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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-K
 þ      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year
ended December 31, 2004
 OR o      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
 Delaware
    
    86-0572343(State or other jurisdiction
    
    (I.R.S. employerof 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: Title of each class
    
    Name of each exchange on which registered8 1/2 % Convertible Subordinated Debentures, due March 31, 2007
    
    American Stock Exchange
 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 þ NO o 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. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). YES o NO þ Aggregate market value of Common Stock held by non-affiliates of the registrant on June 30,
2004 was $0. As of March 15, 2005, the registrant had 587 shares of Common Stock, $0.01 par value,
outstanding all of which are held by the registrants parent company.  (1)
    ThisForm 10-Kis 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 filingForm 10-Kin a reduced disclosure format.(2)
    The registrant meets the conditions set forth in General Instructions I(1)(a) and (b) of
Form 10-K and is therefore filing this form in a reduced disclosure format.




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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: I.R.S. Employer
    
    
    JurisdictionCommission
    
    
    Identification
    
    
    OfName
    
    File No.
    
    
    No.
    
    
    Incorp.Atlantic Greyhound Lines of Virginia, Inc.
    
    
    333-27267-01
    
    
    
    58-0869571
    
    
    VirginiaGLI Holding Company
    
    
    333-27267-04
    
    
    
    75-2146309
    
    
    DelawareGreyhound de Mexico, S.A. de C.V.
    
    
    333-27267-05
    
    
    None
    
    Republic of MexicoSistema Internacional de Transporte de
Autobuses, Inc.
    
    
    333-27267-08
    
    
    
    75-2548617
    
    
    Delaware350 N. St. Paul Street, 10th FloorDallas,
Texas 75201
(214) 849-8616Texas, New Mexico & Oklahoma Coaches, Inc.
    
    
    333-27267-10
    
    
    
    75-0605295
    
    
    Delaware1313 13th StreetLubbock, Texas 79408(806) 763-5389T.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
    
    
    Vermont345 Pine StreetBurlington,
Vermont 05401
(802) 862-9671
 As of December 31, 2004, 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); 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. 2




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GREYHOUND LINES, INC. AND SUBSIDIARIES INDEX TO FORM 10-K  
 Page No.PART IItem 1. Business
    
    
    5Item 2. Properties
    
    
    11Item 3. Legal Proceedings
    
    
    12PART IIItem 5. Market for the Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    13Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    14Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 8. Financial Statements and Supplementary Data
    
    
    27Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    55Item 9A. Controls and Procedures
    
    
    55PART IIIItem 14. Principal Accountant Fees and Services
    
    
    56PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    573rd Supplemental Indenture4th Supplemental IndentureTax Allocation AgreementLoss Portfolio Transfer AgreementSubsidiariesCertification of Chief Executive Officer Pursuant to Section 302Certification of Principal Financial Officer Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350
 3




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Risks Associated with Forward-Looking Statements Included in this Form 10-K Statements in this Form 10-K that are not purely historical facts, including statements
regarding beliefs, expectations, intentions, projections or strategies for the future of Greyhound
Lines, Inc. and subsidiaries (the Company), may be ''forward-looking statements under the
Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from the plans, intentions and
expectations reflected in or suggested by the forward-looking statements. Such risks and
uncertainties include, among others, the general economic condition of the United States and the
future level of bus travel demand; the impact of future terrorist incidents; operational
disruptions as a result of bad weather; the Companys future yields; increased costs for security;
the cost and availability of excess insurance coverage and the Companys ability to retain
authority to self-insure; the impact of changes in fuel prices; the Companys ability to meet the
requirements of the Americans with Disabilities Act in October, 2006; the effect of future
Government regulations; potential pension plan funding requirements; changing credit markets; the
Companys ability to achieve its forecasted results; disruptions to the Companys operations as a
result of forced relocations of terminals or garages or loss of use of terminals or garages due to
condemnation or lease terminations; and other factors described from time to time in the Companys
publicly available Securities and Exchange Commission filings. The Company undertakes no
obligation to publicly update or revise any forward-looking statements to reflect events or
circumstances that may arise after the date of this filing. 4




