when wheelchair passengers are on the bus, offset by potentially
increased ridership by disabled persons.

INSURANCE COVERAGE

     The predecessor agency to the STB 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 which has been continued by
the DOT. To maintain self-insurance authority, the Company is required to
maintain a satisfactory safety rating by the DOT, a tangible net worth of $10.0
million (as of December 31, 1998, the Company's tangible net worth was $148.8
million) and a $15.0 million trust fund (currently fully funded) to provide
security for payment of claims. In addition to the self-insurance grant by the
federal government, the Company also exercises self-insurance of its intrastate
automobile liability exposure in 38 states. 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 or deductible 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. Additionally, the Company
is required by some states and some of its insurance carriers to maintain
collateral deposits (which is discussed in Liquidity and Capital Resources
section of "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations").

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 solely by Company personnel or its experts, 43 locations
have been identified as remaining sites requiring potential clean-up and/or
remediation as of December 31, 1998. The Company has estimated the clean-up
and/or remediation costs of these sites to be $3.5 million, of which
approximately $0.4 million is indemnifiable by the predecessor owner of
Greyhound's domestic bus operations, now known as Viad Corp ("Viad").

     The Company has potential liability with respect to two locations which the
EPA has designated Superfund sites. The Company, as well as other parties
designated by the EPA as potentially responsible parties, face exposure for



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 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 its minimal involvement, the Company has
been negotiating to be released from liability in return for the payment of
immaterial settlement amounts. Additionally, there are 14 Superfund sites for
which Viad had initially assumed responsibility under the indemnity provisions
of the 1987 acquisition agreement, as amended in 1991. In late 1997, Viad
notified the Company that it believed that the Company should be responsible for
any liabilities at such sites. The Company believed that Viad had responsibility
for these liabilities; however, in the first quarter of 1999, the Company agreed
to assume these liabilities estimated at $2.0 million from Viad as part of the
consideration paid by the Company to purchase nine restaurants Viad had been
operating in the Company's terminals.

     The Company has recorded a total environmental reserve of $3.0 million at
December 31, 1998, 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 estimated cash flows discounted at 8.0%. As of the date of this report,
the Company is not aware of any additional sites to be identified, and
management believes that adequate accruals have been made related to all known
environmental matters.

ITEM 2.  PROPERTIES

LAND AND BUILDINGS

     At December 31, 1998, the Company used 558 parcels of real property in its
operations, of which it owns 162 properties and leases 396 properties. Of those
properties, 406 are bus terminals, 38 are maintenance facilities, 35 are
terminal/maintenance facilities, and the remaining properties consist of driver
dormitories, parking/storage lots, office/storage/warehouse buildings and
telephone information centers. These properties are located throughout the
United States, with a few in Mexico and Canada. The Company believes the current
makeup of its properties is adequate for its operations, and although there can
be 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.

FLEET COMPOSITION, FLEET AGE AND BUS ACQUISITIONS

     During 1998, the Company took delivery of 293 buses, retired 114 buses and
through acquisition of subsidiaries added 125 buses, resulting in a fleet of
2,677 buses at year-end. Through March 22,1999, the Company has taken delivery
of an additional 148 buses and retired 101 buses. At March 22, 1999, the Company
owned 993 buses and leased an additional 1,731 buses for a total fleet of 2,724.
Motor Coach Industries, Inc. ("MCI") or its affiliate, Dina Autobuses, S.A. de
C.V. ("DASA"), hereafter referred to collectively as "MCI", produced all but 140
of these buses. The Company is party to a long-term supply agreement with MCI.
The agreement extends through 2007, but may be canceled at the end of any year
upon six months notice. If the Company decides to acquire new buses, the Company
and its affiliates must purchase at least 80% of its new bus requirements from
MCI pursuant to the agreement. The Company has ordered 154 new buses (including
the 148 referred to above) to be delivered during the first half of 1999.

     The average age of the Company's bus fleet has been reduced from 6.3 years
in January 1998 to approximately 5.9 years as of March 22, 1999. The Company
also shows a decrease in the amount of buses in excess of 10 years old, with the
percentage dropping to 21.5% in March 1999 versus 26.4% in January 1998. The
Company believes that newer buses, as well as older buses with newer engines,
are more fuel efficient than buses with older engines. In addition, new buses
are generally less costly to maintain, in part because of warranty coverage, and
generally enhance customer satisfaction.




                                       10
<PAGE>   11

ITEM 3.  LEGAL PROCEEDINGS

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, 8 1/2% Convertible
Subordinated Debentures and 10% Senior Notes retired in May 1997 ("10% Senior
Notes") against the Company and certain of its former officers and directors.
The suits sought unspecified damages for securities laws violations as a result
of 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 (the "Federal Court Action"). In July 1995, the plaintiffs
filed 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. 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 tendered to the Court. All seven class representatives
involved in the prior complaints were dropped from the case. A new purported
class plaintiff, John Clarkson, was named. A motion was filed seeking leave to
permit Mr. Clarkson to intervene as the new class representative. On August 15,
1997, the Court denied Mr. Clarkson leave to intervene and dismissed the
litigation, noting that all claims asserted had been adjudicated. On September
12, 1997, a notice of appeal was filed by counsel for the original seven
plaintiffs, seeking a review of the Court's ruling of October 3, 1996. On
February 9, 1998, plaintiffs dismissed their appeal. As a result, the Federal
Court Action has been dismissed.

     In November 1994, a shareholder derivative lawsuit was filed by Harvey R.
Rice, a purported owner of the Company's Common Stock, against the then present
directors and former officers and directors of the Company and the Company as a
nominal defendant. The suit sought 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, was 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 (the "Delaware Action").

     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 sought unspecified damages for
securities laws 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, was styled James Illius and Theodore 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 United States District Court for the Northern
District of Texas where the Federal Court Action was pending. In September 1995,
the defendants' motion was granted, and the matter was transferred and was
consolidated into the Federal Court Action.

     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 & Company, Inc. 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, 




                                       11
<PAGE>   12

Robert R. Duty, Don T. Seaquist, Smith Barney, Inc. and Morgan Stanley &
Company, Inc., Case No. 96-11329-B. Plaintiff, John Clarkson, is the same
individual who sought to intervene in the Federal Court Action. On February 28,
1997, the suit was transferred to a different judge in the 68th Judicial
District Court in Dallas.

     On June 22, 1998, the parties to the State Court Action entered into a
Stipulation and Agreement of Compromise and Settlement (the "Stipulation").
Pursuant to the Stipulation, persons who purchased Common Stock on or in
connection with a stock offering made by the Company on May 4, 1993 and who
continued to hold the Common Stock through September 22, 1993, will be entitled
to share, on a claims-made basis, in a settlement fund of up to $3.0 million
plus interest, less attorneys' fees and costs. On June 22, 1998, the Court
preliminarily approved the Stipulation, conditionally certified the plaintiff
class for purposes of settlement and directed plaintiffs' counsel to provide
notice to the class of the terms of the settlement. On November 2, 1998, the
Court approved the Stipulation but continued final approval of the plaintiff
attorneys' fees. On March 29, 1999, the Court approved the plaintiff's
attorneys' fee request and the Stipulation became final.

     Effective June 22, 1998, the parties to the Delaware Action entered into a
settlement stipulation whereby the derivative claims would be dismissed in
return for the payment of $50,000 in attorneys' fees for the plaintiff. To
facilitate a global settlement of the State Court Action and the Delaware
Action, on May 20, 1998, plaintiff re-filed the derivative action in the same
court in which the State Court Action is pending. This case is captioned 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 and Charles J. Lee, Civil Action No. DV
98-03990-C (the "Texas Derivative Action"). On August 6, 1998, the Court
preliminarily approved the settlement and directed plaintiffs' counsel to notify
shareholders of the terms of the settlement. On November 2, 1998 the Court gave
its final approval of this settlement. As a result of this settlement, on
December 1, 1998, the Delaware Action was dismissed.

     The foregoing settlements, expected to cost approximately $2.0 million,
will be funded entirely by the Company's directors' and officers' liability
insurance carrier and, thus, will not have a material adverse effect on the
Company's business, financial condition, results of operations and liquidity.

     In January 1995, the Company received notice that the Securities and
Exchange Commission (the "Commission") 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 Commission's Order of Investigation (the "Order of Investigation")
states that the Commission 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 Commission 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
Commission 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 Commission
served a document subpoena on the Company requiring the production of documents,
most of which the Company had voluntarily produced to the Commission in late
1994. The Company has fully cooperated with the Commission's investigation of
these matters. The Company has had limited contact with the Commission in
connection with the investigation since January 1996. 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 and employment-related
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 




                                       12
<PAGE>   13

Company's assessment of known claims and its historical claims payout pattern
and discussion with internal and outside legal counsel and risk management
personnel, management believes that there is no proceeding either threatened or
pending against the Company relating to such 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.



                                       13
<PAGE>   14
                                     PART II

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

MARKET INFORMATION

     Prior to completing the Merger on March 16, 1999 (see Item 1.-Business-in
this report), the Company's Common Stock, par value $.01 per share (the "Common
Stock"), was 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 1997............................................   $ 5 1/2        $ 3 11/16
               Second Quarter 1997...........................................     5              3 7/16
               Third Quarter 1997............................................     4 7/8          3 3/4
               Fourth Quarter 1997...........................................     4 7/16         3 3/8

               First Quarter 1998............................................   $ 5 3/4        $ 3 9/16
               Second Quarter 1998...........................................     6 7/8          4 3/8
               Third Quarter 1998............................................     6 3/16         3 5/8
               Fourth Quarter 1998...........................................     6 1/16         3 3/8

               January 1, 1999 - March 16, 1999..............................   $ 6 1/2        $ 5 3/4
</TABLE>

HOLDERS

     The number of shares of Common Stock outstanding as of March 29, 1999, was
58,743,069. As a result of the Merger, Laidlaw is the sole recordholder of the
Company's Common Stock.

DIVIDENDS

     The Company has not paid any dividends on the Common Stock in the past. The
indenture governing the Company's 11 1/2% Senior Notes restricts the Company's
ability to pay dividends on the Common Stock. In the event the Company was
contractually permitted to pay dividends, Laidlaw as the sole holder of Common
Stock would be entitled to receive dividends only when, as and if declared by
the Board of Directors of the Company, subject to the prior rights and
preferences, if any, of holders of the Company's Preferred Stock.

CONVERTIBLE DEBENTURES

     At December 31, 1998, the Company had outstanding $9.8 million aggregate
principal amount of its 8 1/2% Convertible Subordinated Debentures due March 31,
2007 (the "Convertible Debentures"). At the option of the holders thereof, prior
to the Merger, the Convertible Debentures were convertible into shares of Common
Stock at any time prior to maturity (unless earlier redeemed or repurchased), at
a conversion rate of approximately 80.81 shares of Common Stock per $1,000
principal amount of Convertible Debentures. Following the Merger, the
Convertible Debentures may be converted into $525.27 in cash per $1,000
principal amount of Convertible Debentures.




                                       14
<PAGE>   15

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL INFORMATION


     The statement of operations data and statement of financial position data
set forth below have been derived from the audited Consolidated Financial
Statements of the Company for each of the respective periods indicated. The
following financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Business" and the Consolidated Financial Statements and notes thereto included
elsewhere in this filing. Certain reclassifications have been made to the prior
period statements to conform them to the December 31, 1998, classifications.

<TABLE>
<CAPTION>
                                                                                      YEARS ENDED DECEMBER 31, 
                                                                 -----------------------------------------------------------------
                                                                  1998(a)         1997(b)       1996         1995          1994(c)
                                                                 ---------       ---------    ---------    ---------     ---------
STATEMENT OF OPERATIONS DATA:                                             (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S>                                                              <C>             <C>          <C>          <C>           <C>    
Total Operating Revenues .....................................     845,996         771,122      700,858      657,849       615,311

Operating Income (Loss) ......................................      46,831          37,106       20,804        9,363       (65,476)

Net Income (Loss) Attributable to Common Shareholders ........   $  30,048       $ (20,573)   $  (6,604)   $ (17,818)    $ (77,421)
                                                                 =========       =========    =========    =========     =========

Diluted earnings per Share of Common Stock (d):
   Net Income (Loss) per Share of Common Stock ...............   $    0.47       $   (0.34)   $   (0.11)   $   (0.33)    $   (5.07)
                                                                 =========       =========    =========    =========     =========

OTHER DATA:
   EBITDA (e) ................................................   $  83,163       $  68,365    $  51,487    $  40,373     $ (29,430)
   Cash Flows provided by (used for) Operating Activities ....   $  46,089       $  49,843    $  16,030    $  29,474     $ (13,171)
   Cash Flows used for Investing Activities ..................   $ (47,448)      $ (80,817)   $ (24,104)   $ (34,076)    $ (58,229)
   Cash Flows provided by (used for) Financing Activities ....   $   4,043       $  32,128    $   5,478    $  (1,358)    $  41,211
   Ratio of earnings to fixed charges ........................        1.42            1.19         0.76         0.35         (1.96)
   Dividends declared per Common Share .......................        --              --           --           --            --

STATEMENT OF FINANCIAL POSITION DATA:
   Total Assets ..............................................   $ 643,378       $ 566,593    $ 500,282    $ 480,648     $ 511,499
   Long-Term Debt, net (d) ...................................     225,688         207,953      192,581      172,671       197,125
   Stockholders' Equity ......................................     218,013         179,599      140,881      149,762       153,196
</TABLE>

----------

(a)  During the third quarter of 1998, the Company recognized a tax benefit
     related to previously reserved deferred tax assets. As a result, the
     Company had a $16.9 million tax benefit for the year.

(b)  For the year ended December 31, 1997, the Company recorded an extraordinary
     loss of $25.3 million relating to (i) the retirement of an interest rate
     swap ($2.5 million), (ii) the retirement of the 10% Senior Notes ($21.3
     million) and (iii) the write-off of debt issuance costs related to the
     Revolving Credit Facility in place prior to the amended and restated
     Revolving Credit Facility that was completed in May 1997 ($1.5 million).

 (c) The 1994 results reflect $61.9 million in certain operating charges,
     including increases in insurance and legal reserves to recognize
     pre-bankruptcy claims previously thought to have been barred in the
     Company's Chapter 11 reorganization (which concluded in October 1991),
     adverse claims development in 1994 and certain litigation exposure;
     write-downs of real estate and other assets (including $7.0 million of
     depreciation); 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. For the year ended December 31,
     1994, the Company recorded (i) 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 and
     (ii) an extraordinary gain of $41.9 million related to the conversion of
     $89.0 million of Convertible Debentures into Common Stock.



                                       15
<PAGE>   16

(d)  In January 1995, the Company issued an additional 16.3 million shares of
     Common Stock in connection with the consummation of its Common Stock rights
     offering, which provided net proceeds of approximately $28.9 million. The
     Company issued 4.0 million shares of Common Stock on October 3, 1995 in a
     public offering, which provided net proceeds of $15.4 million. The
     completion of the Company's 1994 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.

(e)  Represents income before interest, taxes, minority interest, depreciation
     and amortization, extraordinary items and preferred dividends. EBITDA is
     presented because management believes investors consider it useful in
     evaluating a company's ability to service and/or incur debt. EBITDA should
     not be considered in isolation from or as a substitute for net income, cash
     flows from operating activities and other consolidated income or cash flow
     data prepared in accordance with generally accepted accounting principles
     or as a measure of profitability or liquidity. EBITDA should be used based
     on the above calculation, as all companies and industries may not calculate
     EBITDA in the same manner.



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

GENERAL

     Greyhound is the only nationwide provider of scheduled intercity bus
transportation services in the United States. The Company's primary business
consists of scheduled passenger service, package express service and food
services at certain terminals, which accounted for 86.0%, 4.0% and 3.7%,
respectively, of the Company's total operating revenues for 1998. The Company's
operations include a nationwide network of terminal and maintenance facilities,
a fleet of 2,677 buses and over 1,800 sales outlets.

     In late 1994 and early 1995, under the direction of the Company's new
management team, the Company implemented a "back-to-basics" operating strategy.
This strategy focused on the Company's national bus network and capitalizing on
its low operating costs to attract and retain customers, which management
identified as the first step in rebuilding the Company's financial performance.
With this strategy fully implemented and providing a foundation of operating
quality, the Company began to emphasize growth in each of its principal
businesses through a "sales driven" strategy. This strategy involves the Company
focusing even more on pricing the product for growth, utilizing more promotional
pricing programs for the non-peak periods and targeting the advertising towards
bus oriented market segments.

     The Company believes that incremental increases in passenger revenues will
produce disproportionately larger increases in operating profits as many of the
Company's operating expenses are fixed, such as depreciation, amortization,
overhead and lease expenses related to buses and facilities. In addition, the
operating costs necessary to produce the Company's base schedule of offerings,
which consist of labor, fuel, maintenance, insurance and long-term bus leases,
cannot be changed rapidly. Accordingly, these costs do not vary proportionately
with short-term increases in demand for the Company's services.



                                       16
<PAGE>   17

RESULTS OF OPERATIONS

     The following table sets forth the Company's results of operations as a
percentage of total operating revenue for 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,  
                                                      ---------------------------------
                                                        1998         1997        1996 
                                                      --------     --------    --------
<S>                                                   <C>          <C>         <C>  
     Operating Revenues
       Transportation Services
          Passenger services ......................       86.0%        85.4%       85.3%
          Package express .........................        4.0          4.6         4.8
       Food services ..............................        3.7          3.8         3.9
       Other operating revenues ...................        6.3          6.2         6.0
                                                      --------     --------    --------
              Total Operating Revenues ............      100.0        100.0       100.0
     Operating Expenses
       Maintenance ................................        9.9         10.0        10.5
       Transportation .............................       23.8         24.3        24.4
       Agents' commissions and station costs ......       18.4         18.3        18.8
       Marketing, advertising and traffic .........        3.2          3.5         3.7
       Insurance and safety .......................        5.9          5.9         5.9
       General and administrative .................       11.8         11.8        11.6
       Depreciation and amortization ..............        4.3          4.1         4.4
       Operating taxes and licenses ...............        6.7          6.7         7.1
       Operating rents ............................        7.8          7.7         7.7
       Cost of goods sold - Food services .........        2.4          2.5         2.7
       Other operating expenses ...................        0.3          0.4         0.2
                                                      --------     --------    --------
              Total Operating Expenses ............       94.5         95.2        97.0
                                                      --------     --------    --------
     Operating Income .............................        5.5          4.8         3.0
     Interest Expense .............................        3.3          3.6         3.9
     Income Tax Provision (Benefit) ...............       (2.1)         0.1         0.0
     Minority Interest ............................        0.1          0.0         0.0
                                                      --------     --------    --------
     Net Income (Loss) Before Extraordinary Items .        4.2%         1.1%       (0.9)%
                                                      ========     ========    ========
</TABLE>

     The following table sets forth certain operating data for the Company for
1998, 1997 and 1996. Certain statistics have been adjusted and restated from
those previously published to provide consistent comparisons.

<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,     
                                                                   --------------------------------------
                                                                      1998          1997          1996 
                                                                   ----------    ----------    ----------
<S>                                                                <C>           <C>           <C>       
     Regular Service Miles (000's) .............................      316,045       285,689       265,259
     Total Bus Miles (000's) ...................................      323,393       291,537       270,187
     Passenger Miles (000's) ...................................    7,820,225     7,049,637     6,243,262
     Passengers Carried (000's) ................................       22,552        19,893        18,348
     Average Trip Length (passenger miles/passengers carried) ..          347           354           340
     Load (avg. number of passengers per regular service mile) .         24.7          24.7          23.5
     Load Factor (% of available seats filled) .................         52.3%         52.6%         51.2%
     Yield (regular route revenue/passenger mile) ..............   $   0.0931    $   0.0934    $   0.0957
     Total Revenue Per Total Bus Mile ..........................         2.62          2.65          2.59
     Operating Income Per Total Bus Mile .......................         0.14          0.13          0.08
     Cost per Total Bus Mile:
       Maintenance .............................................   $    0.258    $    0.264    $    0.272
       Transportation ..........................................        0.622         0.642         0.633
</TABLE>



                                       17
<PAGE>   18
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

     The Company's results of operations include the operating results of
Carolina Coach Company, and affiliates ("Carolina") and Valley Transit, Inc.,
and affiliates ("Valley"), both of which were acquired in 1997, and Golden
State, Peoria-Rockford Bus Company, Autobuses Americanos and Autobuses Amigos,
which were acquired in 1998. These companies are collectively referred to as the
"acquisitions." The results for the acquisitions are included as of their
respective purchase dates.

     Operating Revenues. Total operating revenues increased $74.9 million (or
9.7%) for the year ended December 31, 1998 compared to the same period in 1997.
Passenger services revenues increased $69.4 million (or 10.5%) in 1998 compared
to 1997 (including $27.2 million related to the acquisitions). The 10.5%
increase in regular route revenues reflects a 13.4% increase in the number of
passengers carried primarily offset by a 2.0% decrease in average trip length.
Excluding the impact of the acquisitions, the Company's passenger service grew
6.4% due to a 4.6% increase in passengers carried, a 2.5% increase in trip
length, partially offset by a 0.6% decrease in yield. Although the Company
(without the acquisitions) saw growth in the short-haul market (passengers
traveling less than 450 miles), the increase in trip length and decrease in
yield reflect greater growth in long-haul traffic (passengers traveling more
than 450 miles), especially in the first half of the year, as the Company
promoted and priced this product for growth. On a consolidated basis, the
decrease in trip length reflects the impact of the acquisitions, as the
acquisitions have significantly shorter trip lengths than the Company as a
whole.

     In 1998, the Company saw a $1.9 million (or 5.3%) decrease in package
express revenues. Package express revenues in 1997 were positively impacted by
the United Parcel Service labor strike that took place in August 1997. Without
the estimated effect of this revenue in 1997, the Company experienced increased
package express revenues of $1.2 million (or 3.7%) which related entirely to the
acquisitions.

     Food services and related revenues increased $1.5 million (or 5.1%) for the
year ended December 31, 1998, compared to the same period in 1997. Food services
and related revenues have been reclassified to include sales of retail products.
Previously, sales of retail products were included in other operating revenues.
Food services and related revenues, as reclassified, increased over the prior
year due primarily to the increase in passenger traffic discussed above.

     Other operating revenues increased $5.9 million (or 12.3%) for the year
ended December 31, 1998, compared to the same period in 1997 primarily due to a
$4.3 million (or 38.8%) increase in charter service revenues (including $1.0
million related to the acquisitions) and an increase in revenues from other
in-terminal services, such as calling cards and prepaid ticket orders.

     Operating Expenses. Total operating expenses increased $65.1 million (or
8.9%) for the year ended December 31, 1998, compared to the same period in 1997.
The increase is due primarily to increased bus miles (10.9%), higher driver
wages, increased terminal salaries, increased ticket and express commissions due
to higher sales, and increased bus operating leases. Additionally, expenses
attributable to the operations of the acquisitions ($25.6 million) are included
as of their acquisition dates. Despite these increases, total operating expenses
decreased as a percentage of total operating revenues.

     Maintenance costs increased $6.4 million (or 8.3%) for the year ended
December 31, 1998, compared to the same period in 1997, primarily due to
increased bus miles and the inclusion of the acquisitions. Despite these
increases, maintenance costs decreased on a per-mile basis and as a percentage
of total operating revenues.

     Transportation expenses, which consist primarily of fuel costs and driver
salaries, increased $13.9 million (or 7.4%) for the year ended December 31,
1998, compared to the same period in 1997, due primarily to increased bus miles,
contractual driver wage increases in April and October and the inclusion of the
acquisitions. The additional miles resulted in higher overall fuel expense,
despite the favorable prices, and an increase in driver wages and related driver
expenses. Transportation expenses decreased on a per-mile basis and as a
percentage of total operating revenues due in part to the impact of lower fuel
prices in 1998 compared to the prior year.

     Agents' commissions and station costs increased $14.7 million (or 10.4%)
for the year ended December 31, 1998, compared to the same period in 1997,
primarily due to commissions from increased ticket sales, terminal salaries




                                       18
<PAGE>   19
associated with staffing for the increase in passengers, terminal salary
raises and the inclusion of the acquisitions. As a result, agents' commissions
and station costs increased slightly as a percentage of total operating
revenues.

     Marketing, advertising and traffic expenses increased $0.5 million (or
1.8%) for the year ended December 31, 1998, compared to the same period in 1997,
but decreased as a percentage of total operating revenues. Media advertising
increased over 1997 but the increased costs were almost entirely offset by the
exchange of bus wrap advertising for trade discounts.

     Insurance and safety costs increased $3.9 million (or 8.5%) for the year
ended December 31, 1998, compared to the same period in 1997, due primarily to
increased bus miles and the inclusion of the acquisitions. Insurance and safety
costs continue to remain at 5.9% of total operating revenues, while the cost per
mile decreased slightly from 1997 as a result of the acquisitions which have
lower insurance costs.

     General and administrative expenses increased $8.5 million (or 9.3%) for
the year ended December 31, 1998, compared to the same period in 1997, primarily
due to additions to administrative personnel, expenses associated with
remediation of the Company's computer systems related to the Year 2000 issue and
the inclusion of the acquisitions. Despite these increases, general and
administrative expenses remained at 11.8% of total operating revenues.

     Depreciation and amortization expense increased $5.1 million (or 16.2%) for
the year ended December 31, 1998, compared to the same period in 1997, primarily
due to the purchase of additional buses, other equipment and software and
amortization attributable to the acquisitions. Depreciation and amortization
expense increased as a percentage of total operating revenues.

     Operating taxes and license costs increased $5.2 million (or 10.1%) for the
year ended December 31, 1998, compared to the same period in 1997, primarily due
to increased payroll taxes resulting from increased salaries and headcounts
related to higher business volume (including increased miles operated),
increased fuel taxes due to increased miles and the inclusion of the
acquisitions.

     Operating rents increased $6.7 million (or 11.3%) for the year ended
December 31, 1998, compared to the same period in 1997, primarily due to an
increase in the number of buses leased under operating leases and the inclusion
of the acquisitions.

     Food services and related cost of goods sold increased $1.0 million (or
5.2%) for the year ended December 31, 1998, compared to the same period in 1997,
primarily due to the 5.1% increase in food services and related revenues for the
same period. Food services and related cost of goods sold have been reclassified
to include the costs associated with sales of retail products. Previously those
costs were recorded in other operating expenses.

     Other operating expenses decreased $0.7 million (or 22.9%) for the year
ended December 31, 1998, compared to the same period in 1997, primarily due to
an increase in the gains associated with the sale of assets. As a result, other
operating expenses decreased as a percentage of total operating revenues.

     Interest expense increased $0.2 million (or 0.9%) for the year ended
December 31, 1998, compared to the same period in 1997, as a result of increased
borrowings under the Revolving Credit Facility. The increased borrowings are
attributable to the acquisitions, partially offset by a positive cash flow from
earnings and a lower average interest rate under the Revolving Credit Facility.
Interest expense decreased as a percentage of total operating revenues.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

     The Company's results of operations include the operating results of
Carolina and Valley, collectively referred to as the "1997 acquisitions". The
results for the acquisitions are included as of their respective purchase dates,
both of which occurred during the third quarter of 1997.

     Operating Revenues. Total operating revenues increased $70.3 million (or
10.0%) for the year ended December 31, 1997 compared to the same period in 1996.
Passenger services revenues increased $60.6 million (or 10.1%) in 




                                       19
<PAGE>   20

1997 compared to 1996 (including $11.9 million related to the 1997
acquisitions). The 10.1% increase in passenger services revenues reflects a
13.0% increase in the number of passengers carried offset by a 1.4% decrease in
yield. Excluding the impact of the 1997 acquisitions, the Company's passenger
service grew 8.2% due to a 7.3% increase in passengers carried, a 2.6% increase
in trip length and a 1.8% decrease in yield. The decrease in yield reflects
significant growth in long-haul traffic (passengers traveling more than 450
miles), as the Company promoted and priced this product for growth. However, the
reduction in yield was partially offset by growth in the short-haul market
(passengers traveling less than 450 miles), which typically produces higher
yields. On a consolidated basis, the decrease in trip length reflects the impact
of the acquisitions, as both Carolina and Valley have significantly shorter trip
lengths than the Company as a whole.

      In 1997 the Company saw a $2.1 million (or 6.4%) increase in package
express revenues (including $0.7 million related to the 1997 acquisitions),
after nine years of year-over-year declines. Package express revenues increased
due to an increase in shipments handled as a result of the United Parcel Service
labor strike in August 1997, the retention of a portion of those customers
subsequent to the strike and a price increase. In addition, in select markets,
the Company implemented a centralized telephone customer service department
dedicated to package express service and coordinated pick-up and delivery
services.

     Food services and related revenues increased $2.1 million (or 7.7%) for the
year ended December 31, 1997, compared to the same period in 1996. Food services
and related revenues have been reclassified to include sales of retail products.
Previously, sales of retail products were included in other operating revenues.
Food services and related revenues, as reclassified, increased over the prior
year due primarily to the increase in passenger traffic discussed above.

     Other operating revenues increased $5.4 million (or 12.8%) for the year
ended December 31, 1997 compared to the same period in 1996 primarily due to a
$2.6 million (or 30.1%) increase in charter service revenues (including $0.4
million related to the 1997 acquisitions) and an increase in revenues from other
in-terminal services, such as money order sales and prepaid ticket orders.

     Operating Expenses. Total operating expenses increased $54.0 million (or
7.9%) for the year ended December 31, 1997, compared to the same period in 1996.
The increase is due primarily to increased bus miles (7.9%), higher driver
wages, increased terminal salaries, increased ticket and express commissions due
to higher sales, and increased bus operating leases. Additionally, expenses
attributable to the operations of the 1997 acquisitions ($9.9 million) are
included as of their acquisition dates, which both occurred in the third
quarter. Despite these increases, total operating expenses decreased as a
percentage of total operating revenues.

     Maintenance costs increased $3.6 million (or 4.9%) for the year ended
December 31, 1997, compared to the same period in 1996, primarily due to
increased bus miles and the inclusion of the 1997 acquisitions. Despite these
increases, maintenance costs decreased on a per-mile basis and as a percentage
of total operating revenues due principally to the decrease in the average age
of the fleet.

     Transportation expenses, which consist primarily of fuel costs and driver
salaries, increased $16.3 million (or 9.6%) for the year ended December 31,
1997, compared to the same period in 1996, due primarily to increased bus miles,
a contractual driver wage increase, and the inclusion of the 1997 acquisitions.
The additional miles resulted in higher overall fuel expense and an increase in
driver wages and related driver expenses. Transportation expenses decreased on a
per-mile basis, but increased as a percentage of total operating revenues due
primarily to the impact of the contractual wage increase which was partially
offset by lower fuel prices.

     Agents' commissions and station costs increased $9.4 million (or 7.1%) for
the year ended December 31, 1997, compared to the same period in 1996, primarily
due to commissions from increased ticket and express sales and the inclusion of
the 1997 acquisitions. Despite these increases, agents' commissions and station
costs decreased as a percentage of total operating revenues.

     Marketing, advertising and traffic expenses increased $1.0 million (or
4.1%) for the year ended December 31, 1997, compared to the same period in 1996,
but decreased as a percentage of total operating revenues. The increase is
primarily due to higher advertising agency fees and production costs. Media
advertising increased over 1996 but the 




                                       20
<PAGE>   21
increased costs were entirely offset by the exchange of bus wrap advertising for
trade discounts. Additionally, cost savings were recognized related to bringing
in-house certain computing services.

     Insurance and safety costs increased $4.8 million (or 11.6%) for the year
ended December 31, 1997, compared to the same period in 1996, due primarily to
increased bus miles and the inclusion of the 1997 acquisitions.

     General and administrative expenses increased $10.3 million (or 12.7%) for
the year ended December 31, 1997, compared to the same period in 1996, primarily
due to additions to administrative personnel in late 1996, officer severance, an
increase in the pay-out of the management incentive plan related to improved
company performance, and the inclusion of the 1997 acquisitions.

     Depreciation and amortization expense increased $0.6 million (or 1.9%) for
the year ended December 31, 1997, compared to the same period in 1996, primarily
due to the purchase of additional buses in 1997 and late 1996 and the
depreciation and amortization attributable to the 1997 acquisitions.
Depreciation and amortization expense decreased as a percentage of total
operating revenues.

     Operating taxes and license costs increased $1.7 million (or 3.4%) for the
year ended December 31, 1997, compared to the same period in 1996, primarily due
to increased payroll taxes resulting from increased salaries and headcounts
related to higher business volume (including increased miles operated) and the
inclusion of the 1997 acquisitions. Operating taxes and license costs decreased
as a percentage of total operating revenues.

     Operating rents increased $5.1 million (or 9.5%) for the year ended
December 31, 1997, compared to the same period in 1996, primarily due to an
increase in the number of buses leased under operating leases in 1997 and the
inclusion of the 1997 acquisitions. Operating rents were 7.7% of total operating
revenues in each of 1997 and 1996.

     Food services and related cost of goods sold increased $0.9 million (or
4.7%) for the year ended December 31, 1997, compared to the same period in 1996,
primarily due to the 7.7% increase in Food services and related revenues for the
same period. Food services and related cost of goods sold have been reclassified
to include the costs associated with sales of retail products. Previously those
costs were recorded in other operating expenses.

     Interest expense increased $0.3 million (or 1.1%) for the year ended
December 31, 1997, compared to the same period in 1996, as a result of increased
borrowing on the Revolving Credit Facility partially offset by lower effective
interest rates on the Company's 11 1/2% Senior Notes due 2007 compared to the
effective interest rate on the retired 10% Senior Notes and renegotiated
Revolving Credit Facility. The increased borrowing is attributed to the purchase
of the 1997 acquisitions, the five terminals purchased from Viad, and the buses
purchased for sale/leaseback transactions partially offset by proceeds from the
Preferred Stock offering in April 1997. Additionally, the Company added three
new capital leases for 77 buses in December 1996. Interest expense decreased as
a percentage of total operating revenues.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's principal liquidity requirements are to provide working
capital, to finance capital expenditures, including bus acquisitions, to meet
debt service requirements, including the payment of interest on the 11 1/2%
Senior Notes and to pay Preferred Stock dividends. The Company's principal
sources of liquidity are expected to be cash flow from operations and funds
provided by Laidlaw. The Company believes that its cash flow from operations,
together with funds provided by Laidlaw will be sufficient to meet its liquidity
needs.

     Net cash provided by operating activities was $46.1 million, $49.8 million
and $16.0 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Net cash used for investing activities was $47.4 million, $80.8
million and $24.1 million for 1998, 1997 and 1996, respectively, principally due
to capital expenditures, consisting primarily of acquisitions of buses and real
estate and facility improvements, totaling $33.7 million, $45.1 million and
$38.4 million for 1998, 1997 and 1996, respectively, offset in part by proceeds
of assets sold of $3.9 million, $6.5 million and $16.7 million, respectively.
Additionally, cash used for investing activities includes payments relating to





                                       21
<PAGE>   22
the acquisitions of $10.9 million in 1998 and $40.1 million in 1997. Net cash
provided by financing activities was $4.0 million, $32.1 million and $5.5
million for 1998, 1997 and 1996, respectively.

     As a result of the Merger, the Company will be required to make a one-time
offer to repurchase all or any part of each holder's 11 1/2% Senior Notes at a
price equal to 101% of the principal amount thereof plus interest. Also, as a
result of the Merger, the Preferred Stock becomes mandatorily redeemable into
$33.33 in cash for each share of Preferred Stock, which is in excess of the
liquidation preference. Additionally, the Company will be required to make a
one-time offer to repurchase all or any part of each holder's Convertible
Debentures at a price equal to 100% of the principal amount thereof plus
interest.

     As a part of its operating strategy, the Company anticipates continuing to
make significant capital expenditures in connection with improvements to its
infrastructure, including acquiring buses, making improvements to its terminals
and maintaining and upgrading its computer systems. The Company's experience
indicates that as the age of its bus fleet increases, the dependability and
quality of service declines, which may make the Company less competitive. In
addition, the Company believes that acquiring new buses and improving the
Company's terminals and computer systems will permit the Company to continue to
improve customer service, which the Company believes has contributed
significantly to its improved operating results in 1996, 1997 and 1998. The
Company has ordered 154 new buses to be delivered during the first half of 1999.

     The Company requires significant cash flows to meet its debt service and
other continuing obligations. As of December 31, 1998, the Company had $233.7
million of long-term indebtedness outstanding (including current portions),
including $37.8 million of borrowings under the Revolving Credit Facility and
$150.0 million of 11 1/2% Senior Notes. As of December 31, 1998, the Company had
total availability of $93.1 million under the Revolving Credit Facility. As a
result of the Merger, on March 17, 1999, all amounts outstanding under the
Revolving Credit Facility were paid and the Revolving Credit Facility was
terminated.

     The Company has entered into two advance purchase commitments for fuel.
Under these agreements the Company agrees to take delivery of fuel at a specific
location at a fixed price at a specific date in the future. The agreements have
been entered into, with two suppliers, for approximately 23% of projected fuel
needs through October 1999, at an average price per gallon of $0.51. At this
time, due to the nature of the market for fuel, the Company is no longer
entering into advance purchase contracts. However, should the market change, the
Company may decide to enter into additional advance fuel purchase contracts as
Management believes that this strategy is a conservative methodology of
mitigating the impact of fuel price fluctuations.

SELF INSURANCE

     Insurance coverage and risk management expense are key components of the
Company's cost structure. The loss of self-insurance authority from the DOT or a
decision by the Company's insurers to modify the Company's program
substantially, by either increasing cost, reducing availability or increasing
collateral, could have a material adverse effect on the Company's liquidity,
financial condition, and results of operations.

     The Company maintains cash deposits that secure insurance claims, which as
of February 28, 1999, aggregated approximately $41.5 million, including the
following deposits. The Company maintains $15.0 million on deposit in a trust
fund to support its self-insurance program pursuant to the DOT's approval of
such program. Additionally, as of February 28, 1999, the Company had pledged
$26.1 million in cash and $9.3 million in letters of credit to secure its other
liability insurance obligations. As a result of the Merger, the Company is
negotiating to eliminate or replace the majority of these deposits with letters
of credit to be issued under Laidlaw's existing credit facility.

OTHER DEPOSITS

     The Company maintains deposits that secure bus leases associated with sale
leaseback transactions. These deposits are in the form of marketable securities.
As of February 28, 1999, at market value, these deposits are for $23.4 million
pledged as collateral in connection with the sale and leaseback of 319 buses and
$8.5 million pledged as 




                                       22
<PAGE>   23

collateral in connection with the sale and leaseback of 125 buses. The debt
securities included in these security deposits are recorded at cost plus earned
interest as it is the intent of the Company to hold these securities until
maturity. As a result, the temporary gains and losses associated with the market
value of these securities are excluded from operating results and stockholders'
equity.

PENSION PLAN FUNDING

     The Company maintains ten defined benefit pension plans, the most
significant of which (the ATU Plan) covers approximately 15,650 current and
former employees, fewer than 1,500 of which are active employees of the Company.
The ATU Plan was closed to new participants in 1983 and, as a result, over 85%
of its participants are over the age of 50. For financial reporting and
investment planning purposes, the Company currently uses an actuarial mortality
table that closely matches the actual experience related to the existing
participant population. Based upon the application of this table and other
actuarial and investments assumptions, the Company believes that the ATU Plan is
adequately funded.

     For funding purposes, legislation passed by the United States Congress in
1994, and amended in 1997, mandates the use of a prescribed actuarial mortality
table and discount rates that differ from those used by the Company for
financial reporting and investment planning purposes. Nevertheless, based upon
the application of the actuarial mortality table, discount rates and funding
calculations prescribed by the legislation, as amended, the Company does not
anticipate that it will be required to make any contributions to the ATU Plan in
the foreseeable future. However, there is no assurance that the ATU Plan will be
able to earn the assumed rate of return or that contributions to the ATU Plan in
the future will not be significant.

COMPUTER SYSTEMS / YEAR 2000 READINESS

     Many existing computer systems, communications equipment, control devices
and software products, including several used by the Company, are coded to
accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, the
Company's date critical functions related to the year 2000 and beyond, such as
scheduling, dispatch, sales, purchasing, planning and financial systems may be
materially adversely affected unless these systems are or become year 2000
ready.

     During the past three years, the Company has been replacing or upgrading
its computer systems to improve operating efficiencies. Through some of these
efforts, year 2000 ready applications or systems have been installed. The
Company is preparing both its information technology ("IT") systems and its
non-IT, technology enabled systems for the year 2000 by implementing the year
2000 Readiness Process, comprised of five phases: Assessment, Planning,
Implementation, Testing and Clean Management.

     The first phase is an assessment of the Company's systems with respect to
year 2000 readiness. During the Assessment phase, the Company, with the
assistance of consultants, reviews individual applications and the hardware and
network infrastructure supporting those applications. The assessment also
includes non-"information technology" (non-IT) systems, such as fax machines,
time clocks and bus maintenance test equipment. A comprehensive review and
inventory of non-IT technology enabled equipment and functions will be completed
in this phase. The assessment of all of the Company's IT systems was completed
during the third quarter of 1998. The assessment of the Company's non-IT systems
will be completed early in the second quarter of 1999. The Assessment phase also
involves an assessment of the readiness of third party vendors and suppliers.
The Company has already issued year 2000 readiness questionnaires to some
vendors and will continue this effort. However, responses to these inquiries
have been limited. Nevertheless, as a normal course of business, the Company has
contingency plans in place to deal with failures of most of the critical
third-party systems. Where such contingency plans are not in place, the Company
is in the process of developing those plans.