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PART I 
 ITEM 1. BUSINESS General Greyhound Lines, Inc. and subsidiaries (Greyhound or the Company) is the only nationwide
provider of scheduled intercity bus transportation services in the United States. The Company
serves the value-oriented customer, offering scheduled passenger service to more than 2,200
destinations with a fleet of approximately 2,700 buses and approximately 1,400 sales locations.
The Company also provides package express service, travel services and, in some terminals, food
service. For the year ended December 31, 2004, the Company generated total operating revenues of
$956.7 million. The Company serves a diverse customer base, consisting primarily of low to middle income
passengers from a wide variety of ethnic backgrounds. 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. In 1999, the Company became a wholly-owned subsidiary of Laidlaw Inc. On June 28, 2001, Laidlaw Inc. and certain of its affiliates filed voluntary petitions for
reorganization under the U.S. Bankruptcy Code and the Canada Companies Creditors Arrangement Act.
Neither Greyhound, nor any of its subsidiaries were included in, or made party to, these
reorganization filings and proceedings. In June 2003, Laidlaw Inc. emerged from the court-supervised reorganization process and
completed an internal corporate restructuring, in which Laidlaw International, Inc., a Delaware
corporation, acquired all of the assets of Laidlaw Inc., a Canadian corporation. Laidlaw
International, Inc. and its predecessor Laidlaw Inc. are referred to as Laidlaw. Markets Passengers.While the Companys major passenger markets are large metropolitan areas, its
business is geographically fragmented, with the 1,200 largest origin/destination city pairs
producing approximately 50% of 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 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 one
to three days before the day of departure. 5




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Package Express.The Companys package express service targets commercial shippers and
delivery companies that require rapid delivery of small parcels, typically between 100 and 500
miles. The Companys product offerings include standard delivery, which is the traditional
low-value, terminal-to-terminal delivery product, as well as priority and same day delivery, which
are the premium priced products typically delivered door to door. The Company satisfies the
door-to-terminal/terminal-to-door portion of priority and same day deliveries principally through
relationships with over 300 courier companies, which serve over 400 markets. Shipments include
automotive repair parts, wholesale foods, computer parts and forms, fresh flowers, optical, medical
and dental supplies, architectural and legal documents and pharmaceutical products. With its
extensive network and multiple schedules, the Company is able to provide expedited service for
shipments less than 500 miles with most shipments arriving at their destination on the same day
they are shipped or by 8:00 a.m. the following morning. The Company also provides local courier
services through its subsidiaries in two metropolitan markets: Minneapolis, MN and Chicago, IL. Food Service.The Companys food service division gives passengers the ability to purchase
food, gifts and logo merchandise in over 50 terminal locations. In addition to cafeteria-style
restaurants, convenience store type grab and go facilities and gift shops, the Company also
offers national brand concepts such as KFC and Pizza Hut. Travel Services. The Company offers charter and tour services (travel services) principally
for group travel to and from specific events, such as concerts, sporting events, casinos and
conventions. Generally the passenger business provides the bus and driver resources for these
travel services on an as available basis, such that resources are often only available in
off-peak periods, generally weekdays outside of the peak summer and holiday periods. However, the
Company has also established dedicated bus and driver resources for travel services operations in
certain cities so that the operations in these cities are not completely dependent on resource
availability from the passenger business and are, accordingly, able to offer travel services on the
weekends and in the summer. Additionally the Company operates meet and greet services for cruise
lines at four ports in the United States. The meet and greet service consists of meeting cruise
line passengers (usually at airports) and transferring these passengers and their baggage to and
from cruise ships. Marketing and Advertising The Companys marketing and advertising philosophy is geared toward stimulating 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, the internet, and targeted print media. Additionally,
the Company offers convenient around-the-clock fare and schedule quotations via a toll-free
telephone number through its telephone information centers and through the Companys internet web
site. Operations The Company utilizes approximately 120 company-operated bus terminals and approximately 1,300
agency-operated terminals and/or sales agencies. Maintenance garages are maintained at 25 strategic
locations and are supplemented by company and third party-operated service islands and fueling
points. The Company currently has approximately 3,800 drivers based in approximately 100 different
locations across the country. In the Greyhound Lines unit, drivers report to either driver
supervisors or city managers who are organized into nine districts reporting to district managers
of field operations. The nine districts are grouped into East and West regions, which are each
headed by a general manager to whom the district managers report. The scheduling and dispatch of
the buses and drivers is a centralized function that coordinates with the districts in the planning
and execution of daily operations. The flexing of capacity to meet demand is accomplished through
the management of national dispatch operations for equipment and drivers, rental of additional
buses and drivers to cover peak demand periods, planning and coordinating extra sections with the
districts and analyzing and implementing pooling and through service arrangements with other
carriers. Annual planning of the fleet size and driver requirements by location is also
centralized. Subsidiaries of Greyhound Lines independently coordinate and manage their own driver
and fleet resources. 6