     The purpose of the Planning phase is to develop a detailed set of plans for
bringing the Company's systems to year 2000 readiness. The Company first
developed plans to prepare individual applications and platforms for year 




                                       23
<PAGE>   24
2000 readiness. These individual plans were then consolidated into an overall
plan for remediation of the IT systems. Priority has been given to the mission
critical functions. For those non-mission critical systems that might not be
ready for the year 2000, the overall plan calls for the development of
contingency plans to minimize disruption to the business. The overall plan for
IT systems was completed during the fourth quarter of 1998. The planning phase
for non-IT systems is targeted for completion early in the second quarter of
1999, following the completion of the Company's non-IT systems Assessment Phase.

     In the Implementation phase, the Company will bring the IT systems to a
state of readiness as stand-alone units. Each application and its supporting
infrastructure components will be remediated, replaced or upgraded, as
appropriate. Each application will be tested to ensure the accuracy of current
functionality and to ensure the continuance of the functionality into the year
2000 and beyond. To date, the majority of infrastructure components and several
applications have been remediated. The Company expects to complete the
Implementation phase for mission critical IT systems in the second quarter of
1999. Non-mission critical IT systems and non-IT systems are expected to be made
year 2000 ready by the end of third quarter of 1999.

     The Testing phase is the most complicated phase of the year 2000 Readiness
Process. In this phase, IT systems are tested for year 2000 readiness, meaning
that a series of tests using the same data but different dates is performed to
ensure readiness of the IT systems both prior to and after the year 2000.
Testing of individual infrastructure components and applications will continue
with the majority of testing completed by the third quarter of 1999.

     Clean Management is confirming that any newly acquired components or
applications are deemed year 2000 ready before their introduction into the
Company. The Clean Management phase of the year 2000 Readiness Process is
conducted at the same time as all other phases.

     The Company currently has a disaster recovery plan that has put contingency
planning in place to address problems that might occur in the ordinary course of
business. However, the Company is starting to re-evaluate its contingency
planning for critical operational areas that might be specifically affected by
the year 2000 problem if the Company or suppliers are not ready. Throughout
1999, the Company will review the extent to which contingency plans may be
required for any third parties that do not achieve year 2000 readiness, and the
Company expects to complete those necessary contingency plans by the third
quarter of 1999.

     The Company's total costs related to year 2000 assessment and remediation
are based on presently available information. The total remaining costs related
to the year 2000 assessment and remediation efforts are estimated to be between
$12.5 million and $17.5 million, including internal salaries that would be
incurred without remediation efforts. The Company estimates that approximately
half of this amount will be capitalized, with the remainder being expensed as
incurred. The costs which include expenditures in 1999 and 2000 exceed the
previous rate of IT related expenditures, including capitalized expenditures, by
approximately $5.0 million to $10.0 million. These costs will be funded through
operating cash flows or from funds provided by Laidlaw. Since the Company has
been replacing and upgrading its computer systems in the ordinary course of
business, the Company cannot estimate the costs incurred to date related
specifically to remediating year 2000 issues.

     The costs of the Company's year 2000 readiness project and the date on
which the Company plans to complete the year 2000 modifications are based on
management's estimates, which were derived utilizing numerous assumptions of
future events including the continued availability of certain resources,
third-party modification plans and other factors. The year 2000 issues present a
number of risks that are beyond the Company's reasonable control, such as the
failure of utility companies to deliver electricity, the failure of
telecommunications companies to provide voice and data services, the failure of
financial institutions to process transactions and transfer funds, and the
impact on the Company of the effects of year 2000 issues on the economy in
general or on the Company's business partners and customers. Although the
Company believes that its year 2000 readiness program is designed appropriately
to identify and address those year 2000 issues that are subject to the Company's
reasonable control, the Company can make no assurance that its efforts will be
fully effective or that the year 2000 issues will not have a material adverse
effect on the Company's business, financial condition or results of operations.



                                       24
<PAGE>   25

INCOME TAXES

     During 1998 the Company recognized deferred tax assets primarily related to
net operating losses from prior years expected to be realized in the current or
future years. These tax assets had been previously reserved; however, the
Company recognized these tax assets due to a continued trend of earnings
improvement and current and future expected positive earnings, as well as the
successful negotiation of the new union agreement.

SEASONALITY

     The Company's business is seasonal in nature and generally follows the
pattern of the travel industry as a whole, with peaks during the summer months
and the Thanksgiving and Christmas holiday periods. As a result, the Company's
cash flows are also seasonal with a disproportionate amount of the Company's
annual cash flows being generated during the peak travel periods. Therefore, an
event that adversely affects ridership during any of these peak periods could
have a material adverse effect on the Company's financial condition and results
of operations for that year. The day of the week on which certain holidays
occur, the length of certain holiday periods, and the date on which certain
holidays occur within a fiscal quarter, may also affect the Company's quarterly
results of operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The following discussion about the Company's market risk includes
"forward-looking statements" that involve risk and uncertainties. Actual results
could differ materially from these projections. The Company is currently exposed
to market risk from changes in commodity prices for fuel, interest rates and
investment prices. In addition, the Company has market risk related to its
put/call agreement for certain buses owned by the Company. The Company does not
use derivative instruments to mitigate market risk, nor does the Company use
market risk sensitive instruments for speculative or trading purposes.

COMMODITY PRICES. The Company currently has exposure to commodity risk from its
advance purchase commitments for fuel and fuel inventory.

     As discussed above in Item 7, the Company has entered into two advance
purchase commitments for fuel. Under these agreements the Company agrees to take
delivery of fuel at a specific location at a fixed price at a specific date in
the future. The agreements have been entered into, with two suppliers, for
approximately 23% of projected fuel needs through October 1999, at an average
price per gallon of $0.51. A 10% increase in the cost of fuel would not have a
material effect on these commitments, nor on the Company's financial position,
annual results of operations or cash flows.

     Additionally, the Company has fuel inventory at December 31, 1998, at a
carrying value of $0.3 million. As disclosed in Note 2 to the Consolidated
Financial Statements, the Company utilizes the first-in, first-out method for
accounting purposes. Consequently, the Company's fuel inventory is used in
operations before a change in the market price of fuel could have a material
effect on the Company's financial position.

INTEREST RATES. The Company currently has exposure to interest rates from its
long-term debt only as it related to the Company's Revolving Credit Facility, as
all other debt instruments utilize fixed rates. The Revolving Credit Facility
utilized a variable rate based on prime and LIBOR. As of December 31, 1998, the
Revolving Credit Facility utilized prime plus 0.25% and LIBOR plus 1.75%
(weighted average 7.7%) with an outstanding balance of $37.8 million. Based on
this, a 10% increase in interest rates would not materially affect the Company's
financial position, annual results of operations, nor its cash flow. Following
the Merger, on March 17, 1999, all amounts outstanding under the Revolving
Credit Facility were paid and the Revolving Credit Facility was terminated.

INVESTMENT PRICES. The Company currently has exposure in the stock price of
investments in its available for sale security. The Company currently has only
one investment classified as available for sale and a 10% decrease in the market
price of this stock would not have a material effect on the Company's financial
position.



                                       25
<PAGE>   26
MARKET RISK. The Company negotiated a put/call agreement whereby the Company
prearranged the sale of certain buses. This agreement allows the Company to put
these buses to the contracting party for a certain price at a certain point in
time, or allows the contracting party to call these buses for a certain price at
a certain point in time. A 10% decrease in the market value of these buses would
result in a market value that is lower than the call price and thus result in
the Company putting these buses to the contracting party at a gain to the
Company.




                                       26
<PAGE>   27
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                      PAGE NO.
                                                                                                      --------
<S>                                                                                                   <C>
Management Report on Responsibility for Financial Reporting .......................................      28

Report of Independent Public Accountants...........................................................      29

Consolidated Statements of Financial Position as of December 31, 1998 and 1997.....................      30

Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997, and 1996........      31

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997,
     and 1996......................................................................................      32

Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996........      33

Notes to Consolidated Financial Statements.........................................................      34

Schedule II - Valuation and Qualifying Accounts - For the Years Ended December 31, 1996, 1997,
     and 1998......................................................................................      58
</TABLE>





                                       27
<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 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.




                                                    T. Scott Kirksey
                                                Vice President Financial
                                                 Planning and Reporting
                                                (Principal Financial and
                                                  Accounting Officer)

Dallas, Texas
March 31, 1999



                                       28
<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, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

     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 is 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 states 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 15, 1999 (except with respect to the 
  matter discussed in Note 20, as to which the 
  date is March 16, 1999)


                                       29
<PAGE>   30

                     GREYHOUND LINES, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,  
                                                                                        ----------------------
                                                                                           1998         1997 
                                                                                        ---------    ---------
<S>                                                                                     <C>          <C>      
Current Assets
   Cash and cash equivalents ........................................................   $   4,736    $   2,052
   Accounts receivable, less allowance for doubtful accounts of $198 and $268 .......      40,774       35,364
   Inventories, less allowance for shrinkage of $205 and $175 .......................       5,705        4,658
   Prepaid expenses .................................................................       5,170        4,949
   Assets held for sale .............................................................       3,029        3,889
   Current portion of deferred tax assets ...........................................      24,053         --
   Other current assets .............................................................       9,907        9,694
                                                                                        ---------    ---------
         Total Current Assets .......................................................      93,374       60,606
Prepaid Pension Plans ...............................................................      27,917       25,378
Property, Plant and Equipment, net of accumulated depreciation of $ 151,468
    and $124,374 ....................................................................     362,417      341,292
Investments in Unconsolidated Affiliates ............................................      13,560        6,076
Deferred income taxes ...............................................................       8,988         --
Insurance and Security Deposits .....................................................      67,908       72,693
Goodwill, net of accumulated amortization of $1,755 and $499 ........................      39,510       30,215
Intangible Assets, net of accumulated amortization of $28,503 and $22,188 ...........      29,704       30,333
                                                                                        ---------    ---------
         Total Assets ...............................................................   $ 643,378    $ 566,593
                                                                                        =========    =========

Current Liabilities
   Accounts payable .................................................................   $  27,724    $  32,731
   Accrued liabilities ..............................................................      64,819       62,237
   Unredeemed tickets ...............................................................      12,143       10,325
   Current portion of reserve for injuries and damages ..............................      22,967       21,374
   Current maturities of long-term debt .............................................       7,970        4,469
                                                                                        ---------    ---------
         Total Current Liabilities ..................................................     135,623      131,136
Reserve for Injuries and Damages ....................................................      37,392       36,591
Long-Term Debt, net .................................................................     225,688      207,953
Minority Interests ..................................................................       3,058         --
Other Liabilities ...................................................................      23,604       11,314
                                                                                        ---------    ---------
         Total Liabilities ..........................................................     425,365      386,994
Commitments and Contingencies (Notes 15 and 18)
Stockholders' Equity
   Preferred Stock (10,000,000 shares authorized; par value $.01) 
       8 1/2% Convertible Exchangeable Preferred Stock (2,760,000 shares
          authorized and 2,400,000 shares issued as of December 31, 1998
          and 1997, respectively; aggregate liquidation preference $60,000) .........      60,000       60,000
       Series A Junior Preferred Stock (1,500,000 shares authorized as of
          December 31, 1998 and 1997, respectively; par value $.01; none issued) ....        --           --
   Common Stock (100,000,000 shares authorized; 60,255,117 and 59,437,514
       shares issued as of December 31, 1998 and 1997, respectively; par
       value $.01) ..................................................................         603          594
Less: Treasury Stock, at cost (109,192 shares) ......................................      (1,038)      (1,038)
Capital in Excess of Par Value ......................................................     237,441      229,365
Accumulated Other Comprehensive Income, net of tax benefit of $3,181 ................      (7,232)      (7,513)
Retained Deficit ....................................................................     (71,761)    (101,809)
                                                                                        ---------    ---------
         Total Stockholders' Equity .................................................     218,013      179,599
                                                                                        ---------    ---------
         Total Liabilities and Stockholders' Equity .................................   $ 643,378    $ 566,593
                                                                                        =========    =========
</TABLE>

        The accompanying notes are an integral part of these statements.



                                       30
<PAGE>   31
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                               -----------------------------------
                                                                 1998         1997         1996 
                                                               ---------    ---------    ---------
<S>                                                            <C>          <C>          <C>      
Operating Revenues
   Transportation services
     Passenger Services ....................................   $ 727,786    $ 658,396    $ 597,779
     Package express .......................................      33,790       35,676       33,527
   Food services ...........................................      31,127       29,611       27,487
   Other operating revenues ................................      53,293       47,439       42,065
                                                               ---------    ---------    ---------
         Total Operating Revenues ..........................     845,996      771,122      700,858
                                                               ---------    ---------    ---------
Operating Expenses
   Maintenance .............................................      83,444       77,022       73,441
   Transportation ..........................................     201,190      187,311      170,979
   Agents' commissions and station costs ...................     155,799      141,100      131,715
   Marketing, advertising and traffic ......................      27,349       26,860       25,811
   Insurance and safety ....................................      49,748       45,860       41,088
   General and administrative ..............................      99,836       91,307       81,012
   Depreciation and amortization ...........................      36,332       31,259       30,682
   Operating taxes and licenses ............................      56,703       51,511       49,831
   Operating rents .........................................      65,756       59,105       53,993
   Cost of goods sold - Food services ......................      20,656       19,631       18,750
   Other operating expenses ................................       2,352        3,050        2,752
                                                               ---------    ---------    ---------
         Total Operating Expenses ..........................     799,165      734,016      680,054
                                                               ---------    ---------    ---------
Operating Income ...........................................      46,831       37,106       20,804
Interest Expense ...........................................      27,899       27,657       27,346
                                                               ---------    ---------    ---------
Net Income (Loss) Before Income Taxes ......................      18,932        9,449       (6,542)
Income Tax Provision (Benefit) .............................     (16,856)       1,051           62
Minority Interest ..........................................         556         --           --
                                                               ---------    ---------    ---------
Net Income (Loss) Before Extraordinary Item ................      35,232        8,398       (6,604)
Extraordinary Item .........................................        --         25,323         --
                                                               ---------    ---------    ---------
Net Income (Loss) ..........................................      35,232      (16,925)      (6,604)
Preferred Dividends ........................................       5,184        3,648         --
                                                               ---------    ---------    ---------
Net Income (Loss) Attributable to Common Stockholders ......   $  30,048    $ (20,573)   $  (6,604)
                                                               =========    =========    =========
Net Income (Loss) Attributable to Common Stockholders
     Before Extraordinary Item .............................   $  30,048    $   4,750    $  (6,604)
                                                               =========    =========    =========

Net Income (Loss) Per Share of Common Stock:
   Basic
     Net Income (Loss) Attributable to Common Stockholders
          Before Extraordinary Item ........................   $    0.50    $    0.08    $   (0.11)
     Extraordinary Item ....................................        --          (0.43)        --
                                                               ---------    ---------    ---------
     Net Income (Loss) Attributable to Common Stockholders .   $    0.50    $   (0.35)   $   (0.11)
                                                               =========    =========    =========
   Diluted
     Net Income (Loss) Attributable to Common Stockholders
          Before Extraordinary Item ........................   $    0.47    $    0.08    $   (0.11)
     Extraordinary Item ....................................        --          (0.42)        --
                                                               ---------    ---------    ---------
     Net Income (Loss) Attributable to Common Stockholders .   $    0.47    $   (0.34)   $   (0.11)
                                                               =========    =========    =========
</TABLE>


        The accompanying notes are an integral part of these statements.



                                       31
<PAGE>   32


                     GREYHOUND LINES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                                   
                                                                                                                   
                                                             PREFERRED STOCK                  COMMON STOCK         
                                                        SHARES           AMOUNT         SHARES          AMOUNT     
                                                     -------------   -------------   -------------   ------------- 
<S>                                                  <C>             <C>             <C>             <C>           
BALANCE, DECEMBER 31, 1995 .......................            --     $        --            58,277   $         583 
Issuance of stock in connection with                                                                               
   employee option and 401 (k) programs ..........            --              --               192               2 
Comprehensive Income:                                                                                              
     Adjustment for unfunded                                                                                       
          accumulated pension obligation .........            --              --              --              --   
     Net Loss ....................................            --              --              --              --   
                                                                                                                   
         Total Comprehensive Income (Loss) .......
                                                     -------------   -------------   -------------   ------------- 
BALANCE, DECEMBER 31, 1996 .......................            --              --            58,469             585 
                                                                                                                   
Issuance of stock in connection with                                                                               
   employee option and 401 (k) programs ..........            --              --               801               7 
Issuance of preferred stock ......................           2,400          60,000            --              --   
Dividends on preferred stock .....................            --              --              --              --   
Acquisition of Carolina ..........................            --              --               168               2 
Benefit of pre-bankruptcy deferred tax assets ....            --              --              --              --   
Comprehensive Income:                                                                                              
     Adjustment for unfunded                                                                                       
         accumulated pension obligation ..........            --              --              --              --   
     Net Loss ....................................            --              --              --              --   
                                                                                                                   
              Total Comprehensive Income (Loss) ..
                                                     -------------   -------------   -------------   ------------- 
BALANCE, DECEMBER 31, 1997 .......................           2,400          60,000          59,438             594 
                                                                                                                   
Issuance of stock in connection with                                                                               
   employee option and 401 (k) programs,                                                                           
   including tax benefit of $844 .................            --              --               817               9 
Dividends on preferred stock .....................            --              --              --              --   
Benefit of pre-bankruptcy deferred tax assets ....            --              --              --              --   
Comprehensive Income:                                                                                              
   Market value adjustment for securities held ...            --              --              --              --   
   Adjustment for unfunded accumulated                                                                             
       pension obligation, net of tax of $857 ....            --              --              --              --   
   Deferred tax benefit on  prior years                                                                            
       unfunded accumulated pension obligation ...            --              --              --              --   
   Net Income ....................................            --              --              --              --   
       Total Comprehensive Income ................
                                                     -------------   -------------   -------------   ------------- 
BALANCE, DECEMBER 31, 1998 .......................           2,400   $      60,000          60,255   $         603 
                                                     =============   =============   =============   ============= 

<CAPTION>
                                                                                                                     
                                                                                       CAPITAL IN                    
                                                              TREASURY STOCK            EXCESS OF         RETAINED   
                                                         SHARES          AMOUNT         PAR VALUE         DEFICIT    
                                                     -------------   -------------    -------------    ------------- 
<S>                                                            <C>   <C>              <C>              <C>           
BALANCE, DECEMBER 31, 1995 .......................             109   $      (1,038)   $     228,421    $     (74,632)
Issuance of stock in connection with                                                                                 
   employee option and 401 (k) programs ..........            --              --                682             --   
Comprehensive Income:                                                                                                
     Adjustment for unfunded                                                                                         
          accumulated pension obligation .........            --              --               --               --   
     Net Loss ....................................            --              --               --             (6,604)
                                                                                                                     
         Total Comprehensive Income (Loss) .......
                                                     -------------   -------------    -------------    ------------- 
BALANCE, DECEMBER 31, 1996 .......................             109          (1,038)         229,103          (81,236)
                                                                                                                     
Issuance of stock in connection with                                                                                 
   employee option and 401 (k) programs ..........            --              --              1,385             --   
Issuance of preferred stock ......................            --              --             (2,440)            --   
Dividends on preferred stock .....................            --              --               --             (3,648)
Acquisition of Carolina ..........................            --              --                748             --   
Benefit of pre-bankruptcy deferred tax assets ....            --              --                569             --   
Comprehensive Income:                                                                                                
     Adjustment for unfunded                                                                                         
         accumulated pension obligation ..........            --              --               --               --   
     Net Loss ....................................            --              --               --            (16,925)
                                                                                                                     
              Total Comprehensive Income (Loss) ..
                                                     -------------   -------------    -------------    ------------- 
BALANCE, DECEMBER 31, 1997 .......................             109          (1,038)         229,365         (101,809)
                                                                                                                     
Issuance of stock in connection with                                                                                 
   employee option and 401 (k) programs,                                                                             
   including tax benefit of $844 .................            --              --              3,785             --   
Dividends on preferred stock .....................            --              --               --             (5,184)
Benefit of pre-bankruptcy deferred tax assets ....            --              --              4,291             --   
Comprehensive Income:                                                                                                
   Market value adjustment for securities held ...            --              --               --               --   
   Adjustment for unfunded accumulated                                                                               
       pension obligation, net of tax of $857 ....            --              --               --               --   
   Deferred tax benefit on  prior years                                                                              
       unfunded accumulated pension obligation ...            --              --               --               --   
   Net Income ....................................            --              --               --             35,232 
       Total Comprehensive Income ................
                                                     -------------   -------------    -------------    ------------- 
BALANCE, DECEMBER 31, 1998 .......................             109   $      (1,038)   $     237,441    $     (71,761)
                                                     =============   =============    =============    ============= 
















<CAPTION>
                                                     ACCUMULATED
                                                         OTHER            TOTAL
                                                     COMPREHENSIVE    COMPREHENSIVE
                                                        INCOME           INCOME
                                                     -------------    -------------
<S>                                                  <C>              <C>        
BALANCE, DECEMBER 31, 1995 .......................   $      (3,572)   $        --
Issuance of stock in connection with                 
   employee option and 401 (k) programs ..........            --               --
Comprehensive Income:                                
     Adjustment for unfunded                         
          accumulated pension obligation .........          (2,961)          (2,961)
     Net Loss ....................................            --             (6,604)
                                                                      -------------
         Total Comprehensive Income (Loss) .......                    $      (9,565)
                                                     -------------    =============
BALANCE, DECEMBER 31, 1996 .......................          (6,533)
                                                     
Issuance of stock in connection with                 
   employee option and 401 (k) programs ..........            --      $        --
Issuance of preferred stock ......................            --               --
Dividends on preferred stock .....................            --               --
Acquisition of Carolina ..........................            --               --
Benefit of pre-bankruptcy deferred tax assets ....            --               --
Comprehensive Income:                                
     Adjustment for unfunded                         
         accumulated pension obligation ..........            (980)            (980)
     Net Loss ....................................            --            (16,925)
                                                                      -------------
              Total Comprehensive Income (Loss) ..                    $     (17,905)
                                                     -------------    =============
BALANCE, DECEMBER 31, 1997 .......................          (7,513)   
                                                     
Issuance of stock in connection with                 
   employee option and 401 (k) programs,             
   including tax benefit of $844 .................            --      $        --
Dividends on preferred stock .....................            --               --
Benefit of pre-bankruptcy deferred tax assets ....            --               --
Comprehensive Income:                                
   Market value adjustment for securities held ...            (682)            (682)
   Adjustment for unfunded accumulated               
       pension obligation, net of tax of $857 ....          (1,361)          (1,361)
   Deferred tax benefit on  prior years              
       unfunded accumulated pension obligation ...           2,324            2,324
   Net Income ....................................            --             35,232
                                                                      -------------
       Total Comprehensive Income ................                    $      35,513
                                                     -------------    =============
BALANCE, DECEMBER 31, 1998 .......................   $      (7,232)
                                                     =============
</TABLE>



        The accompanying notes are an integral part of these statements.



                                       32
<PAGE>   33

                     GREYHOUND LINES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                      YEARS ENDED DECEMBER 31,      
                                                                                -----------------------------------
                                                                                   1998         1997         1996 
                                                                                ---------    ---------    ---------
<S>                                                                             <C>          <C>          <C>       
Cash Flows From Operating Activities
   Net Income (Loss) ........................................................   $  35,232    $ (16,925)   $  (6,604)
   Extraordinary item .......................................................        --         25,323         --
   Non-cash expenses and gains included in net income (loss)
     Depreciation and amortization ..........................................      36,332       31,259       30,683
     Other non-cash expenses and gains, net .................................     (19,134)       1,618        1,962
Net Change in Certain Operating Assets and Liabilities
     Accounts receivable ....................................................      (4,121)      (1,099)      (2,932)
     Inventories ............................................................      (1,032)        (278)        (225)
     Prepaid expenses .......................................................         273        5,359         (826)
     Other current assets ...................................................       1,608         (261)      (1,791)
     Insurance and security deposits ........................................       3,042        3,838         (247)
     Intangible assets ......................................................      (5,911)     (11,610)      (6,038)
     Accounts payable .......................................................      (5,469)       6,798        5,875
     Accrued liabilities ....................................................        (545)       7,335          237
     Reserve for injuries and damages .......................................       1,985       (1,999)      (5,698)
     Unredeemed tickets .....................................................       1,817          501          383
     Other liabilities ......................................................       2,012          (16)       1,251
                                                                                ---------    ---------    ---------
        Net Cash Provided by Operating Activities ...........................      46,089       49,843       16,030
                                                                                ---------    ---------    ---------
Cash Flows From Investing Activities
     Capital expenditures  (see Note 3) .....................................     (33,706)     (45,114)     (38,402)
     Proceeds from assets sold ..............................................       3,935        6,547       16,680
     Payments for business acquisitions, net of cash acquired  (see Note 3) .     (10,924)     (40,104)        --
     Buyout of MDFC lease ...................................................        --           --         (1,624)
     Other investing activities .............................................      (6,753)      (2,146)        (758)
                                                                                ---------    ---------    ---------
        Net Cash Used for Investing Activities ..............................     (47,448)     (80,817)     (24,104)
                                                                                ---------    ---------    ---------
Cash Flows From Financing Activities
     Payments on debt and capital lease obligations .........................      (5,730)     (20,297)      (9,551)
     Proceeds from long-term borrowings .....................................        --           --          4,106
     Proceeds from 11 1/2%  Senior Notes and 8 1/2% Convertible
          Exchangeable Preferred Stock Issuance .............................        --        203,031         --
     Redemption of 10% Senior Notes .........................................        --       (161,022)        --
     Payment of 8 1/2% Convertible Exchangeable Preferred Stock dividends ...      (5,184)      (2,784)        --
     Retirement of interest swap ............................................        --         (3,010)        --
     Proceeds from issuance of Common Stock .................................       2,950        1,097          258
     Net change in revolving credit facility ................................      12,007       15,113       10,665
                                                                                ---------    ---------    ---------
        Net Cash Provided by Financing Activities ...........................       4,043       32,128        5,478
                                                                                ---------    ---------    ---------
Net Increase (Decrease) in Cash and Cash Equivalents ........................       2,684        1,154       (2,596)
Cash and Cash Equivalents, Beginning of Period ..............................       2,052          898        3,494
                                                                                ---------    ---------    ---------
Cash and Cash Equivalents, End of Period ....................................   $   4,736    $   2,052    $     898
                                                                                =========    =========    =========
</TABLE>



        The accompanying notes are an integral part of these statements.



                                       33
<PAGE>   34

                     GREYHOUND LINES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

1.  BACKGROUND AND OPERATING ENVIRONMENT

     Greyhound Lines, Inc. and subsidiaries (the "Company") is the only
nationwide provider of scheduled intercity bus service in the United States. The
Company provides various services including scheduled passenger service, package
express service and food services at certain terminals. The Company's operations
include a nationwide network of terminal and maintenance facilities, a fleet of
2,677 buses and approximately 1,800 sales outlets. The Company's operating
subsidiaries include Texas, New Mexico & Oklahoma Coaches, Inc. ("TNM&O"),
Vermont Transit Co., Inc. ("Vermont Transit"), Carolina Coach Company
("Carolina"), Valley Transit Co., Inc. ("Valley"), Sistema Internacional de
Transporte de Autobuses, Inc. ("SITA") and PRB Acquisition, LLC
("Peoria-Rockford"). The Company is subject to regulation by the Department of
Transportation (the "DOT") and certain states.

     On March 16, 1999, the Company's shareholders approved the Agreement and
Plan of Merger with Laidlaw Inc. ("Laidlaw") and Laidlaw Transit Acquisition
Corp., a wholly owned subsidiary of Laidlaw ("Laidlaw Transit"), pursuant to
which Laidlaw Transit was merged with and into the Company (the "Merger"), with
the Company, as the surviving corporation, becoming a subsidiary of Laidlaw.
(see Note 20)

2.  SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of
the Company. Investments in companies that are 20% 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, 1998, 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, with costs
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
recorded over the estimated useful lives or lease terms, net of assumed residual
values, ranging from three to twenty years for structures and improvements, four
to twelve years for revenue equipment, and five to ten years for all other
items. The Company principally uses 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.



                                       34
<PAGE>   35
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Investments and Security Deposits

     Equity securities held by the Company are classified as
"available-for-sale" securities and reported at fair value. Any unrealized
holding gains or losses, net of taxes, are excluded from operating results and
are recognized as a separate component of stockholders' equity until realized.
Fair value of the securities is determined based on market prices and gains and
losses are determined using the securities' cost. As of December 31, 1998, the
Company has only one investment classified as an "available-for-sale" security.
This security has an unrealized loss of $0.7 million, for which no tax benefit
is recognized as it is more likely than not that the Company will not have an
offsetting capital gain within five years, as is required under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Debt
securities included in security deposits are recorded at cost plus earned
interest as it is the intent of the Company to hold these securities until
maturity. As a result, the temporary gains and losses associated with the market
value of these securities are excluded from operating results, stockholders'
equity and comprehensive income.

Goodwill

     Goodwill represents the excess of cost over fair value of assets acquired
related to the acquisition of regional bus carriers as prescribed by the
purchase method of accounting. The Company is amortizing goodwill on a
straight-line basis over a 20 to 30 year period.

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.

Income Taxes

     Deferred tax assets and liabilities are based upon the estimated future tax
effects of the differences in the tax bases of existing assets and liabilities
and the related financial statement carrying amounts, using currently enacted
tax laws and rates.

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 or deductible 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 claim payments. The reserve
is based on an assessment of actual claims and claims incurred but not reported,
based upon historical experience. This reserve also includes an estimate of
environmental liabilities.



                                       35
<PAGE>   36
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Revenue Recognition

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

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 these
estimates.

Long-Lived Assets

     The Company periodically evaluates whether the remaining useful life of
long-lived assets may require revision or whether the remaining unamortized
balance is recoverable. When factors indicate that an asset should be evaluated
for possible impairment, the Company uses an estimate of the asset's cash flow
in evaluating its fair value.

Earnings Per Share

     Basic earnings (loss) per common share is calculated by dividing net income
(loss) attributable to common stockholders by the weighted average shares of
common stock of the Company ("Common Stock"). The calculation of diluted
earnings (loss) per share of Common Stock considers the effect of Common Stock
equivalents outstanding during the period, the conversion of the Company's 
8 1/2% Convertible Subordinated Debentures due 2007 (the "Convertible 
Debentures") and 8 1/2% Convertible Exchangeable Preferred Stock (the "Preferred
Stock"). Common Stock equivalents represent the dilutive effect of the assumed
exercise of certain outstanding stock options. For the year ended December 31,
1998, the assumed conversion of the Convertible Debentures has an anti-dilutive
effect. For the year ended December 31, 1997, the assumed conversion of the
Preferred Stock and Convertible Debentures has an anti-dilutive effect.
Additionally, for the year ended December 31, 1996, the assumed exercise of
outstanding in-the-money stock options and conversion of Convertible Debentures
has an anti-dilutive effect. As a result, these shares as detailed above by
year, are excluded from the final determination of the weighted average shares
outstanding at the respective dates.




                                       36
<PAGE>   37
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     The following tables detail the components utilized to calculate earnings
per share for 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED DECEMBER 31, 1998
                                                             ---------------------------------------
                                                                            WEIGHTED
                                                                             AVERAGE     PER-SHARE
                                                               INCOME        SHARES        AMOUNT   
                                                             -----------   -----------    -----------
<S>                                                          <C>            <C>          <C>        
     BASIC EARNINGS PER SHARE
         Net Income attributable to common shareholders ..   $30,048,000    59,899,742   $      0.50
                                                             ===========   ===========   ===========

         Effect of Dilutive Securities :
           Assumed Preferred Stock Conversion ............     5,184,000    12,307,692
           Options issued to Company employees
                 and Members of the Board of Directors ...          --       2,679,881
                                                             -----------   -----------

     DILUTED EARNINGS PER SHARE
         Net Income attributable to common
            shareholders plus assumed conversions ........   $35,232,000    74,887,315   $      0.47
                                                             ===========   ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED DECEMBER 31, 1997
                                                             ---------------------------------------
                                                                            WEIGHTED
                                                                             AVERAGE     PER-SHARE
                                                               INCOME        SHARES        AMOUNT   
                                                             -----------   -----------    -----------
<S>                                                          <C>            <C>          <C>        
     BASIC EARNINGS PER SHARE
         Net Income attributable to common
            shareholders before Extraordinary Item .......   $ 4,750,000     58,964,093   $      0.08
                                                             ===========    ===========   ===========

         Effect of Dilutive Securities :
           Options issued to Company employees
                 and Members of the Board of Directors ...          --        1,737,481
                                                             -----------   -----------

     DILUTED EARNINGS PER SHARE
         Net Income attributable to
            common shareholders plus assumed
            conversions before Extraordinary Item ........   $ 4,750,000     60,701,574   $      0.08
                                                             ===========    ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED DECEMBER 31, 1996
                                                             ---------------------------------------
                                                                            WEIGHTED
                                                                             AVERAGE     PER-SHARE
                                                               INCOME        SHARES        AMOUNT   
                                                             -----------   -----------    -----------
<S>                                                          <C>            <C>          <C>        
     BASIC AND DILUTED EARNINGS PER SHARE
         Net Loss attributable to common shareholders ....   $(6,604,000)    58,263,327   $     (0.11)
                                                             ===========    ===========   ===========
</TABLE>

Future Accounting Changes

     Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities," is effective for
the Company's fiscal year beginning January 1, 2000. SFAS No. 133 established
standards for the accounting and reporting of derivative instruments and hedging
activities. As of 




                                       37
<PAGE>   38
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


December 31, 1998, the Company has no derivative instruments or hedging
activities that apply to SFAS No. 133. The Company has entered into two advance
purchase commitments for fuel; however, as defined by SFAS No. 133, this is
specifically excluded as a derivative instrument.

3.  STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES

     Cash paid for interest was $26.3 million, $29.4 million and $24.5 million
for the years ended December 31, 1998, 1997 and 1996, respectively. There were
no cash payments for federal income taxes for the years ended December 31, 1998,
1997 and 1996, other than payments related to an Internal Revenue Service audit
of the Company's 1987 through 1989 tax returns which resulted in a $0.3 million
payment in 1996.

     Significant non-cash investing and financing activities during 1998
included a garage that was acquired under a capital lease for $1.0 million. In
1997, non-cash activity included $0.9 million primarily related to stock issued
in July 1997 for consideration in the purchase of Carolina. In 1996, non-cash
activity included 77 buses which were acquired under a capital lease for $17.9
million and computer equipment which was acquired under a capital lease for $2.1
million.

4.  INVENTORIES

     Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                     ----------------------
                                                                       1998         1997 
                                                                     ---------    ---------
<S>                                                                  <C>          <C>      
     Service parts ...............................................   $   3,811    $   3,055
     Fuel ........................................................         631          576
     Food service operations .....................................       1,468        1,202
                                                                     ---------    ---------
        Total Inventories ........................................       5,910        4,833
        Less:  Allowance for shrinkage ...........................        (205)        (175)
                                                                     ---------    ---------
           Inventories, net ......................................   $   5,705    $   4,658
                                                                     =========    =========
</TABLE>

5.  PREPAID EXPENSES

     Prepaid expenses consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                       1998         1997 
                                                                     ---------    ---------
<S>                                                                  <C>          <C>      
     Insurance ...................................................   $     813    $   1,520
     Taxes and licenses ..........................................       1,645        1,064
     Rents .......................................................       1,493        1,424
     Other .......................................................       1,219          941
                                                                     ---------    ---------
       Prepaid expenses ..........................................   $   5,170    $   4,949
                                                                     =========    =========
</TABLE>





                                       38
<PAGE>   39
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


6.  OTHER CURRENT ASSETS

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

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,       
                                                                                 ---------------------------
                                                                                   1998               1997  
                                                                                 -------            --------
<S>                                                                              <C>                <C>     
     Deposits on insurance...................................................    $ 8,658            $  6,838
     Other deposits..........................................................        465                 738
     Deferred acquisition costs..............................................          -               1,128
     Other...................................................................        784                 990
                                                                                 -------            --------
       Other current assets..................................................    $ 9,907            $  9,694
                                                                                 =======            ========
</TABLE>

     The deposits on insurance held as of December 31, 1998 and 1997, are the
current portion of self-insurance deposits required by the Company's primary
insurance carrier to cover interstate and certain intrastate claims for bodily
injury and property damage liability. Deferred acquisition costs for 1997
represent costs associated with acquisitions made by SITA in 1998. These
acquisition costs were considered as part of the total cost of the acquisitions
under purchase accounting.

7.  BENEFIT PLANS

Pension Plans

     The Company has ten 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 ATU 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 represented by the International Association of
Machinists and Aerospace Workers. The remaining seven plans are held by TNM&O,
Vermont Transit, Carolina and Peoria-Rockford and cover substantially all of
their salaried and hourly personnel. It is the Company's policy to fund the
minimum required contribution under existing laws.

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31, 
                                                                              -----------------------------
                                                                                   1998              1997  
                                                                              -----------       -----------
   CHANGE IN BENEFIT OBLIGATION:                                                     (IN THOUSANDS)
<S>                                                                           <C>               <C>        
   Benefit Obligation at Beginning of Year.................................   $   729,421       $   717,040
   Service Cost............................................................         4,614             4,589
   Interest Cost...........................................................        51,011            51,711
   Plan Participants' Contributions........................................           137                 -
   Plans Transferred from Acquisition......................................           922            22,406
   Actuarial Gain..........................................................        43,649            14,596
   Benefits Paid...........................................................       (80,382)          (80,921)
                                                                              -----------       -----------
   Benefit Obligation at End of Year.......................................   $   749,372       $   729,421
                                                                              -----------       -----------
</TABLE>




                                       39
<PAGE>   40
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31, 
                                                                              -----------------------------
                                                                                   1998              1997  
                                                                              -----------       -----------
   CHANGE IN PLAN ASSETS:                                                            (IN THOUSANDS)
<S>                                                                           <C>               <C>        
   Fair Value of Plan Assets at Beginning of Year..........................   $   820,168       $   758,481
   Actual Return on Plan Assets............................................        67,340           121,107
   Employer Contribution...................................................         2,219               625
   Plans Transferred from Acquisition......................................           612            20,810
   Plan Participants' Contributions........................................           203                66
   Benefits Paid...........................................................       (80,382)          (80,921)
                                                                              -----------       -----------
   Fair Value of Plan Assets at End of Year................................   $   810,160       $   820,168
                                                                              -----------       -----------

   Funded Status...........................................................   $    60,788       $    90,747
   Unrecognized Net Gain...................................................       (32,333)          (65,979)
                                                                              -----------       -----------
   Prepaid Benefit Cost (Net Amount Recognized)............................   $    28,455       $    24,768
                                                                              -----------       -----------
</TABLE>

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31, 
                                                                              -----------------------------
                                                                                   1998              1997  
                                                                              -----------       -----------
   AMOUNTS RECOGNIZED IN THE STATEMENTS OF FINANCIAL POSITION:                       (IN THOUSANDS)
<S>                                                                           <C>               <C>        
   Prepaid Benefit Cost....................................................   $    26,257       $    23,683
   Accrued Benefit Liability...............................................        (7,533)           (6,428)
   Accumulated Other Comprehensive Income..................................         9,731             7,513 
                                                                              -----------       ------------
   Prepaid Benefit Cost (Net Amount Recognized)............................   $    28,455       $    24,768
                                                                              -----------       -----------
</TABLE>

     Six of the Company's pension plans have accumulated benefit obligations in
excess of plan assets, for which the projected benefit obligations, accumulated
benefit obligations and fair value of plan assets are $66,710, $65,916 and
$56,699, respectively, as of December 31, 1998. Three of the Company's pension
plans have accumulated benefit obligations in excess of plan assets, for which
the projected benefit obligations, accumulated benefit obligations and fair
value of plan assets are $60,458, $59,529 and $52,296, respectively, as of
December 31, 1997. Seven of the Company's pension plans have projected benefit
obligations in excess of plan assets, for which the projected benefit
obligations, accumulated benefit obligations and fair value of plan assets are
$70,876, $68,842 and $60,595, respectively, as of December 31, 1998. Six of the
Company's pension plans have projected benefit obligations in excess of plan
assets, for which the projected benefit obligations, accumulated benefit
obligations and fair value of plan assets are $66,216, $64,021 and $57,761,
respectively, as of December 31, 1997.