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Information technology is an integral component of the Companys operations. The Companys
information systems support, among other things, its web site, scheduling and pricing, dispatch,
operations planning, bus maintenance, telephone information centers, customer service, point of
sale, payroll and finance functions. As of December 31, 2004, the Companys automated fare and
schedule quotation and ticketing system, called TRIPS, was in use at 464 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 some markets, regional bus companies and trains. Typically, the
Companys customers decide to travel only a short time before their trip and purchase their tickets
within three days of the day of travel. The Companys everyday low pricing strategy usually
results in walk-up fares substantially below comparable airline fares. In instances where the
Companys fares exceed an airline discount fare, the Company believes the airline fares are
temporary or are typically more restrictive and less readily available than fares offered by the
Company. However, the Company also utilizes advance purchase discount programs in order to attract
the price sensitive customer. Price, destination choices, service 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 and small local
bus companies that cater to particular ethnic groups. In the Northeast travel corridors, low-cost
Asian carriers offering extremely low fares have continued to grow. These carriers generally have
curbside operations, loading passengers on the city streets, and operate high frequencies between
major cities such as Boston, New York, Philadelphia and Washington. Price, frequency of service,
and convenient scheduling are the current strategies of the Company to meet this competition. Competition by U.S.-based bus and van operators for the market represented by Spanish speaking
customers in the U.S. is growing. Barriers to entry into the regular-route cross-border bus market
between the U.S. and Mexico have been reduced under the North American Free Trade Agreement
(NAFTA), although entry into either market is still regulated by the respective U.S. and Mexican
regulatory authorities. The U.S. Department of Transportation (DOT) has issued a series of rules
establishing the process that Mexican-domiciled companies must follow to obtain authority to
perform cross-border bus operations into the United States. These rules require Mexican companies
to comply with all U.S. safety requirements and labor and immigration laws. Although the DOT could
commence the process for allowing Mexican-domiciled companies to perform cross-border services into
the United States, DOT has not yet taken formal action to allow such cross-border services. Once
such action occurs, the Company could experience significant new competition on routes, to, from
and across Mexican border points. 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 ventures or ticket selling arrangements with
Mexico-based bus carriers. The Company has established a separate operating subsidiary that,
through these ventures, provides through-bus service at most major gateways between the United
States and Mexico. Additionally, in some of its terminals Greyhound Lines sells tickets for travel
in Mexico on Mexico-based carriers tickets and Mexico-based carriers sell tickets for travel in
the U.S. on Greyhound Lines in certain of their terminals in Mexico. Package Express.The Company faces intense competition in its package express service from
local courier services and overnight express and ground carriers. The Company continues to develop
programs to meet this competition and further develop its package express business. These programs
focus on system upgrades to improve service, billing and tracking for its customers, localized
marketing strategies, and local, regional or national 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 intercity package express service at distances of up to 500 miles at a
substantially lower price than those charged by other delivery services. 7