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

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

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31, 
                                                                              -----------------------------
                                                                                   1998              1997  
                                                                              -----------       -----------
   WEIGHTED-AVERAGE ASSUMPTIONS FOR END OF YEAR DISCLOSURE:
<S>                                                                            <C>                <C>  
   Weighted average discount rate..........................................       6.75%              7.25%
   Rate of salary progression..............................................    0.00-6.00%         0.00-6.00%
   Expected long-term rate of return on plan Assets........................    7.25-9.00%         7.60-9.00%
</TABLE>



                                       40
<PAGE>   41
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31, 
                                                                              -----------------------------
                                                                                   1998              1997  
                                                                              -----------       -----------
   COMPONENTS OF NET PERIODIC PENSION COST:                                           (IN THOUSANDS)
<S>                                                                           <C>               <C>        
   Service Cost............................................................   $     4,614       $     4,589
   Interest Cost...........................................................        51,011            51,711
   Expected Return on Assets...............................................       (57,507)          (56,007)
   Amortization of Actuarial Loss                                                     303                 -
                                                                              -----------       -----------
   Net Periodic Pension (Income) Cost......................................   $    (1,579)      $       293
                                                                              -----------       -----------
</TABLE>

     Statement of Financial Accounting Standards No. 87, "Employers Accounting
for Pensions," required the Company to record an increase in the additional
minimum liability of $1.4 million, net of a $0.8 million tax benefit as of
December 31, 1998 and $1.0 million as of December 31, 1997. This provision is
reflected as a component of other comprehensive income. Included in the above is
a multi-employer pension plan, instituted in 1992, to cover certain union
mechanics, for which the Company made contributions of $0.5 million and $0.4
million for the years ended December 31, 1998 and 1997, respectively.

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 $1.9 million, $1.7 million, and
$2.1 million for the years ended December 31, 1998, 1997 and 1996, respectively.
On October 31, 1991, the Company contributed 500,000 shares of its Common Stock
to an employee stock ownership plan 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 was filed and received
in 1996.

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, 1998, 1997 and 1996, the
Company incurred costs of $18.1 million, $17.8 million, and $16.3 million,
respectively, related to these plans. No post-retirement health and welfare
plans exist.

     The Company also has a Supplemental Executive Retirement Plan (the "SERP"),
which covers only key executives of the Company. During 1995, the SERP was
converted from a defined benefit plan to a defined contribution plan. For the
years ended December 31, 1998, 1997 and 1996, the Company incurred costs of $0.6
million, $0.2 million and $0.4 million, respectively.




                                       41
<PAGE>   42
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 

8.  PROPERTY, PLANT AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,      
                                                          ------------------------
                                                             1998          1997 
                                                          ----------    ----------
<S>                                                       <C>           <C>       
   Land and improvements ..............................   $   90,258    $   85,809
   Structures and improvements
     Owned ............................................      111,445       101,854
     Capitalized leased assets ........................        1,626           650
     Lease interests ..................................        4,376         6,540
     Leasehold improvements ...........................       35,417        28,757
   Revenue equipment
     Owned ............................................      170,506       149,627
     Capitalized leased assets ........................       36,046        36,101
     Leasehold improvements ...........................        3,957         3,123
   Furniture and fixtures .............................       49,050        42,778
   Vehicles, machinery and equipment
     Owned ............................................       11,204        10,427
                                                          ----------    ----------
   Property, plant and equipment ......................      513,885       465,666
       Accumulated depreciation .......................     (151,468)     (124,374)
                                                          ----------    ----------
           Property, plant and equipment, net .........   $  362,417    $  341,292
                                                          ==========    ==========
</TABLE>

     During 1998, the Company took delivery of 293 buses, all but three of which
were manufactured by Motor Coach Industries, Inc. or its affiliate, Dina
Autobuses, S.A. de C.V. The Company purchased 23 of these buses and the
remaining were financed as long-term operating leases.

     The Company paid $10.3 million to Viad Corp. ("Viad") in the fourth quarter
of 1997 to acquire terminal facilities in San Jose, CA, Nashville, TN and Reno,
NV and Viad's joint venture interests in the terminals in Denver, CO, and
Albuquerque, NM.

     Accumulated depreciation of capitalized leased revenue equipment amounted
to $14.9 million and $12.1 million at December 31, 1998 and 1997, respectively.

9.  INSURANCE AND SECURITY DEPOSITS

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

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,      
                                                                             ---------------------------
                                                                               1998            1997   
                                                                             ---------         ---------
<S>                                                                          <C>               <C>      
   Insurance deposits......................................................  $  32,443         $  37,205
   Security deposits.......................................................     31,808            33,756
   Other...................................................................      3,657             1,732
                                                                             ---------         ---------
           Insurance and security deposits.................................  $  67,908         $  72,693
                                                                             =========         =========
</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. Security deposits include two separate
deposits pledged as collateral in connection with the sale and leaseback of 319
buses and the sale and leaseback of 125 buses.




                                       42
<PAGE>   43
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


10.  INTANGIBLE ASSETS

     Intangible assets consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,      
                                                                             ---------------------------
                                                                               1998              1997   
                                                                             ---------         ---------
<S>                                                                          <C>               <C>
   Trademarks..............................................................  $  10,198         $  10,198
   Software................................................................     34,398            30,561
   Debt issuance costs.....................................................     10,741            10,082
   Deferred lease costs....................................................      2,841             1,652
   Other...................................................................         29                28
                                                                             ---------         ---------
   Intangible assets.......................................................     58,207            52,521
     Accumulated amortization..............................................    (28,503)          (22,188)
                                                                             ---------         ---------
       Intangible assets, net..............................................  $  29,704         $  30,333
                                                                             =========         =========
</TABLE>

     Trademarks are amortized using the straight-line method over 15 years.

11.  ACCRUED LIABILITIES

     Accrued liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,      
                                                                             ---------------------------
                                                                               1998              1997   
                                                                             ---------         ---------
<S>                                                                          <C>               <C>      
   Compensation, benefits and payroll-related taxes........................  $  20,036         $  26,375
   Bus operating leases and rentals........................................      7,748             5,900
   Interest................................................................      4,288             4,145
   Operating, property and income taxes....................................      6,161             3,998
   Dividends payable.......................................................        864               864
   Other expenses..........................................................     25,722            20,955
                                                                             ---------         ---------
       Accrued liabilities.................................................  $  64,819         $  62,237
                                                                             =========         =========
</TABLE>




                                       43
<PAGE>   44
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


12.  LONG-TERM DEBT AND INTEREST EXPENSE

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

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,      
                                                                                 ----------------------
                                                                                   1998          1997 
                                                                                 ---------    ---------
<S>                                                                              <C>          <C>      
   Secured Indebtedness
     Revolving bank loans, prime plus 0.25% or LIBOR plus 1.75% 
         (weighted average 7.7%) as of December 31, 1998 and
       prime plus 0.75% or LIBOR plus 2.25% (weighted average
       8.6%) as of December 31, 1997, due 2002 ...............................   $  37,785    $  25,778
     Capital lease obligations (weighted average 10.8% at December 31, 1998
       and 10.4% at December 31, 1997) due through 2033 ......................      31,967       26,635
     Real estate mortgages (9.5% at December 31, 1998 and 11.2% at
        December 31, 1997) due through 2006 ..................................         623          205
   Unsecured Indebtedness
     11 1/2% Senior notes, due 2007 ..........................................     150,000      150,000
     8 1/2% Convertible debentures, due 2007 .................................       9,804        9,804
     Other long-term debt (weighted average 5.6% at December 31, 1998)
       due through 2008 ......................................................       3,479         --
                                                                                 ---------    ---------
   Long-term debt ............................................................     233,658      212,422
     Less current maturities .................................................      (7,970)      (4,469)
                                                                                 ---------    ---------
         Long-term debt, net .................................................   $ 225,688    $ 207,953
                                                                                 =========    =========
</TABLE>

Revolving Credit Facility

     The Company was a party to a Revolving Credit Facility which was amended on
April 20, 1998. The amended facility increased the borrowing availability from
$125.0 million to $150.0 million. The Revolving Credit Facility consisted of (i)
a revolving facility providing for advances of up to $117.5 million based on the
liquidation value of certain bus collateral, (ii) a revolving facility providing
for advances of up to $2.5 million based on a formula of eligible accounts
receivable and (iii) a real estate facility providing for borrowings of up to
$35.0 million based on fair market value of certain core real property
collateral with a maximum combined borrowing base of $150.0 million. As of
December 31, 1998, the Company had total availability of $93.1 million under the
Revolving Credit Facility. The Revolving Credit Facility was secured by liens on
substantially all of the assets of the Company. The Revolving Credit Facility
was subject to certain operating and financial covenants, including maintenance
of a minimum consolidated net worth, ratio of total indebtedness to cash flow
and ratio of cash flow to interest expense. In addition, non-bus capital
expenditures were limited to $30.0 million annually with no spending limitations
on bus purchases. As of December 31, 1998, the Company was in compliance with
all such covenants. Following the Merger, all amounts outstanding under the
Revolving Credit Facility were paid and the Revolving Credit Facility was
terminated (see Note 20).

11 1/2% Senior Notes

     The Company's 11 1/2% Senior Notes due 2007 (the "11 1/2% Senior Notes")
bear interest at the rate of 11 1/2% per annum, payable each April 15 and
October 15. The 11 1/2% Senior Notes are redeemable at the option of the Company
in whole or in part, at any time on or after April 15, 2002, at redemption
prices of 105.750% in 2002, 103.834% in 2003, 101.917% in 2004 and 100% in 2005
and thereafter plus any accrued but unpaid interest. The 11 1/2% Senior Note
indenture contains certain covenants that, among other things, limit the ability
of the Company to incur additional indebtedness, pay dividends or make other
distributions, repurchase equity interests or subordinated indebtedness, create
certain liens, sell assets or enter into certain mergers or consolidations. As
of December 31, 1998, the Company was in compliance with all such covenants. As
a result of the Merger, the Company will be required to 




                                       44
<PAGE>   45
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


make a one-time offer to repurchase all or any part of each holder's 11 1/2%
Senior Notes at a price equal to 101% of the principal amount thereof plus
interest (see Note 20).

Convertible Debentures

     During 1992, the Company issued $98.9 million of 8 1/2% Convertible
Subordinated Debentures ("Convertible Debentures") of which $9.8 million remains
outstanding. Interest on the Convertible Debentures is payable semiannually
(each March 31 and September 30). At the option of the holders thereof, prior to
the Merger, the Convertible Debentures were convertible into shares of Common
Stock at any time prior to maturity (unless earlier redeemed or repurchased), at
a conversion rate of approximately 80.81 shares of Common Stock per $1,000
principal amount of Convertible Debentures. Following the Merger, the
Convertible Debentures may be converted into $525.27 in cash per $1,000
principal amount of Convertible Debentures. The Company will be required to make
a one-time offer to repurchase all or any part of each holder's Convertible
Debentures at a price equal to 100% of the principal amount thereof plus
interest (see Note 20).

Other long-term debt

     Other long-term debt relates to debt associated with certain of the
acquisitions. These debt instruments are unsecured.

Other

     For the year ended December 31, 1997, the Company recorded an extraordinary
loss of $25.3 million relating to (i) the retirement of an interest rate swap
($2.5 million), (ii) the retirement of the Company's 10% Senior Notes due 2001
($21.3 million) and (iii) the write-off of debt issuance costs related to the
Revolving Credit Facility in place prior to the amended and restated Revolving
Credit Facility that was completed in May 1997 ($1.5 million).

     At December 31, 1998, 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>       
             1999.............................................  $    7,970
             2000.............................................       8,559
             2001.............................................       5,069
             2002.............................................      42,661
             2003 ............................................       7,159
             Thereafter.......................................     162,240
                                                                ----------
                                                                $  233,658
                                                                ==========
</TABLE>



                                       45
<PAGE>   46
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


13.  INCOME TAXES

Income Tax Provision

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

<TABLE>
<CAPTION>
                                                                                      YEARS ENDED DECEMBER 31,      
                                                                             -------------------------------------
                                                                                 1998          1997         1996  
                                                                             ----------      -------      --------
<S>                                                                          <C>            <C>           <C>   
     Current
        Federal...........................................................   $   6,843      $   --        $   --
        State.............................................................         862           482            62
                                                                             ---------      --------      --------
              Total Current...............................................       7,705           482            62
                                                                             ---------      --------      --------

     Deferred
        Federal...........................................................     (22,376)          478          --
        State.............................................................      (2,185)           91          --
                                                                             ---------      --------      --------
              Total Deferred..............................................     (24,561)          569          --
                                                                             ---------      --------      --------
              Income tax provision (benefit)..............................   $ (16,856)     $  1,051      $     62
                                                                             =========      ========      ========
</TABLE>

Effective Tax Rate

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

<TABLE>
<CAPTION>
                                                                                    YEARS ENDED DECEMBER 31,    
                                                                            -------------------------------------
                                                                              1998          1997          1996 
                                                                            ---------     ---------     ---------
<S>                                                                         <C>           <C>           <C>    
     Statutory tax rate .................................................        35.0%         34.0%        (34.0)%
     State income taxes .................................................         4.6           6.1           1.0
     Unrecognized current year benefit ..................................        --            --            31.0
     Recognition of previously unrecognized deferred tax assets .........      (132.6)        (31.0)         --
     Other ..............................................................         4.0           2.0           3.0
                                                                            ---------     ---------     ---------
        Effective tax rate ..............................................       (89.0)%        11.1%          1.0%
                                                                            =========     =========     =========
</TABLE>




                                       46
<PAGE>   47
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Deferred Tax Assets

     Significant components of deferred income taxes at December 31, 1998 and
1997, were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,        
                                                                    ------------------------
                                                                       1998          1997 
                                                                    ----------    ----------
<S>                                                                 <C>           <C>       
   Deferred Tax Assets
     Federal and state NOL carryforwards ........................   $   37,571    $   43,124
     Reserve for injuries and damages ...........................       18,703        16,943
     Other accrued expenses and reserves ........................        7,828         6,303
     Other deferred tax assets ..................................          716           245
                                                                    ----------    ----------
       Total deferred tax assets ................................       64,818        66,615
                                                                    ----------    ----------
   Deferred Tax Liabilities
     Tax over book depreciation and amortization ................       20,407        14,232
     Pension cost for tax purposes in excess of books ...........        6,546         8,749
     Other deferred tax liabilities .............................          874           398
                                                                    ----------    ----------
       Total deferred tax liabilities ...........................       27,827        23,379
                                                                    ----------    ----------
   Net deferred tax assets ......................................       36,991        43,236
   Valuation allowance ..........................................       (3,950)      (43,236)
                                                                    ----------    ----------
       Deferred tax assets, net of valuation allowance ..........   $   33,041    $     --
                                                                    ==========    ==========
</TABLE>

     During 1998 the Company recognized deferred tax assets primarily related to
net operating losses from prior years expected to be realized in the current or
future years. These tax assets had been previously reserved; however, the
Company recognized these tax assets due to a continued trend of earnings
improvement and current and future expected positive earnings, as well as the
successful negotiation of the new union agreement.

     The changes in the valuation allowance are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                    1998          1997 
                                                                                 ----------    ----------
<S>                                                                              <C>           <C>       
(Decrease) Increase resulting from identification
   of additional temporary differences .......................................   $   (3,953)   $    1,136
(Decrease) related to income recorded as deferred tax benefit ................       (5,898)         --
(Decrease) in deferred income tax asset recorded to capital in excess of par .         (960)         (569)
Increase related to loss not recognized ......................................         --           5,741
Increase in deferred income tax asset for acquisitions .......................         --           1,959
Deferred tax asset recognized due to a change in estimate of future
   realization recorded as a deferred tax benefit ............................      (25,144)         --
Deferred tax asset recognized due to a change in estimate of future
   realization recorded as an increase in additional paid in capital .........       (3,331)         --
                                                                                 ----------    ----------

                            Net change in valuation allowance ................   $  (39,286)   $    8,267
                                                                                 ==========    ==========
</TABLE>

Availability and Amount of NOL's

     As a result of an ownership change in 1994, Section 382 of the Internal
Revenue Code (the "Code") requires that an annual limitation be placed on the
amount of net operating loss ("NOL") carryforwards which the Company may
utilize. Consequently, the Company's NOL carryforwards from 1994 are now subject
to an annual limitation of $2.1 million. These NOL's are subject to a fifteen
year carryforward period. Any unused portion of the current annual limitation
may be carried forward to the following year. As a result, the Company will
carry forward available NOL's 



                                       47
<PAGE>   48
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


of $87.6 million, $23.1 million of which is subject to the annual $2.1 million
limitation. The Merger resulted in an additional ownership change as defined by
the Code. This new ownership change may impact the timing of the availability of
the NOL carryforwards (see Note 20). The NOL carryforwards expire as follows (in
thousands and before the effects of the Merger):

<TABLE>
<S>                                                             <C>      
           2008...............................................  $   5,400
           2009...............................................     17,700
           2010...............................................     25,200
           2011...............................................     19,700
           2012...............................................     19,600
                                                                ---------
                                                                $  87,600
                                                                =========
</TABLE>

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, accounts receivable, and the revolving bank
loans, the carrying amounts reported in the Consolidated Statements of Financial
Position approximate fair value. Additionally, the Company has one equity
security at December 31, 1998, which is publicly traded. This security is
classified as "available-for-sale", and is reported on the Statements of
Financial Position at fair value. The Company has no instruments that are held
for trading purposes. The fair values of the short-term deposits and long-term
insurance deposits are based upon quoted market prices at December 31, 1998 and
1997, 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 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, 1998 and 1997.

     The carrying amounts and fair values of the Company's financial instruments
at December 31, 1998 and 1997, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                            DECEMBER 31, 1998             DECEMBER 31, 1997     
                                                       --------------------------    --------------------------
                                                        CARRYING         FAIR          CARRYING        FAIR
                                                         AMOUNT          VALUE          AMOUNT         VALUE  
                                                       -----------    -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>            <C>        
     Other Current Assets
       Deposits on Insurance .......................   $     8,658    $     8,658    $     6,838    $     6,838
       Other Deposits ..............................           465            465            738            738
     Insurance and Security Deposits
       Insurance Deposits ..........................        32,443         32,443         37,205         37,205
       Security Deposits ...........................        31,808         33,166         33,756         34,265
     Long-Term Debt
       Real Estate Mortgages .......................          (623)          (467)          (205)          (141)
       11 1/2% Senior Notes ........................      (150,000)      (170,250)      (150,000)      (165,750)
       8 1/2% Convertible Subordinated Debentures ..        (9,804)        (9,951)        (9,804)        (9,804)
       Other Long-term Debt ........................        (3,479)        (3,434)          --             --
</TABLE>




                                       48
<PAGE>   49
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


15.  LEASE COMMITMENTS

     The Company leases buses and terminals from various parties pursuant to
capital and operating leases expiring at various dates through 2065.

     At December 31, 1998, scheduled future minimum payments for the next five
fiscal years ending December 31, under the capital leases and non-cancelable
operating leases are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      CAPITAL     OPERATING
                                                                      LEASES       LEASES  
                                                                    ----------   ----------
<S>                                                                 <C>          <C>       
           1999 .................................................   $    9,659   $   53,862
           2000 .................................................        9,814       49,038
           2001 .................................................        5,776       48,216
           2002 .................................................        5,937       38,986
           2003 .................................................        7,089       45,498
           Thereafter ...........................................        2,987       78,023
                                                                    ----------   ----------
                   Total minimum lease payments .................       41,262   $  313,623
                                                                                 ==========
               Amounts representing interest ....................        9,295
                                                                    ----------
                   Present value of minimum lease payments ......   $   31,967
                                                                    ==========
</TABLE>

     For the years ended December 31, 1998, 1997 and 1996, rental expenses for
operating leases (net of sublease rental income of approximately $2.2 million,
$2.1 million and $2.2 million, respectively) amounted to $60.0 million, $57.6
million and $52.4 million, respectively. Rental expenses for bus operating
leases, excluding casual rents and other short term leases during peak periods,
amounted to $34.4 million, $32.1 million and $27.5 million in 1998, 1997 and
1996, respectively.

16.  STOCK INCENTIVE PLANS

     As of December 31, 1998, the Company's seven stock incentive plans have
authorized the grant of options and restricted stock to employees and outside
directors for up to 9,439,446 shares of the Company's Common Stock. All options
granted had five to ten year terms and vested over a three to four year period
of continued employment or service on the Company's Board of Directors. In
connection with the Merger, all unvested options and restricted stock vested on
March 16, 1999. Additionally, all outstanding options were either canceled in
exchange for cash equal to $6.50 less the exercise price or were replaced by
grants to purchase Laidlaw common shares (see Note 20).