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Food Service.The captive nature of the food service operations in the Companys terminals
limits competition; however, in some locations proximity of terminals to fast food outlets and
convenience stores can pose a competitive factor. Travel Services.Charter services are provided by several thousand local operators as well as
a few regional carriers. Pricing, type of equipment and consistency in service are the principal
factors both in generating new business and retaining existing customers. The Company principally
competes based upon price and consistency of service in order to meet the customers demands. Operating Environment The Companys business is affected by changes in economic conditions, consumer preferences and
spending patterns, medical and wage inflation, demographic trends, consumer perceptions of
transportation safety, costs of safety, security and environmental measures, road congestion and
the weather. Following the September 11, 2001 terrorist attacks the Company increased its spending
for safety and security in the bus terminals. Additionally, it is possible that the Transportation
Security Administration (TSA) could mandate security procedures that exceed the level currently
provided by the Company further increasing costs. Past terrorist acts and incidents on buses, or
perceptions about future attacks have and could continue to adversely affect the demand for the
Companys services. 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. Workforce At March 1, 2005, the Company employed approximately 9,700 workers, consisting of
approximately 3,100 terminal employees, 3,800 drivers, 900 supervisory personnel, 700 mechanics,
400 telephone information agents, and 800 clerical workers. Of the total workforce, approximately
7,900 are full-time employees and approximately 1,800 are part-time employees. At March 1, 2005, approximately 45% of the Companys employees were represented by collective
bargaining agreements. The Amalgamated Transit Union (the ATU) represents approximately 3,700 of
the Companys employees, including drivers, about half of the Companys mechanics and terminal
workers in three locations. The largest ATU agreement (ATU 1700) covers the drivers and
maintenance employees and expires on January 31, 2007. The International Association of Machinists and Aerospace Workers (the IAM) represents
approximately 300 of the Companys employees, including the remaining mechanics. The IAM
agreements expire on September 30, 2007. The Company also has bargaining agreements with the
International Brotherhood of Teamsters, which represent approximately 100 employees at three
terminal locations and the United Transportation Union, which represents approximately 200
employees at two of the Companys subsidiaries. Trademarks The Company owns the Greyhound name and trademarks and the image of the running dog
trademarks worldwide. The Company believes that this name and the trademarks have substantial
consumer awareness. 8




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Government Regulation The Federal Motor Carrier Safety Adminstration.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 DOTs Federal Motor Carrier Safety Administration (FMCSA). Failure
to maintain a satisfactory safety rating, designate agents for service of process or to meet
minimum insurance requirements, after notice and opportunity to remedy, may result in the FMCSAs
ordering the suspension or revocation of the Companys authority to render transportation services.
FMCSA 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 FMCSA or, pursuant to cooperative arrangements
with the FMCSA, by state police or officials, to determine whether the Companys drivers, buses and
records are in compliance with the FMCSAs regulations. The Company, from time to time, has been
cited by the FMCSA or state authorities for non-compliance with regulations but, nevertheless, has
retained a satisfactory safety rating. The Company has also been authorized by the FMCSA to
partially self-insure its bodily injury and property damage liability. See Insurance Coverage.
The FMCSA 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. 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 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. 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
interstate route. However, the Companys buses remain subject to state vehicle registration
requirements, bus size and weight limitations, fuel sales and use taxes, vehicle emissions, 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) pursuant to regulations adopted by the DOT. The regulations require that all new buses
acquired by the Company for its fixed route operations must 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 that existing buses be retrofitted with lift
equipment, nor do the regulations require the purchase of accessible used buses. Currently the
added cost of a built-in lift device in a new bus is approximately $40,000 plus the Company incurs
additional maintenance and employee training costs. Passenger revenues could also be impacted by
the loss of seating capacity when wheelchair passengers are on the bus, partially offset by
potentially increased ridership by disabled persons. At December 31, 2004, approximately 19% of
the Companys fleet used in fixed route operations was wheelchair lift-equipped. The Company
currently plans to meet the October 2006 requirement through a combination of retrofitting existing
buses, purchasing new wheel chair lift equipped buses and reducing the size of the fleet in
conjunction with the implementation of its long-range strategic plan. 9




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Following the September 11, 2001 terrorist attacks the Company increased its spending for
safety and security in the bus terminals. Limited government assistance, in the form of grants, is
being offered to the bus industry. In August 2003, the Company received a grant of approximately
$10.1 million from the TSA for the period ending March 17, 2005. The grant provides reimbursement
for incremental spending on safety and securityrelated initiatives such as: increased passenger
screening in the bus terminals, bomb detection devices, installation of protective shields in the
driver compartment of buses and installation of on-board communication devices. In September
2004, the Company received an additional grant of approximately $2.3 million for the period through
September 30, 2005 for onboard communications and terminal security upgrades. Although the Company
has received these two grants, there can be no assurance that additional grants will be extended in
the future. Insurance Coverage The Company maintains comprehensive automobile liability, general liability, workers
compensation and property insurance to insure its assets and operations. Prior to September 2001,
the Company purchased its insurance from Laidlaw with coverage subject to a $50,000 deductible for
property damage claims and no deductible for auto liability, workers compensation or general
liability claims. Between September 1, 2001 and August 31, 2003, the Company began purchasing
coverage from third-party insurers for claims up to $5.0 million subject to a $3.0 million per
occurrence deductible or self insured retention for automobile liability and a $1.0 million per
occurrence deductible or self insured retention for workers compensation and general liability.
Effective September 1, 2003, the coverage for all claims is subject to a $3.0 million per
occurrence deductible or self insured retention. The Company purchases excess coverage for
automobile liability, general liability and workers compensation insurance through Laidlaw for
claims which exceed $5.0 million. The Company also continues to purchase from Laidlaw coverage for
physical damage to Company property and business interruption subject to a $100,000 per occurrence
deductible. The FMCSA has authorized the Company to self-insure its automobile liability exposure for
interstate passenger service up to $3.0 million per occurrence. To maintain self-insurance
authority, the Company is required to provide periodic financial information and claims reports,
maintain a satisfactory safety rating by the FMCSA, a tangible net worth of $10.0 million and a
trust fund, initially set at $15 million, to provide security for payment of claims. At December
31, 2002, and continuing to date, the Companys tangible net worth has fallen below the minimum
required by the FMCSA to maintain self-insurance authority. The FMCSA
granted waivers of the
tangible net worth requirement through December 31, 2005, and,
as a condition of the waivers, the
Company has been required to increase the self-insurance trust fund to the greater of $17.7 million
or 110% of the estimated unpaid liability for self-insured claims. Insurance coverage and related administrative expenses are key components of the Companys
cost structure. Additionally, the Company is required by the FMCSA, some states and some of its
insurance carriers to maintain collateral deposits or provide other security pursuant to its
insurance program. At December 31, 2004, the Company maintained $50.4 million of collateral
deposits (including $37.3 million in the FMCSA trust fund) and had issued $53.7 million of letters
of credit in support of these programs. See Note 8 to the Consolidated Financial Statements. The
loss or further modification of self-insurance authority from the FMCSA 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. 10




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Environmental Matters The Company may be liable for certain environmental liabilities and clean-up costs at the
various facilities presently or formerly owned or leased by the Company. Based upon surveys
conducted solely by Company personnel or its experts, 28 active and 21 inactive locations have been
identified as sites requiring potential clean up and/or remediation as of December 31, 2004.
Additionally, the Company is potentially liable with respect to five active and seven inactive
locations which the EPA has designated as 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 nominal settlement
amounts. The Company has recorded a total environmental liability of $4.6 million at December 31, 2004
of which approximately $0.7 million is indemnifiable by the predecessor owner of the Companys
domestic bus operations, now known as Viad Corp. The environmental liability relates to sites
identified for potential clean up and/or remediation and represents the present value of estimated
cash flows discounted at a rate commensurate with the interest rate on monetary assets that are
essentially risk free and have a maturity comparable to the underlying liabilities. 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. Code of Ethics The Company has adopted a written code of ethics, Code of Business Conduct and Ethics which
is applicable to all employees of the Company, including the Companys Chief Executive Officer,
principal financial officer, principal accounting officer and controller (or persons performing
similar functions) (collectively, the Financial Officers). In accordance with the rules and
regulations of the Securities and Exchange Commission, a copy of the Code of Business Conduct and
Ethics is publicly available on the website of the Companys parent company, Laidlaw, at
www.laidlaw.com. The Company intends to disclose any amendments to or waivers from the code of
ethics applicable to any Financial Officer of the Company on Laidlaws website at www.laidlaw.com.
The Company will provide, at no cost, a copy of the Code of Business Conduct and Ethics upon
request in writing to P.O. Box 660362, Dallas, Texas 75266-0362, Attention: Investor Relations. The
information on the Laidlaw website is not incorporated into, and is not part of, this report. 
 ITEM 2. PROPERTIES Land and Buildings At December 31, 2004, the Company used 521 parcels of real property in its operations, of
which it owned 160 properties and leased 361 properties. Of those properties, 385 are bus
terminals, 30 are maintenance facilities, 26 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 and
in select locations in Canada and Mexico. Where practical, the Company attempts to locate its
terminals in state or federally funded intermodal facilities. The Company currently operates in
approximately 110 of such facilities. The Company believes, in general, that the current makeup of its properties is adequate for
its operations. However, the Company must occasionally relocate its facilities, permanently or
temporarily, when it sells a parcel, when leases are not renewed or are terminated, or when owned
or leased properties are taken through eminent domain proceedings by government authorities. The
Company is also subject to local zoning restrictions that can limit the Companys ability to expand
a location or relocate to a new facility. In the case of publicly funded facilities, the
relocation can be affected by funding availability and site selection and urban planning
considerations. 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 expand, or which are condemned, or for which leases
are not renewed or are otherwise terminated. 11