     The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. However, pro forma
information regarding net income and earnings per share is required by FASB
Statement No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions. The assumptions for 1998 were
risk-free interest rates of 6.0%; dividend yield of zero; volatility factor of
the expected market price of the Company's Common Stock of 0.55; and a
weighted-average expected life of the options of 7.2 years. The assumptions for
1997 were risk-free interest rates of 6.0%; dividend yield of zero; volatility
factor of the expected market price of the Company's Common Stock of 0.40; and a
weighted-average expected life of the options of 7.1 years. The assumptions for
1996 were risk-free interest rates of 6.0% and 7.0%; dividend yield of zero;
volatility factor of the expected market price of the Company's Common Stock of
0.35; and a weighted-average expected life of the options of 5.7 years.



                                       49
<PAGE>   50
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

     Had compensation cost for these plans been determined consistent with SFAS
123, the Company's net income (loss) and diluted earnings per share would have
been reduced to the following:

<TABLE>
<CAPTION>
                                                                                  1998        1997        1996  
                                                                              -----------   ---------   --------
<S>                                                                           <C>           <C>         <C>      
     Pro forma net income (loss)  (in 000's)...............................   $    33,739   $ (21,899)  $ (8,647)
     Pro forma diluted net income (loss) per share.........................   $      0.45   $   (0.36)  $  (0.15)
</TABLE>

A summary of the Company's stock option and restricted stock activity and
related information for the years ended December 31 follows:

<TABLE>
<CAPTION>
                                                                   OPTIONS AND RESTRICTED
                                                                      STOCK OUTSTANDING      
                                                   SHARES       -------------------------------
                                                 AVAILABLE                     WEIGHTED AVERAGE
                                                 FOR GRANT         SHARES       EXERCISE PRICE
                                                ------------    ------------   ----------------
<S>                                             <C>             <C>            <C>         
Balance, December 31, 1995 .................       2,705,034       5,111,387    $       3.35
   Options granted .........................      (1,352,000)      1,352,000            3.56
   Options exercised .......................            --          (100,450)           2.43
   Terminated or canceled ..................         418,000        (418,000)           4.21
                                                ------------    ------------    ------------
Balance, December 31, 1996 .................       1,771,034       5,944,937            3.35
   Options and Restricted Stock granted.....      (1,324,000)      1,324,000            2.70
   Options and Restricted Stock exercised...            --          (258,694)           2.59
   Terminated or canceled ..................         510,369        (510,369)           3.48
                                                ------------    ------------    ------------
Balance, December 31, 1997 .................         957,403       6,499,874            3.24
   New shares authorized ...................       1,500,000            --              --
   Options and Restricted Stock granted.....      (1,700,869)      1,700,869            4.17
   Options and Restricted Stock exercised...            --          (785,114)           2.59
   Terminated or canceled ..................         391,725        (391,725)           3.82
                                                ------------    ------------    ------------
Balance, December 31, 1998 .................       1,148,259       7,023,904    $       3.49
                                                ============    ============    ============
</TABLE>

         The table below details the Company's options and restricted stock
outstanding by related option exercise price.

<TABLE>
                             OPTIONS AND                                            OPTIONS AND
                             RESTRICTED        WEIGHTED           WEIGHTED           RESTRICTED         WEIGHTED
           RANGE OF            STOCK            AVERAGE            AVERAGE             STOCK            AVERAGE
        EXERCISE PRICE       OUTSTANDING     REMAINING LIFE    EXERCISE PRICE       EXERCISABLE      EXERCISE PRICE
        --------------       -----------     --------------    --------------       -----------      --------------
<S>                          <C>             <C>               <C>                   <C>             <C>     
     $     0  -  3.00        2,328,333            3.6            $     1.83           1,973,400         $   2.16
        3.09  -  6.22        4,517,821            5.1                  3.83           1,882,771             3.70
        9.81  - 20.625         177,750            4.4                 16.79             177,750            16.79
                            ----------           ----            ----------         -----------         --------
                             7,023,904            4.5            $     3.49           4,033,921         $   3.52
                            ==========           ====            ==========         ===========         ========
</TABLE>

         Additionally, the Company had 3,726,306 and 2,150,515 options
exercisable and restricted stock at December 31, 1997 and 1996, respectively.
Included in the above options and restricted stock granted for 1998 and 1997
were options and restricted stock granted at a value less than market value on
that date. For 1998, of the 1,700,869 options and restricted stock granted,
1,700,369 were granted at market value with a weighted average 




                                       50
<PAGE>   51
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


exercise price of $4.17, while 500 options and restricted stock were granted
below market value with no weighted average exercise price and no fair value.
For 1997, of the 1,324,000 options and restricted stock granted, 703,300 were
granted at market value with a weighted average exercise price of $4.27, while
620,700 options and restricted stock were granted below market value with a
weighted average exercise price of $0.92 and a fair value of $3.32. The Company
recognized $0.3 million, $0.4 million and $0 in compensation expense for 1998,
1997 and 1996, respectively.

17.  STOCKHOLDERS' EQUITY

     The Company is authorized to issue 100,000,000 shares of $0.01 par value
common stock.

     Prior to the Merger, the Company was authorized to issue 10,000,000 shares
of preferred stock, $0.01 par value. The Board of Directors was entitled to
designate and issue one or more series of preferred stock from the authorized
and unissued shares of preferred stock. As of December 31, 1998, the Company had
designated 1,500,000 shares of preferred stock as "Series A" junior preferred
stock in connection with the stockholders rights plan discussed below. No
"Series A" junior preferred stock had been issued as of December 31, 1998.
Subsequent to the Merger, the Company is authorized to issue 2,400,000 shares of
preferred stock, $0.01 par value (see Note 20).

     During 1997, the Company issued 2,400,000 shares of 8 1/2% convertible
exchangeable preferred stock ("the Preferred Stock"). The Preferred Stock
carries a liquidation preference of $25.00 per share plus accumulated and unpaid
dividends. The holders of the Preferred Stock are currently entitled to vote
with the holders of the Common Stock on all matters submitted to a vote of
stockholders of the Company, each share of Preferred Stock entitling the holder
thereof to one vote. Dividends accrue at a rate per annum equal to 8 1/2% of the
liquidation preference per share of Preferred Stock and are payable quarterly in
arrears on February 1, May 1, August 1 and November 1. Prior to the Merger, the
Preferred Stock was convertible, at the option of the holder thereof, into
approximately 5.128 shares of Greyhound Common Stock. The Preferred Stock will
be redeemable at the option of the Company, in whole or in part, at any time on
or after May 3, 2000, at redemption prices of 104.86% in 2000, 103.64% in 2001,
102.43% in 2002, 101.21% in 2003 and 100% in 2004 and thereafter plus
accumulated and unpaid dividends. Following the Merger, each share of Preferred
Stock is convertible into $33.33 in cash which is in excess of the liquidation
preference (see Note 20).

     On March 22, 1994, the Company's Board of Directors adopted a stockholder
rights plan (the "Rights Plan"). The Rights Plan, which was amended in 1997,
provided 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 would have become exercisable
only in the event that, with certain exceptions, an acquiring party accumulated
20% or more of the Company's voting stock or a person or group commenced or
announced intentions to commence a tender or exchange offer, the consummation of
which, would have resulted in the ownership of 30% or more of the Company's
outstanding voting stock (even if no shares are actually purchased pursuant to
such offer). On October 16, 1998, the Company amended the Rights Plan. The
amendment provided that neither the Merger nor the Agreement and Plan of Merger
with Laidlaw and Laidlaw Transit would cause the rights issued under the Rights
Plan to become exercisable. Effective with the Merger, the Rights Plan expired
(see Note 20).

18.  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, 8 1/2% Convertible
Subordinated Debentures and 10% Senior Notes retired in May 1997 ("10% Senior
Notes") against the Company and certain of its former officers and directors.
The suits sought 




                                       51
<PAGE>   52
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


unspecified damages for securities laws violations as a result of 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 (the "Federal Court Action"). In July 1995, the plaintiffs
filed 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. 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 tendered to the Court. All seven class representatives
involved in the prior complaints were dropped from the case. A new purported
class plaintiff, John Clarkson, was named. A motion was filed seeking leave to
permit Mr. Clarkson to intervene as the new class representative. On August 15,
1997, the Court denied Mr. Clarkson leave to intervene and dismissed the
litigation, noting that all claims asserted had been adjudicated. On September
12, 1997, a notice of appeal was filed by counsel for the original seven
plaintiffs, seeking a review of the Court's ruling of October 3, 1996. On
February 9, 1998, plaintiffs dismissed their appeal. As a result, the Federal
Court Action has been dismissed.

     In November 1994, a shareholder derivative lawsuit was filed by Harvey R.
Rice, a purported owner of the Company's Common Stock, against the then present
directors and former officers and directors of the Company and the Company as a
nominal defendant. The suit sought 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, was 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 (the "Delaware Action").

     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 sought unspecified damages for
securities laws 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, was styled James Illius and Theodore 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 United States District Court for the Northern
District of Texas where the Federal Court Action was pending. In September 1995,
the defendants' motion was granted, and the matter was transferred and was
consolidated into the Federal Court Action.

     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 & Company, Inc. 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. Plaintiff, John
Clarkson, is the same individual who sought to intervene in the Federal Court
Action. On February 28, 1997, the suit was transferred to a different judge in
the 68th Judicial District Court in Dallas.



                                       52
<PAGE>   53
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     On June 22, 1998, the parties to the State Court Action entered into a
Stipulation and Agreement of Compromise and Settlement (the "Stipulation").
Pursuant to the Stipulation, persons who purchased Common Stock on or in
connection with a stock offering made by the Company on May 4, 1993 and who
continued to hold the Common Stock through September 22, 1993, will be entitled
to share, on a claims-made basis, in a settlement fund of up to $3.0 million
plus interest, less attorneys' fees and costs. On June 22, 1998, the Court
preliminarily approved the Stipulation, conditionally certified the plaintiff
class for purposes of settlement and directed plaintiffs' counsel to provide
notice to the class of the terms of the settlement. On November 2, 1998, the
Court approved the Stipulation but continued final approval of the plaintiff
attorneys' fees. 

     Effective June 22, 1998, the parties to the Delaware Action entered into a
settlement stipulation whereby the derivative claims would be dismissed in
return for the payment of $50,000 in attorneys' fees for the plaintiff. To
facilitate a global settlement of the State Court Action and the Delaware
Action, on May 20, 1998, plaintiff re-filed the derivative action in the same
court in which the State Court Action is pending. This case is captioned 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 and Charles J. Lee, Civil Action No. DV
98-03990-C (the "Texas Derivative Action"). On August 6, 1998, the Court
preliminarily approved the settlement and directed plaintiffs' counsel to notify
shareholders of the terms of the settlement. On November 2, 1998 the Court gave
its final approval of this settlement. As a result of this settlement, on
December 1, 1998, the Delaware Action was dismissed.

     The foregoing settlements, expected to cost approximately $2.0 million,
will be funded entirely by the Company's directors' and officers' liability
insurance carrier and, thus, will not have a material adverse effect on the
Company's business, financial condition, results of operations and liquidity.

     In January 1995, the Company received notice that the Securities and
Exchange Commission (the "Commission") 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 Commission's Order of Investigation (the "Order of Investigation")
states that the Commission 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 Commission 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
Commission 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 Commission
served a document subpoena on the Company requiring the production of documents,
most of which the Company had voluntarily produced to the Commission in late
1994. The Company has fully cooperated with the Commission's investigation of
these matters. The Company has had limited contact with the Commission in
connection with the investigation since January 1996. The probable outcome of
this investigation cannot be predicted at this stage in the proceeding.

INSURANCE COVERAGE

     The predecessor agency to the STB 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 which has been continued by
the DOT. To maintain self-insurance authority, the Company is required to
maintain a satisfactory safety rating by the DOT, a tangible net worth of $10.0
million (as of December 31, 1998, the Company's tangible net worth was $148.8
million) and a $15.0 million trust fund (currently fully funded) to provide
security for payment of claims. In addition 




                                       53
<PAGE>   54
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


to the self-insurance grant by the federal government, the Company also
exercises self-insurance of its intrastate automobile liability exposure in 38
states. 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 or deductible 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. Additionally, the Company is required by some states
and some of its insurance carriers to maintain collateral deposits.

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 solely by Company personnel or its experts, 43 locations
have been identified as remaining sites requiring potential clean-up and/or
remediation as of December 31, 1998. The Company has estimated the clean-up
and/or remediation costs of these sites to be $3.5 million, of which
approximately $0.4 million is indemnifiable by the predecessor owner of
Greyhound's domestic bus operations, now known as Viad Corp ("Viad").

     The Company has potential liability with respect to two locations which the
EPA has designated Superfund sites. The Company, as well as other parties
designated by the EPA as potentially responsible 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 its minimal involvement, the Company has
been negotiating to be released from liability in return for the payment of
immaterial settlement amounts. Additionally, there are 14 Superfund sites for
which Viad had initially assumed responsibility under the indemnity provisions
of the 1987 acquisition agreement, as amended in 1991. In late 1997, Viad
notified the Company that it believed that the Company should be responsible for
any liabilities at such sites. The Company believed that Viad had responsibility
for these liabilities; however, in the first quarter of 1999, the Company agreed
to assume these liabilities estimated at $2.0 million from Viad as part of the
consideration paid by the Company to purchase nine restaurants Viad had been
operating in the Company's terminals.

     The Company has recorded a total environmental reserve of $3.0 million at
December 31, 1998, 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 estimated cash flows discounted at 8.0%. As of the date of this report,
the Company is not aware of any additional sites to be identified, and
management believes that adequate accruals have been made related to all known
environmental matters.



                                       54
<PAGE>   55
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     At December 31, 1998, clean-up and/or remediation costs under the plan are
as follows (in thousands):

<TABLE>
<S>                                                             <C>      
     1999.....................................................  $   1,158
     2000.....................................................        835
     2001.....................................................        616
     2002.....................................................        335
     2003.....................................................        214
     Thereafter...............................................        180
                                                                ---------
              Total environmental expenditures................      3,338
     Amounts representing interest............................        378
                                                                ---------
     Reserve for environmental expenditures...................  $   2,960
                                                                =========
</TABLE>

POTENTIAL PENSION PLAN FUNDING REQUIREMENTS

     The Company maintains ten defined benefit pension plans, the most
significant of which (the ATU Plan) covers approximately 15,650 current and
former employees, fewer than 1,500 of which are active employees of the Company.
The ATU Plan was closed to new participants in 1983 and, as a result, over 85%
of its participants are over the age of 50. For financial reporting and
investment planning purposes, the Company currently uses an actuarial mortality
table that closely matches the actual experience related to the existing
participant population. Based upon the application of this table and other
actuarial and investments assumptions, the Company believes that the ATU Plan is
adequately funded.

     For funding purposes, legislation passed by the United States Congress in
1994, and amended in 1997, mandates the use of a prescribed actuarial mortality
table and discount rates that differ from those used by the Company for
financial reporting and investment planning purposes. Nevertheless, based upon
the application of the actuarial mortality table, discount rates and funding
calculations prescribed by the legislation, as amended, the Company does not
anticipate that it will be required to make any contributions to the ATU Plan in
the foreseeable future. However, there is no assurance that the ATU Plan will be
able to earn the assumed rate of return or that contributions to the ATU Plan
will not be significant.

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 and employment-related
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 internal and outside
legal counsel and risk management personnel, management believes that there is
no proceeding either threatened or pending against the Company relating to such
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.




                                       55
<PAGE>   56
                     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, 1998 and 1997 are as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                       FIRST        SECOND      THIRD        FOURTH
              YEAR ENDED DECEMBER 31, 1998            QUARTER      QUARTER      QUARTER      QUARTER 
                                                     ---------    ---------    ---------    ---------
<S>                                                  <C>          <C>          <C>          <C>      
Operating revenues ...............................   $ 180,720    $ 211,247    $ 244,134    $ 209,895
Operating expenses ...............................     187,623      201,890      211,350      198,302
                                                     ---------    ---------    ---------    ---------
Operating income (loss) ..........................      (6,903)       9,357       32,784       11,593
Interest expense .................................       6,654        7,305        7,263        6,677
Income tax provision (benefit) ...................      (1,096)         179      (16,250)         311
Minority Interest ................................          (8)         (83)         134          513
                                                     ---------    ---------    ---------    ---------
Net income (loss) before preferred dividends .....     (12,453)       1,956       41,637        4,092
Preferred dividends ..............................       1,296        1,296        1,296        1,296
                                                     ---------    ---------    ---------    ---------
Net income (loss) ................................   $ (13,749)   $     660    $  40,341    $   2,796
                                                     =========    =========    =========    =========

Net income (loss) per share of Common Stock:
     Basic .......................................   $   (0.23)   $    0.01    $    0.67    $    0.05
                                                     =========    =========    =========    ---------
     Diluted .....................................   $   (0.23)   $    0.01    $    0.55    $    0.04
                                                     =========    =========    =========    =========
</TABLE>

<TABLE>
<CAPTION>
                                                       FIRST        SECOND      THIRD        FOURTH
              YEAR ENDED DECEMBER 31, 1997            QUARTER      QUARTER      QUARTER      QUARTER 
                                                     ---------    ---------    ---------    ---------
<S>                                                  <C>          <C>          <C>          <C>      
Operating revenues ...............................   $ 161,148    $ 181,530    $ 228,524    $ 199,920
Operating expenses ...............................     170,651      178,766      197,035      187,564
                                                     ---------    ---------    ---------    ---------
Operating income (loss) ..........................      (9,503)       2,764       31,489       12,356
Interest expense .................................       7,586        6,526        6,618        6,927
Income tax provision .............................          79           86           83          803
                                                     ---------    ---------    ---------    ---------
Net income (loss) before extraordinary item and
    preferred dividends ..........................     (17,168)      (3,848)      24,788        4,626
Extraordinary item ...............................        --         25,323         --           --
                                                     ---------    ---------    ---------    ---------
Net income (loss) ................................     (17,168)     (29,171)      24,788        4,626
Preferred dividends ..............................        --          1,063        1,275        1,310
                                                     ---------    ---------    ---------    ---------
Net income (loss) ................................   $ (17,168)   $ (30,234)   $  23,513    $   3,316
                                                     =========    =========    =========    =========

Net income (loss) per share of Common Stock:
   Basic
     Net income (loss) attributable to common
        stockholders before extraordinary item ...   $   (0.29)   $   (0.08)   $    0.40    $    0.06
     Extraordinary item ..........................        --          (0.43)        --           --
                                                     ---------    ---------    ---------    ---------
     Net income (loss) attributable to common
        stockholders .............................   $   (0.29)   $   (0.51)   $    0.40    $    0.06
                                                     =========    =========    =========    =========
   Diluted
     Net income (loss) attributable to common
        stockholders before extraordinary item ...   $   (0.29)   $   (0.08)   $    0.34    $    0.05
     Extraordinary item ..........................        --          (0.43)        --           --
                                                     ---------    ---------    ---------    ---------
     Net income (loss) attributable to common
        stockholders .............................   $   (0.29)   $   (0.51)   $    0.34    $    0.05
                                                     =========    =========    =========    =========
</TABLE>




                                       56
<PAGE>   57
                     GREYHOUND LINES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


20.  SUBSEQUENT EVENTS

     On March 16, 1999, the Company's shareholders approved the Agreement and
Plan of Merger with Laidlaw and Laidlaw Transit. On that date, Laidlaw Transit
was merged with and into the Company, with the Company, as the surviving
corporation, becoming a subsidiary of Laidlaw. As a result of the Merger,
Laidlaw became the sole holder of the Company's Common Stock.

     The total purchase price Laidlaw paid for the shares of Greyhound's Common
Stock not previously purchased by Laidlaw, including outstanding stock options,
was approximately $402 million. The Greyhound Preferred Stock, which remains
outstanding, is convertible into the right to receive $33.33 in cash per share
or $80 million in the aggregate. Following the Merger, all amounts outstanding
under the Revolving Credit Facility were paid and the Revolving Credit Facility
was terminated.

     As a result of the Merger, the Preferred Stock will be classified as
Redeemable Preferred Stock for all periods after March 16, 1999. If the Merger
had been consummated on or prior to December 31, 1998, the Stockholders' Equity
would have been reported as follows:

<TABLE>
<CAPTION>
                                                    AS REPORTED     AFTER SUBSEQUENT
                                                 DECEMBER 31, 1998    MODIFICATION
                                                 -----------------  ----------------
<S>                                               <C>               <C>            
           Redeemable Preferred Stock .........   $          --     $        60,000

           Stockholders Equity:
              Preferred Stock .................            60,000              --
              Other Stockholders' Equity ......           158,013           158,013
                                                  ---------------   ---------------
                  Total Stockholders' Equity ..   $       218,013   $       158,013
                                                  ===============   ===============
</TABLE>

See Notes 1, 12, 13, 16 and 17 for additional disclosures related to the Merger.