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The Company operates out of its largest sales location, the Port Authority Bus Terminal of New
York (the Port Authority) on a month-to-month basis pursuant to several lease agreements and a
license agreement. Although the Company has reached agreement with the Port Authority on the terms
of new long-term lease and license agreements and expects to operate out of its existing space in
the Port Authority for the foreseeable future, because the Port Authority has not yet executed new
long-term agreements, the Port Authority could terminate its agreements with the Company upon
30-day notice at any time. If the Port Authority were to require the Company to relocate, such
relocation could result in an increase in the costs to operate out of the Port Authority and
potentially impact ticket and food service revenues. Fleet Composition and Bus Acquisitions During 2004, the Company took delivery of 38 new and used buses, and retired 96 buses,
resulting in a fleet of 2,748 buses at December 31, 2004, of which the Company owned 1,247 buses
and leased an additional 1,501 buses. Because of the declines in bus
miles over the last several years, the Company believes it currently has approximately 150
excess buses in its fleet and will be disposing of these buses in the ordinary course of business
during the next year. The average age of the Companys bus fleet, excluding the excess buses
increased to 7.7 years at December 31, 2004, compared to 7.2 years at December 31, 2003 and 6.6
years at December 31, 2002. Although the Company believes the current fleet age is adequate for
its operations, the Companys experience indicates that older buses are less reliable and more
costly to operate than newer buses. Additionally, older buses with older engines are generally
less fuel-efficient than newer buses and, because older buses require maintenance on a more
frequent basis, an older fleet results in an increase in the number of buses required to operate
the business. Motor Coach Industries, Inc. or its affiliate, Motor Coach Industries Mexico, S.A. de C.V.,
hereafter referred to collectively as MCI, produced all but 60 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 for 40
foot and larger coaches from MCI pursuant to the agreement. 
 ITEM 3. LEGAL PROCEEDINGS On September 20, 2004, Greyhound responded to proceedings brought in Georgia state court
seeking to enforce a default garnishment judgment on funds in a Greyhound bank account. This
action stemmed from an October 1995 default judgment in the amount of approximately $7 million (the
1995 Judgment) against Gary Jones, a former consultant to Greyhound. More than four years later,
in October 2000, the plaintiff who obtained the 1995 Judgment (the Plaintiff) began garnishment
proceedings against Greyhound in Georgia state court seeking to recover amounts owed to Gary Jones,
who then allegedly owed the Plaintiff the amount of approximately $11 million based on the 1995
Judgment plus post-judgment interest. On May 2, 2001, a default judgement for $11 million was
entered by the Georgia state court against Greyhound. On March 10, 2005, Greyhound settled this
matter for an immaterial amount and has reflected the cost of the settlement as a component of
non-operating income in its Consolidated Statements of Operations for the year ended December 31,
2004. The Company is also 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
deductible portion of the policies. Management believes that there are no proceedings either
threatened or pending against the Company relating to such personal injury, property damage and
employment-related claims that, if resolved against the Company, would materially exceed the
amounts recorded as estimated liabilities by the Company. For information relating to certain environmental matters relating to the Company, see Item
1. Business  Environmental Matters. 12




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##### Table of Contents



PART II 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES All of the Companys outstanding common stock is held by a subsidiary of Laidlaw and,
therefore, the common stock is not traded on any established public trading market. The Company
has not paid dividends in the past and, furthermore, the indenture governing the Companys 11 1/2%
Senior Notes and the agreement governing the Companys revolving credit facility limit the ability
of the Company to pay dividends. At December 31, 2004, under the most restrictive of the
agreements, no dividends could be paid by the Company. 13