                                       57
<PAGE>   58
                                                                     SCHEDULE II

                    GREYHOUND LINES, INC. AND SUBSIDIARIES(a)
                        VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                                 (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, 1996:
    Allowance for Doubtful Accounts ....   $        217   $        585    $       (155)   $       (406)(b)   $        241
    Inventory Reserves .................            109            (14)           --              --                   95
    Accumulated Amortization of
       Intangible Asset ................         14,901          5,613            --            (1,409)(c)         19,105
    Reserves for Injuries and Damages ..         65,661         23,443            --           (29,141)(d)         59,963
                                           ------------   ------------    ------------    ------------       ------------
         Total Reserves and Allowances .   $     80,888   $     29,627    $       (155)   $    (30,956)      $     79,404
                                           ============   ============    ============    ============       ============

December 31, 1997:
    Allowance for Doubtful Accounts ....   $        241   $        302    $        (61)   $       (214)(b)   $        268
    Inventory Reserves .................             95             80            --              --                  175
    Accumulated Amortization of
       Intangible Assets ...............         19,105          5,434            --            (2,351)(c)         22,188
    Reserves for Injuries and Damages ..         59,963         32,687            (194)        (34,491)(d)         57,965
                                           ------------   ------------    ------------    ------------       ------------
         Total Reserves and Allowances .   $     79,404   $     38,503    $       (255)   $    (37,056)      $     80,596
                                           ============   ============    ============    ============       ============

December 31, 1998:
    Allowance for Doubtful Accounts ....   $        268   $        342    $        (40)   $       (372)(b)   $        198
    Inventory Reserves .................            175             30            --              --                  205
    Accumulated Amortization of
       Intangible Assets ...............         22,188          6,908            --              (594)(c)         28,503
    Reserves for Injuries and Damages ..         57,965         35,237          (1,021)        (31,822)(d)         60,359
                                           ------------   ------------    ------------    ------------       ------------
         Total Reserves and Allowances .   $     80,596   $     42,517    $     (1,061)   $    (32,788)      $     89,265
                                           ============   ============    ============    ============       ============
</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.

(c)      Write-off or amortization of other assets and deferred costs.

(d)      Payments of settled claims.




                                       58
<PAGE>   59

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

     None.



                                       59
<PAGE>   60

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     James R. Bullock (age 54) became the sole director of the Company upon
consummation of the Merger on March 16, 1999. Mr. Bullock has been a director of
Laidlaw Inc. since 1991 and President and Chief Executive Officer of that
company since October 1993. Mr. Bullock is also a director of Imasco Inc. and
Ontario Hydro.

    Craig R. Lentzsch (age 50) became President and Chief Executive Officer of
the Company in November 1994. Mr. Lentzsch also served as Chief Financial
Officer of the Company from November 22, 1994 to April 10, 1995. Mr. Lentzsch
served as director of the Company from August 1994 to March 1999. 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 Communication 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 Entertainment,
Inc., Enginetech, Inc., the Intermodal Transportation Institute and the Great
American Station Foundation and is a director and a member of the Executive
Committee of the American Bus Association.

     Jack W. Haugsland (age 59) joined the Company in May 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. Mr. Haugsland is also a board
member of the American Bus Association and of the Travel Industry Association of
America.

     J. Floyd Holland (age 63) has served as Senior Vice President -- Operations
since September 1994 and is responsible for equipment maintenance, engineering,
environmental compliance and purchasing. Certain of the Company's bus operating
subsidiaries also report to Mr. Holland. 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 Lines, Inc. Mr. Holland has been a
member of the Board of Directors and Executive Committee of the National Bus
Traffic Association since 1991.

     Frederick F. Richards, III (age 39) was named Senior Vice President and
Chief Information Officer in December 1997. Mr. Richards oversees information
technology development and services, accounting operations, and the telephone
information centers. From 1987 to December 1997, Mr. Richards worked as an
independent management consultant and provided consulting services to Greyhound
from 1987 to 1990 and again from 1994 to December 1997. Recently, Mr. Richards
integrated and managed the centralized driver and equipment dispatch and
planning operations for the Company. Mr. Richards also managed the integration
of automated ticketing with revenue reporting and fare and schedule quotation
systems in the late 1980's. Mr. Richards is the son-in-law of A. A. Meitz, who
served as a director of the Company from November 1995 to March 1999.

     Ralph J. Borland (age 51) serves as Vice President -- Marketing and Sales
and is responsible for selling the Company's regularly scheduled service,
charter bus and related products and is responsible for the passenger marketing,
advertising, promotion and pricing activities of the Company. He previously
served as Vice President -- Sales and Service, where he was responsible for
charter sales, Hispanic initiatives and the casino and special services markets;
and previously, as Vice President -- Customer Satisfaction. Mr. Borland also
served as Vice President -- Marketing from March 1987 to April 1993. Mr. Borland
joined the Company's predecessor in 1972.



                                       60
<PAGE>   61

     T. Scott Kirksey (age 41) joined the Company in June 1995 as Vice President
-- Financial Planning and Reporting and is responsible for the business and
strategic planning for the Company as well as corporate accounting and financial
reporting. Prior to joining the Company, Mr. Kirksey was Corporate Controller
for Hat Brands, Inc. from 1993 and served as Director of Financial Planning,
Budgeting and Treasury and Vice President/Controller of Telemedia Services for
Neodata Corporation from 1990 to 1993.

     Jeffrey W. Sanders (age 37) joined the Company in June 1997 as Vice
President -- Corporate Development and is responsible for corporate acquisitions
and new business development, treasury, corporate finance, tax and investor
relations. Prior to joining the Company, Mr. Sanders was Vice President --
Controller of Motor Coach Industries International, Inc. from January 1995 to
January 1997 and Director -- Financial Reporting and Consolidations from October
1993 to December 1994. From January 1985 to October 1993, Mr. Sanders held
various positions, including senior manager in the audit department, with
Deloitte & Touche LLP.

     Mark E. Southerst (age 41) was elected as Vice President and General
Counsel and Secretary in January 1995. Mr. Southerst was previously employed by
the Company as Associate General Counsel, since July 1988. Prior to joining the
Company, Mr. Southerst served as in-house legal counsel for Burlington Northern
Railroad Company from 1983 to July 1988. Mr. Southerst also serves as a director
of the National Bus Traffic Association and a legal advisor to the ATA
Litigation Center, a trade association specializing in legal issues affecting
motor carriers.

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, 1998.




                                       61
<PAGE>   62
ITEM 11.  EXECUTIVE COMPENSATION

    The following table sets forth all compensation, including bonuses,
restricted stock and stock option awards and other payments, paid or accrued by
the Company during each of the fiscal years ended December 31, 1998, 1997 and
1996, to or for the Chief Executive Officer of the Company, and the four other
most highly compensated executive officers of the Company (the Chief Executive
Officer and such other officers collectively being the "Named Executive
Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                 LONG-TERM
                                                        ANNUAL COMPENSATION                     COMPENSATION
                                             -----------------------------------------  --------------------------
                                                                                                  AWARDS
                                                                            OTHER       --------------------------
                                                                            ANNUAL      RESTRICTED      SECURITIES     ALL OTHER
                                                                            COMPEN-       STOCK         UNDERLYING      COMPEN-
  NAME AND PRINCIPAL POSITION       YEAR     SALARY($)(1)   BONUS($)(2)   SATION($)(3)  AWARDS($)(4)  OPTIONS/SARS(#)  SATION($)(5)
                                    ----     -----------    -----------  -------------  ------------  ---------------  ------------
<S>                                 <C>      <C>           <C>           <C>            <C>           <C>              <C>
Craig R. Lentzsch                   1998       441,242       322,594          --               0          142,300       110,835
President and Chief                 1997       391,250       290,503          --         187,182                0       100,133
Executive Officer                   1996       350,013       112,228        86,603        55,163          100,000        86,169

Jack W. Haugsland                   1998       285,986       171,073          --               0           89,700        83,248
Executive Vice President            1997       255,000       154,913          --         119,990                0        74,288
and Chief Operating Officer         1996       225,008        79,029          --          36,775           60,000        55,393

Frederick F. Richards, III (6)      1998       200,000       106,400          --               0           32,600        47,986
Senior Vice President and Chief     1997        12,603             0          --         300,000                0             0  
Information Officer                 1996             0             0             0             0                0             0
                                                                                                                     
J. Floyd Holland                    1998       172,436        91,723          --               0           53,200        51,137
Senior Vice President - Operations  1997       164,987        89,093          --          58,704                0        49,562
                                    1996       155,956        36,735          --               0           30,000        50,310

Mark E. Southerst                   1998       164,035        76,345          --               0           42,600        41,143
Vice President and General Counsel  1997       154,305        72,909          --          46,580                0        38,176
and Secretary                       1996       128,050        28,486          --               0           45,000        33,646
</TABLE>

---------

(1)      Represents annual salary, including compensation deferred by the Named
         Executive Officer pursuant to the Company's 401(k) and non-qualified
         savings plans.

(2)      Represents annual bonus earned by the Named Executive Officer for the
         relevant fiscal year.

(3)      In 1996, for Mr. Lentzsch, $50,000 is for reimbursement of the loss on
         the sale of Mr. Lentzsch's personal residence in connection with his
         relocation to Dallas, Texas, after joining the Company in 1994.

(4)      As of December 31, 1998, Mr. Lentzsch held 45,600 shares of restricted
         stock, with an aggregate value of $270,294. Of these shares granted to
         Mr. Lentzsch, 10,000 shares vested on January 22, 1999. As of December
         31, 1998, Mr. Haugsland held 29,333 shares of restricted stock, with an
         aggregate value of $173,871. Of these shares granted to Mr. Haugsland,
         6,500 shares vested on January 22, 1999. As of December 31, 1998, Mr.
         Holland held 12,700 shares of restricted stock, with an aggregate value
         of $75,279. Of these shares granted to Mr. Holland, 3,250 shares vested
         on January 22, 1999. As of December 31, 1998, Mr. Southerst held 10,100
         shares of restricted stock, with an aggregate value of $59,868. Of
         these shares granted to Mr. Southerst, 2,500 shares vested on January
         22, 1999. Upon the completion of the Merger, all shares of restricted
         stock that were unvested became vested in accordance with the terms of
         the plan under which the restricted stock grants were made. Pursuant to
         the Merger Agreement, each of the Named Executive Officers received
         $6.50 in cash for each share of restricted stock held.



                                       62
<PAGE>   63

(5)      For 1998, includes $101,545, $64,394, $47,126, $41,440 and $37,458 in
         accrued benefits under the Company's Supplemental Executive Retirement
         Plan ("SERP"); $5,000, $12,399, $0, $2,586 and $1,640 in Company
         contributions to the 401(k) and non-qualified savings plans; and
         $4,290, $6,455, $860, $7,111 and $2,045 in term life insurance premiums
         paid by the Company for Messrs. Lentzsch, Haugsland, Richards, Holland
         and Southerst, respectively.

(6)      Mr. Richards became Senior Vice President and Chief Information Officer
         on December 9, 1997.

EMPLOYMENT CONTRACTS

     Craig R. Lentzsch. Mr. Lentzsch's terms of employment are governed by an
employment contract that continues until March 16, 2002, subject to automatic
successive two-year renewals unless and until terminated. The contract provides
for an annual base salary to Mr. Lentzsch, currently $500,000, subject to annual
review and adjustment. Mr. Lentzsch is entitled to receive an annual incentive
bonus in accordance with the Company's management incentive plan ("MIP") as in
effect from time to time. If the Company terminates or does not renew Mr.
Lentzsch's employment contract without good cause (as defined) or if Mr.
Lentzsch resigns for good reason (as defined), the Company must pay Mr. Lentzsch
a lump-sum payment equal to three times the sum of: (i) an amount equal to his
then-current, annualized base salary; and (ii) the greater of: (A) the
applicable annual payout of incentive compensation under the MIP for the plan
year immediately prior to the termination; or (B) the full annual target award
under the MIP for the plan year in which the termination occurs. Additionally,
Mr. Lentzsch's employment contract provides that if there is a change of control
(other than the Merger) (as defined) and within two years thereafter, Mr.
Lentzsch's employment contract is terminated, or not renewed, for any reason
other than cause, death, disability or retirement, or if he resigns for good
reason, Mr. Lentzsch would be entitled to the same severance payments as
described above, subject to a "gross up" should any portion of his severance
benefits be construed to be an "excess parachute payment" under the federal tax
code. Mr. Lentzsch also participates in the Company's Supplemental Executive
Retirement Plan, and has received past service credit, for vesting purposes
only, related to his former employment with the Company, its affiliates and
predecessors. Additionally, Mr. Lentzsch is entitled to participate in the
Company's 401(k) plan, medical plan (with waiver of pre-existing conditions),
and other applicable benefit plans and is entitled to estate, tax and financial
planning assistance, a car allowance and country club dues reimbursement.

     Jack W. Haugsland. Mr. Haugsland's terms of employment are governed by an
employment contract that continues until March 16, 2002, subject to automatic
successive two-year renewals unless and until terminated. Mr. Haugsland is
entitled to receive an annual base salary, currently $305,000, subject to annual
review and adjustment. Mr. Haugsland is also entitled to receive an annual
incentive bonus in accordance with the Company's MIP as in effect from time to
time. If the Company terminates or does not renew Mr. Haugsland's employment
contract without good cause (as defined) or if Mr. Haugsland's resigns for good
reason (as defined), the Company must pay Mr. Haugsland's a lump-sum payment
equal to three times the sum of: (i) an amount equal to his then-current,
annualized base salary; and (ii) the greater of: (A) the applicable annual
payout of incentive compensation under the MIP for the plan year immediately
prior to the termination; or (B) the full annual target award under the MIP for
the plan year in which the termination occurs. Additionally, Mr. Haugsland's
employment contract provides that if there is a change of control (other than
the Merger) (as defined) and within two years thereafter, Mr. Haugsland's
employment contract is terminated, or not renewed, for any reason other than
cause, death, disability or retirement, or if he resigns for good reason, Mr.
Haugsland would be entitled to the same severance payments as described above,
subject to a "gross up" should any portion of his severance benefits be
construed to be an "excess parachute payment" under the federal tax code. Mr.
Haugsland also participates in the Company's Supplemental Executive Retirement
Plan, and has received past service credit, for vesting purposes only, related
to his former employment with the Company, its affiliates and predecessors.
Additionally, Mr. Haugsland is entitled to participate in the Company's 401(k)
plan, medical plan (with waiver of pre-existing conditions), and other
applicable benefit plans and is entitled to estate, tax and financial planning
assistance, a car allowance and country club dues reimbursement.




                                       63
<PAGE>   64
SEVERANCE ARRANGEMENTS

     The Company has entered into Change in Control Agreements ("CIC
Agreements") with the Named Executive Officers (other than Messrs. Lentzsch and
Haugsland). Under the CIC Agreements, if the employment of the employee is
terminated prior to March 16, 2001, either for "Good Reason" by the employee or
"Without Cause" (as such terms are defined in the CIC Agreements) by the Company
(or any successor or assignee), the employee would receive severance benefits,
including base salary and benefits earned and payable through the termination
date, the dollar amount of the target payout under the MIP prorated through the
termination date for the year in which employment is terminated, and a lump-sum
cash payment of two times the sum of (x) the employee's current annual base
salary and (y) the dollar amount of the annual target payout under the MIP in
effect on March 16, 1999.

     In addition, certain employee benefits (including medical, dental and
vision plan coverage) will continue for a period of two years after the date of
termination. Under the CIC Agreements, if any amount to be paid or provided is
determined to be nondeductible by reason of Section 280G of the Internal Revenue
Service Code, the severance benefits will be reduced to the minimum extent
necessary so that Section 280G does not cause any amount to be nondeductible.
Benefits under the CIC Agreements replace benefits, if any, under any other
Company severance plans.

DIRECTORS' COMPENSATION

     Directors of the Company are entitled to reimbursement of their expenses,
if any, of attendance at each meeting of the Board of Directors or committees
thereof.

STOCK OPTION PLANS

     The following table reflects all options granted to the Named Executive
Officers of the Company during the fiscal year ended December 31, 1998, under
the Company's stock option and incentive plans. Additionally, the present value
of the options at the grant date is provided. The present value is calculated
utilizing the Black-Scholes model, which is a mathematical formula widely used
to value stock options. This formula considers a number of factors, including
the stocks volatility, dividend rate, term and vesting of the option and
interest rates to estimate the option's present value. 

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                  % OF TOTAL
                                      SECURITIES                   OPTIONS
                                      UNDERLYING                  GRANTED TO
                                        OPTIONS       GRANT      EMPLOYEES IN  EXERCISE   EXPIRATION        GRANT DATE
       NAME                          GRANTED(#)(1)    DATE       FISCAL YEAR    PRICE        DATE        PRESENT VALUE (2)
                                     -------------   -------     ------------  --------   ----------     -----------------
<S>                                  <C>             <C>         <C>           <C>        <C>            <C>         
       Craig R. Lentzsch..........     142,300       1/20/98        8.37%       4.0000     1/20/2005        $  357,173  
       Jack W. Haugsland..........      89,700       1/20/98        5.28        4.0000     1/20/2005           225,147  
       Frederick F. Richards, III.      32,600       1/20/98        1.92        4.0000     1/20/2005            81,826  
       J. Floyd Holland...........      53,200       1/20/98        3.13        4.0000     1/20/2005           133,532  
       Mark E. Southerst..........      42,600       1/20/98        2.51        4.0000     1/20/2005           106,926  
</TABLE> 

----------

(1)  Twenty-five percent of the options granted were exercisable on and after
     January 20, 1999, 25% were to become exercisable on and after January 20,
     2000, 25% were to become exercisable on and after January 20, 2001 and 25%
     were to become exercisable on and after January 20, 2002. Upon completion
     of the Merger, all of these options became vested in accordance with the
     terms of the plan under which the grants were made. Pursuant to the Merger
     Agreement, each of the Named Executive Officers received, in cash, the
     difference between $6.50 per share and the exercise price of the options.




                                       64
<PAGE>   65
(2)  Assumptions used in calculating grant date present value under the
     Black-Scholes model include stock price volatility at the grant date of
     55%, risk-free rate of return at the grand date of 6%, annual dividend
     yield of $0, an option term of 7 years from the grant date and a stock
     price at the grant date of $4.00.

The following table reflects information with respect to option exercises by the
Named Executive Officers during the fiscal year ended December 31, 1998, and
information with respect to the unexercised options to purchase the Company's
Common Stock granted under the Company's stock option and incentive plans to the
Named Executive Officers and held by them at December 31, 1998.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                            AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                         NUMBER OF SECURITIES             VALUE OF UNEXERCISED
                                              SHARES                    UNDERLYING UNEXERCISED           IN-THE-MONEY OPTIONS AT
                                            ACQUIRED ON    VALUE         OPTIONS AT FY-END(#)                 FY-END($)(1)
       NAME                                EXERCISE(#)  REALIZED($)   EXERCISABLE  UNEXERCISABLE(2)    EXERCISABLE  UNEXERCISABLE(2)
       ----                                -----------  -----------   -----------  ----------------    -----------  ----------------
<S>                                        <C>          <C>           <C>          <C>                 <C>           <C>
       Craig R. Lentzsch...............         --          --          890,000       192,300             3,519,957     385,331  
       Jack W. Haugsland...............         --          --          405,000       144,700             1,357,517     309,747 
       Frederick F. Richards, III......         --          --          240,000        92,600               693,512     187,773 
       J. Floyd Holland................         --          --          253,250        99,450               530,008     223,525 
       Mark E. Southerst                     17,000       71,125        101,250        77,600               313,673     161,444 
</TABLE>

----------     

(1)  Computed based upon the difference between $5.9375 per share, the fair
     market value at December 31, 1998, and the exercise price per share for the
     options.

(2)  Upon completion of the Merger, all of these options became vested in
     accordance with the terms of the plan under which the grants were made.
     Pursuant to the Merger Agreement, each of the Named Executive Officers
     received, in cash, the difference between $6.50 per share and the exercise
     price of the options.

LONG-TERM INCENTIVE PLANS

    The Company does not maintain any long-term incentive plan under which
awards were granted or paid during 1998.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    Prior to the Merger, the Compensation Committee of the Board of Directors
consisted of Richard J. Caley, A.A. Meitz and Stephen M. Peck who were
non-employee directors of the Company. Additionally, prior to the Merger,
Messrs. Caley and Peck served as members of the Option Committee which oversaw,
administered and approved grants under the Company's stock option and incentive
plans. Mr. Meitz is the father-in-law of Frederick F. Richards, III, the Senior
Vice President and Chief Information Officer of the Company. Mr. Richards was
elected an officer of the Company in December 1997. Prior to becoming an
employee of the Company and since November 1994, Mr. Richards was engaged by the
Company as an independent management consultant on an at-will basis, supplying
consulting services to the Company on a variety of operational and technology
issues. Under Compensation Committee procedures, Mr. Meitz was not present
during discussions of Mr. Richards' compensation terms, performance or other
related matters, abstained from voting on matters involving or affecting Mr.
Richards and did not serve on the committee of the Board of Directors that
administers and makes stock incentive awards and grants.