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business Overview Greyhound is the only nationwide provider of scheduled intercity bus transportation services
in the United States. The Company operates as one business segment with the primary business
consisting of scheduled passenger service, package express service and food service at certain
terminals. At December 31, 2004, the Companys operations included a nationwide network of
terminal and maintenance facilities utilizing a fleet of approximately 2,700 buses. At December
31, 2004, the Company used a network of approximately 1,400 sales locations, offering the customer
the ability to travel to more than 2,200 destinations in North America. The Companys business is seasonal in nature and generally follows 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 operating cash flows are also seasonal with a disproportionate amount of the
Companys annual operating cash flows being generated during the peak travel periods. 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 the fiscal quarter, may also affect the Companys quarterly
results of operations. The following discussion and analysis presents factors which affected the Companys
consolidated results of operations for the year ended December 31, 2004 and the Companys
consolidated financial position at December 31, 2004. The following information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto. 2004 Overview During 2004, the Company began implementing its long-range strategic plan in the passenger
business and continued to stabilize the business through its initiatives to enhance yield, reduce
marginally profitable bus miles and reduce operating and general and administrative costs. These
initiatives resulted in a 6.8% increase in revenue per mile and a $3.7 million increase in
operating income. The improvement in operating income occurred despite a decline in revenue of
approximately $18.8 million or 1.9% and an increase in fuel price, causing a cost increase of $14.8
million compared to the prior year. In August 2004, the Company implemented the first phase of its long-range strategy for the
passenger business. In general, the strategy is to more efficiently serve areas where customer
demand is greatest through a smaller, simpler network of routes that is short-and medium-haul
focused, but that can still provide affordable service to long-haul passengers. The initial
implementation occurred in the Northwest region of the United States, roughly between Chicago and
Seattle, and involved the elimination of approximately 10 million annual bus miles, 260 sales
locations and modifications of other routes to provide a better service pattern for customers. The
implementation of the strategy in the Northwest resulted in improved revenue per mile in the region
and, accordingly, an improvement in the estimated operating income from the region. The Company will complete the implementation of the second phase of its strategy in early
April 2005 in the Southwest region of the U.S., defined as the states of California, Nevada,
Arizona, New Mexico, Texas, Oklahoma, Louisiana and Arkansas. In this region, the Company will
eliminate approximately 23 million annual bus miles, 174 sales locations and approximately 575
jobs. Because most of the locations being eliminated are agent-owned locations and many of the
eliminated jobs are not eligible for severance pay, the Company expects to record an insignificant
charge during the first quarter of 2005 for severance, real estate lease terminations and other
implementation costs. The Company will continue to implement the strategy in phases and expects to
be complete in eighteen months to two years. 14




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During 2004, the Company entered into new collective bargaining agreements with its two
principal labor unions. In March 2004, the Company entered into a new three-year agreement with
the Amalgamated Transit Union, Local 1700, that covers all of the Companys drivers and half of its
mechanics. In October 2004, the Company entered into new three-year agreements with the
International Association of Mechanics and Aerospace Workers union that covers the remaining
mechanics. As a result of these new three-year agreements, the Company should have a stable labor
environment for the next several years. Additionally, during the year, the Company extended its
Revolving Credit Facility for two years to October 2006. In summary, management continued its focus on making improvements to further stabilize the
Company in the short-term, implemented the first phase of its long-range strategy and completed the
planning for implementation of the second phase of its strategy. The Company will continue this
dual focus as substantial needs for capital expenditures and debt service requirements mandate that
the Company continue to significantly improve operations and financial results. Results of Operations The following table sets forth the Companys results of operations as a percentage of total
operating revenues for 2004, 2003 and 2002: Years Ended December 31,2004
    
    
    2003
    
    
    2002Operating RevenuesPassenger services
    
    
    84.8
    %
    
    
    85.2
    %
    
    
    85.7
    %Package express
    
    
    4.1
    
    
    
    4.0
    
    
    
    4.0Food services
    
    
    3.9
    
    
    
    4.1
    
    
    
    4.3Other operating revenues
    
    
    7.2
    
    
    
    6.7
    
    
    
    6.0Total Operating Revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating ExpensesMaintenance
    
    
    10.6
    
    
    
    10.9
    
    
    
    10.2Transportation
    
    
    24.5
    
    
    
    25.1
    
    
    
    24.7Agents commissions and station costs
    
    
    17.7
    
    
    
    18.2
    
    
    
    18.5Marketing, advertising and traffic
    
    
    2.7
    
    
    
    2.7
    
    
    
    2.8Insurance and safety
    
    
    7.8
    
    
    
    7.5
    
    
    
    7.8General and administrative
    
    
    13.4
    
    
    
    12.9
    
    
    
    12.7Depreciation and amortization
    
    
    6.3
    
    
    