                                       65
<PAGE>   66


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth the beneficial ownership of the outstanding
shares of Greyhound Common Stock and Greyhound Preferred Stock, as of March 16,
1999 (except as noted below), held by persons believed by Greyhound to
beneficially own more than 5% of the outstanding shares of the Greyhound Common
Stock or Greyhound Preferred Stock and the percentage of the outstanding shares
of Greyhound Common Stock and Greyhound Preferred Stock represented thereby.
With the exception of Mr. Lentzsch, no director or executive officer of
Greyhound beneficial owns any share of Greyhound Common Stock or Greyhound
Preferred Stock. Except as otherwise noted below, these stockholders have sole
voting and investment power with respect to all shares beneficially owned by
them.

<TABLE>
<CAPTION>
                                              AMOUNT OF                         AMOUNT OF                    PERCENT  OF
NAME AND ADDRESS                             COMMON STOCK        PERCENT     PREFERRED STOCK    PERCENT        VOTING
OF BENEFICIAL OWNER                       BENEFICIALLY OWNED     OF CLASS   BENEFICIALLY OWNED  OF CLASS   SECURITIES (a) 
-------------------                       ------------------     --------   ------------------  --------   ---------------
<S>                                       <C>                    <C>        <C>                 <C>        <C>      
Laidlaw Inc. (b)                              58,743,069         100.0%               0            0            96.1
Snyder Capital Management, L.P. (c)                    0           -            639,800           26.7%         1.0
Craig R. Lentzsch                                      0           -              1,000            *             *
</TABLE>

* - less than 1%

--------

(a)  Calculated based on the holders of Greyhound Common Stock and Greyhound
     Preferred Stock voting together as a single class with each holder of
     Greyhound Common Stock having one vote per share and each holder of
     Greyhound Preferred Stock having on vote per share.

(b)  The principal business address of Laidlaw Inc. is 3221 North Service Road,
     Burlington, Ontario, Canada L7R 3Y8.

(c)  The information is based on a Schedule 13G filed with the SEC on February
     5, 1999, on behalf of Snyder Capital Management, L.P., Snyder Capital
     Management, Inc. (collectively "Snyder") and subsequent discussions with
     Snyder representatives. As of that date, Snyder reported that it held
     639,800 shares of Greyhound Preferred Stock (presently convertible into
     $33.33 per share in cash) and that it had sole voting power with respect to
     30,100 shares, shared voting power with respect to 571,900 shares, sole
     dispositive power with respect to 30,100 shares and shared dispositive
     power with respect to 609,700 shares. The principal business address of
     Snyder Capital Management, L.P. is 350 California Street, Suite 1460, San
     Francisco, California, 94104.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.


                                       66
<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 this report. Financial Statement Schedules not included
in this 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.................................      28
     Report of Independent Public Accountants....................................................      29
     Consolidated Statements of Financial Position at December 31, 1998 and 1997.................      30
     Consolidated Statements of Operations for the years ended December 31, 1998, 1997
       and 1996..................................................................................      31
     Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998,
       1997 and 1996.............................................................................      32
     Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997
       and 1996..................................................................................      33
     Notes to Consolidated Financial Statements..................................................      34
     Schedule II - Valuation and Qualifying Accounts.............................................      58
</TABLE>

3.  EXHIBITS

        2.1     -- Amended and Restated Agreement and Plan of Merger dated as
                   of November 5, 1998 (the "Merger Agreement") by and among
                   Greyhound Lines, Inc., Laidlaw Inc. and Laidlaw Transit
                   Acquisition Corp. (14)

        3.1     -- Restated Certificate of Incorporation of Greyhound Lines,
                   Inc. (15)

        3.2     -- Bylaws of Greyhound Lines, Inc. (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. (3)

        4.2     -- First Supplemental Indenture to the 8 1/2% Convertible
                   Subordinated Debentures Indenture between the Registrant and
                   Shawmut Bank Connecticut, N.A., as Trustee. (6)

        4.3     -- Second Supplemental Indenture to the 8 1/2% Convertible
                   Subordinated Debentures Indenture between the Registrant and
                   State Street Bank and Trust Company, as trustee. (15)

        4.4     -- Indenture, dated April 16, 1997, by and among the Company,
                   the Guarantors and PNC Bank, N.A., as Trustee. (9)

        4.5     -- First Supplemental Indenture dated as of July 9, 1997
                   between the Registrant and PNC Bank, N.A. as Trustee. (12)

        4.6     -- Second Supplemental Indenture dated as of August 25, 1997
                   between the Registrant and PNC Bank, N.A. as Trustee. (13)

        4.7     -- Form of 11 1/2% Series A Senior Notes due 2007. (9)

        4.8     -- Form of 11 1/2% Series B Senior Notes due 2007. (11)

        4.9     -- Form of Guarantee of 11 1/2% Series A and B Senior Notes.
                   (11)

        4.10    -- Indenture dated April 16, 1997 by and between the Company
                   and U.S. Trust of Texas, N.A., as Trustee. (10)



                                       67
<PAGE>   68
        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    -- 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. (2)

        10.7    -- 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. (2)

        10.8    -- Memorandum of Agreement, dated as of October 1, 1996,
                   between Greyhound Lines, Inc. and District No. 9,
                   International Association of Machinists, AFL-CIO. (8)

        10.9    -- Memorandum of Agreement, dated as of October 1, 1996,
                   between Greyhound Lines, Inc. and the International
                   Association of Machinists and Aerospace Workers covering
                   garage employees at Miami, Florida; St. Petersburg, Florida;
                   Columbia, South Carolina; Orlando, Florida; Charleston, West
                   Virginia and Tallahassee, Florida. (8)

        10.10   -- Memorandum of Agreement, dated as of October 1, 1996,
                   between Greyhound Lines, Inc. and the International
                   Association of Machinists and Aerospace Workers covering
                   garage employees at Dallas, Texas, Houston, Texas, Kansas
                   City, Missouri, San Antonio, Texas, Brownsville, Texas and
                   Grand Junction, Colorado. (8)

        10.11   -- Memorandum of Agreement, dated September 30, 1998, between
                   the Registrant and the Amalgamated Transit Union National
                   Local 1700. (14)

        10.12   -- Lease Agreement No. 1, dated as of December 29, 1993,
                   between Wilmington Trust Company and the Registrant. (4)

        10.13   -- Lease Agreement No. 2, dated as of December 29, 1993,
                   between Wilmington Trust Company and the Registrant. (4)

        10.14   -- Lease Agreement No. 3, dated as of December 29, 1993,
                   between Wilmington Trust Company and the Registrant. (4)

        10.15   -- Lease Supplement No. 1-1, dated as of December 30, 1993,
                   between Wilmington Trust Company and the Registrant. (4)

        10.16   -- Lease Supplement No. 2-1, dated as of December 30, 1993,
                   between Wilmington Trust Company and the Registrant. (4)

        10.17   -- Lease Supplement No. 3-1, dated as of December 30, 1993,
                   between Wilmington Trust Company and the Registrant. (4)

        10.18   -- Tax Indemnification Agreement, dated as of December 29,
                   1993, between NationsBank Lease Investments, Inc. and the
                   Registrant. (4)

        10.19   -- Pledge Agreement, dated as of December 29, 1993, among the
                   Registrant, Wilmington Trust Company and NationsBank Lease
                   Investments, Inc. (4)

        10.20   -- Participation Agreement, dated as of December 29, 1993,
                   among NationsBank Lease Investments, Inc. and the Registrant.
                   (4)

        10.21   -- Lease Agreement, dated as of March 28, 1994, between
                   Wilmington Trust Company and the Registrant. (5)

        10.22   -- Lease Supplement No. 1, dated as of March 28, 1994,
                   between Wilmington Trust Company and the Registrant. (5)

        10.23   -- Pledge Agreement, dated as of March 28, 1994, among the
                   Registrant, Wilmington Trust Company and Cargill Leasing
                   Corporation. (5)

        10.24   -- Participation Agreement, dated as of March 28, 1994, among
                   Cargill Leasing Corporation and the Registrant. (5)


                                       68
<PAGE>   69
        10.25   -- Bill of Sale, dated as of March 28, 1994, between the
                   Registrant and Wilmington Trust Company.(5)

        10.26   -- Tax Indemnification Agreement, dated as of March 28, 1994,
                   between Cargill Leasing Corporation and the Registrant. (5)

        10.27   -- Lease Agreement, dated as of March 29, 1994, between
                   Wilmington Trust Company and the Registrant. (5)

        10.28   -- Lease Supplement No. 1, dated as of March 29, 1994,
                   between Wilmington Trust Company and the Registrant. (5)

        10.29   -- Pledge Agreement, dated as of March 29, 1994, among the
                   Registrant, Wilmington Trust Company and Cargill Leasing
                   Corporation. (5)

        10.30   -- Participation Agreement, dated as of March 29, 1994, among
                   Cargill Leasing Corporation and the Registrant. (5)

        10.31   -- Bill of Sale, dated as of March 29, 1994, between the
                   Registrant and Wilmington Trust Company.(5)

        10.32   -- Tax Indemnification Agreement, dated as of March 29, 1994,
                   between Cargill Leasing Corporation and the Registrant. (5)

        10.33   -- Termination Agreement dated as of March 17, 1999, by and
                   between Greyhound Lines, Inc. and Foothill Capital
                   Corporation and BankBoston N.A. (15)

        10.34   -- Greyhound Lines, Inc. Supplemental Executive Retirement
                   Plan. (7)

        10.35   -- First Amendment to Supplemental Executive Retirement Plan.
                   (8)

        10.36   -- Second Amendment to Supplemental Executive Retirement
                   Plan. (15)

        10.37   -- Supplemental Executive Retirement Plan Trust Agreement
                   (15)

        10.38   -- Second Amended Employment Agreement dated March 16, 1999,
                   between Registrant and Craig R. Lentzsch. (15)

        10.39   -- Second Amended Employment Agreement dated March 16, 1999,
                   between Registrant and John Werner Haugsland. (15)

        10.40   -- 1998 Stock Option Plan for ATU Represented Drivers and
                   Mechanics, dated July 22, 1998. (14)

        10.41   -- Greyhound Lines, Inc. Change in Control Severance Pay
                   Program. (14)

        10.42   -- Form of Change in Control Agreement between the Company
                   and certain officers of the Company. (14)

        21      -- Subsidiaries of the Registrant. (15)

        27      -- Financial Data Schedule as of and for the year ended
                   December 31, 1998. (16)

-----

(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 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 Annual Report on Form 10-K
      for the year ended December 31, 1993.

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

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



                                       69
<PAGE>   70
(7)   Incorporated by reference to the Registrant's Annual Report on Form 10-K
      for the year ended December 31, 1995.

(8)   Incorporated by reference to the Registrant's Annual Report on Form 10-K
      for the year ended December 31, 1996.

(9)   Incorporated by reference from the Company's Registration Statement on
      Form S-4 regarding the Company's 11 1/2% Series B Senior Notes due 2007.

(10)  Incorporated by reference from the Company's Registration Statement on
      Form S-3 regarding the Company's 8 1/2% Convertible Exchangeable preferred
      Stock, Common Stock and 8 1/2% Convertible Subordinated Debentures due
      2009.

(11)  Incorporated by reference from Amendment 1 to Form S-4 filed on June 27,
      1997.

(12)  Incorporated by reference from the Registrant's Quarterly Report on Form
      10-Q for the quarter ended June 30, 1997.

(13)  Incorporated by reference from the Registrant's Quarterly Report on Form
      10-Q for the quarter ended September 30, 1997.

(14)  Incorporated by reference from the Registrant's Quarterly Report on Form
      10-Q for the quarter ended September 30, 1998.

(15)  Filed herewith.

(16)  Filed only in EDGAR format with the Registrant's Annual Report on Form
      10-K for the year ended December 31, 1998.

(b) REPORTS ON FORM 8-K

     The Company filed a Form 8-K with the Securities and Exchange Commission on
October 30, 1998. The purpose of this filing was to announce that the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Laidlaw Inc. ("Laidlaw") and Laidlaw Transit Acquisition Corp., a wholly owned
subsidiary of Laidlaw ("Laidlaw Transit"), pursuant to which Laidlaw Transit
will merge with and into the Company (the "Merger"), with the Company as the
surviving corporation. The Company was not required to file any additional Form
8-Ks during the quarter ended December 31, 1998.



                                       70
<PAGE>   71

                                   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 31, 1999.

                                        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
                  ---------                        -----                            ----
<S>                                        <C>                                 <C> 
            /s/  JAMES R. BULLOCK          Director                            March 31, 1999
-----------------------------------------
              James R. Bullock


           /s/  CRAIG R. LENTZSCH          President and Chief                 March 31, 1999
-----------------------------------------  Executive Officer
              Craig R. Lentzsch            (Principal Executive Officer)


            /s/  T. SCOTT KIRKSEY          Vice President of Financial         March 31, 1999
-----------------------------------------  Planning and Reporting
              T. Scott Kirksey             (Principal Financial and
                                               Accounting Officer)

</TABLE>





                                       71
<PAGE>   72
<TABLE>
<S>                                             <C>                                   <C> 
CO-REGISTRANTS


ATLANTIC GREYHOUND LINES OF
VIRGINIA, INC.

By:

           /s/  CRAIG R. LENTZSCH               Chairman of the Board, President,    March 31, 1999
------------------------------------------      and Chief Executive Officer
              Craig R. Lentzsch                 

            /s/  J. FLOYD HOLLAND               Director                             March 31, 1999
------------------------------------------
              J. Floyd Holland

            /s/  T. SCOTT KIRKSEY               Vice President of Financial          March 31, 1999
------------------------------------------      Planning and Reporting 
              T. Scott Kirksey                  (Principal Financial and
                                                    Accounting Officer)

GLI HOLDING COMPANY

By:

           /s/  CRAIG R. LENTZSCH               Director, President and              March 31, 1999
------------------------------------------      Chief Executive Officer
              Craig R. Lentzsch                 

           /s/  JACK W. HAUGSLAND               Director                             March 31, 1999
------------------------------------------
              Jack W. Haugsland

            /s/  T. SCOTT KIRKSEY               Vice President of Financial          March 31, 1999
------------------------------------------      Planning and Reporting
              T. Scott Kirksey                  (Principal Financial and
                                                    Accounting Officer)

GREYHOUND de MEXICO S.A. de C.V.

By:

           /s/  CRAIG R. LENTZSCH               Director and President               March 31, 1999
------------------------------------------
              Craig R. Lentzsch

           /s/  JACK W. HAUGSLAND               Director                             March 31, 1999
------------------------------------------
              Jack W. Haugsland

           /s/  JEFFREY W. SANDERS              Director                             March 31, 1999
------------------------------------------
              Jeffrey W. Sanders

            /s/  T. SCOTT KIRKSEY               Examiner                             March 31, 1999
------------------------------------------
              T. Scott Kirksey                  (Principal Financial and
                                                    Accounting Officer)
</TABLE>





                                       72
<PAGE>   73


<TABLE>
<S>                                             <C>                                   <C> 
GRUPO CENTRO, INC.

By:

           /s/  CRAIG R. LENTZSCH               Director and President                   March 31, 1999
------------------------------------------
              Craig R. Lentzsch

           /s/  JACK W. HAUGSLAND               Director                                 March 31, 1999
------------------------------------------
              Jack W. Haugsland

            /s/  T. SCOTT KIRKSEY               Vice President of Financial              March 31, 1999
------------------------------------------      Planning and Reporting
              T. Scott Kirksey                  (Principal Financial and
                                                    Accounting Officer)

LOS BUENOS LEASING CO., INC.

By:

             /s/  ALFONSO PENEDO                Director, President, Chief               March 31, 1999
------------------------------------------      Executive Officer and General
               Alfonso Penedo                   Manager

            /s/  T. SCOTT KIRKSEY               Chief Financial Officer                  March 31, 1999
------------------------------------------      and Treasurer
              T. Scott Kirksey                  (Principal Financial and
                                                    Accounting Officer)

SISTEMA INTERNACIONAL de
TRANSPORTE de AUTOBUSES, INC.

By:

           /s/  CRAIG R. LENTZSCH               Director and President                   March 31, 1999
------------------------------------------
              Craig R. Lentzsch

           /s/  JACK W. HAUGSLAND               Director                                 March 31, 1999
------------------------------------------
              Jack W. Haugsland

            /s/  T. SCOTT KIRKSEY               Vice President of Financial              March 31, 1999
------------------------------------------      Planning and Reporting
              T. Scott Kirksey                  (Principal Financial and
                                                    Accounting Officer)
</TABLE>





                                       73
<PAGE>   74

<TABLE>
<S>                                             <C>                                   <C> 
TEXAS, NEW MEXICO & OKLAHOMA
COACHES, INC.

By:

           /s/  CRAIG R. LENTZSCH               Director and Chief                       March 31, 1999
------------------------------------------      Executive Officer
              Craig R. Lentzsch                 

           /s/  JACK W. HAUGSLAND               Director                                 March 31, 1999
------------------------------------------
              Jack W. Haugsland

            /s/  J. FLOYD HOLLAND               Director                                 March 31, 1999
------------------------------------------
              J. Floyd Holland

          /s/  ROBERT D. GREENHILL              Director                                 March 31, 1999
------------------------------------------
             Robert D. Greenhill

            /s/  T. SCOTT KIRKSEY               Vice President of Financial              March 31, 1999
------------------------------------------      Planning and Reporting
              T. Scott Kirksey                  (Principal Financial and
                                                    Accounting Officer)


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

By:

           /s/  CRAIG R. LENTZSCH               Director and Chief                       March 31, 1999
------------------------------------------      Executive Officer
              Craig R. Lentzsch                 

           /s/  JACK W. HAUGSLAND               Director                                 March 31, 1999
------------------------------------------
              Jack W. Haugsland

            /s/  J. FLOYD HOLLAND               Director                                 March 31, 1999
------------------------------------------
              J. Floyd Holland

          /s/  ROBERT D. GREENHILL              Director                                 March 31, 1999
------------------------------------------
             Robert D. Greenhill

          /s/  RICHARD M. PORTWOOD              Director                                 March 31, 1999
------------------------------------------
             Richard M. Portwood

            /s/  T. SCOTT KIRKSEY               Vice President of Financial              March 31, 1999
------------------------------------------      Planning and Reporting
              T. Scott Kirksey                  (Principal Financial and
                                                    Accounting Officer)
</TABLE>





                                       74
<PAGE>   75

<TABLE>
<S>                                             <C>                                   <C> 
VERMONT TRANSIT CO., INC.

By:

           /s/  CRAIG R. LENTZSCH               Director, President and              March 31, 1999
------------------------------------------      Chief Executive Officer
              Craig R. Lentzsch                 

           /s/  JACK W. HAUGSLAND               Director                             March 31, 1999
------------------------------------------
              Jack W. Haugsland

            /s/  J. FLOYD HOLLAND               Director                             March 31, 1999
------------------------------------------
              J. Floyd Holland

            /s/  T. SCOTT KIRKSEY               Vice President of Financial          March 31, 1999
------------------------------------------      Planning and Reporting
              T. Scott Kirksey                  (Principal Financial and
                                                    Accounting Officer)
</TABLE>


                                       75


<PAGE>   76
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
       EXHIBIT
         NO.                       DESCRIPTION
       -------                     -----------
<S>                <C>   
        3.1        Restated Certificate of Incorporation of Greyhound Lines,
                   Inc.
                  
        3.2        Bylaws of Greyhound Lines, Inc.
                  
        4.3        Second Supplemental Indenture to the 8 1/2% Convertible
                   Subordinated Debentures Indenture between the Registrant and
                   State Street Bank and Trust Company, as trustee.
                  
        10.33      Termination Agreement dated as of March 17, 1999, by and
                   between Greyhound Lines, Inc. and Foothill Capital
                   Corporation and BankBoston N.A.
                  
        10.36      Second Amendment to Supplemental Executive Retirement
                   Plan.
                  
        10.37      Supplemental Executive Retirement Plan Trust Agreement
                  
        10.38      Second Amended Employment Agreement dated March 16, 1999,
                   between Registrant and Craig R. Lentzsch.
                  
        10.39      Second Amended Employment Agreement dated March 16, 1999,
                   between Registrant and John Werner Haugsland.
                  
        21         Subsidiaries of the Registrant.

        27         Financial Data Schedule as of and for the year ended December 
                   31, 1998.

</TABLE>