    5.6
    
    
    
    5.1Operating taxes and licenses
    
    
    5.8
    
    
    
    6.1
    
    
    
    6.2Operating rents
    
    
    8.0
    
    
    
    8.2
    
    
    
    8.1Cost of goods sold  food services
    
    
    2.5
    
    
    
    2.6
    
    
    
    2.8Other operating expenses
    
    
    0.7
    
    
    
    0.6
    
    
    
    0.7Total Operating Expenses
    
    
    100.0
    
    
    
    100.4
    
    
    
    99.6Operating Income (loss)
    
    
    0.0
    
    
    
    (0.4
    )
    
    
    0.4Non-Operating Income
    
    
    (0.2
    )
    
    
    0.0
    
    
    
    0.0Interest Expense
    
    
    2.6
    
    
    
    2.5
    
    
    
    2.6Income Tax Provision
    
    
    0.0
    
    
    
    0.1
    
    
    
    5.3Minority Interests
    
    
    0.0
    
    
    
    0.0
    
    
    
    (0.2
    )Cumulative Effect of Change in Accounting for Goodwill
    
    
    0.0
    
    
    
    0.0
    
    
    
    4.0Net Loss
    
    
    (2.4
    )%
    
    
    (3.0
    )%
    
    
    (11.3
    )%
 15




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The following table sets forth certain key operating data used by management in assessing the
Companys performance for 2004, 2003 and 2002. Certain statistics have been adjusted and restated
from those previously published to provide consistent comparisons. Years Ended December 31,2004
    
    
    2003
    
    
    2002Regular Service Miles (000s)
    
    
    279,891
    
    
    
    304,828
    
    
    
    333,154Total Bus Miles (000s)
    
    
    288,442
    
    
    
    313,337
    
    
    
    341,071Passenger Miles (000s)
    
    
    7,298,028
    
    
    
    7,963,086
    
    
    
    8,739,581Passengers Carried (000s)
    
    
    21,211
    
    
    
    21,920
    
    
    
    23,283Average Trip Length (passenger miles ÷ passengers carried)
    
    
    344
    
    
    
    363
    
    
    
    375Load (avg. number of passengers per regular service mile)
    
    
    26.1
    
    
    
    26.1
    
    
    
    26.2Load Factor (% of available seats filled)
    
    
    51.2
    %
    
    
    51.5
    %
    
    
    52.1
    %Yield (passenger services revenue ÷ passenger miles)
    
    $
    0.1112
    
    
    $
    0.1043
    
    
    $
    0.0972Average Ticket Price
    
    $
    38.26
    
    
    $
    37.89
    
    
    $
    36.50Total Revenue Per Total Bus Mile
    
    $
    3.32
    
    
    $
    3.11
    
    
    $
    2.91Cost per Total Bus Mile:Maintenance
    
    $
    0.350
    
    
    $
    0.339
    
    
    $
    0.296Transportation, excluding fuel
    
    $
    0.612
    
    
    $
    0.632
    
    
    $
    0.597Fuel
    
    $
    0.200
    
    
    $
    0.149
    
    
    $
    0.122Insurance and Safety
    
    $
    0.260
    
    
    $
    0.232
    
    
    $
    0.226
 Year ended December 31, 2004 Compared to Year ended December 31, 2003 Operating Revenues.Total operating revenues decreased $18.8 million, down 1.9% for the year
ended December 31, 2004 compared to the same period in 2003. Passenger services revenues decreased $19.2 million, or 2.3%, in 2004 compared to 2003 as the
decline in passenger miles of 8.4% was only partially offset by an increase in yield of 6.6%. The
passenger miles decline was the result of a 3.2% decline in passengers and a 5.2% decline in
average trip length, indicating that short- and medium-haul trips continue to grow in proportion to
total trips. Accordingly, revenue declined in part because the Company continued to use price
increases and schedule frequency reductions to dampen the demand for low yielding, long-haul travel
and, in addition, the implementation of its long-term strategy in the Northwest resulted in a
slight decline in revenue. Management also believes that the soft economy combined with higher fuel
and health care costs reduced discretionary income in the Companys passenger demographics, also
contributing to the revenue decline. Even though revenue declined, the Company aggressively managed
bus miles such that load was flat compared to prior year and, coupled with increased yield,
produced improved revenue per mile of approximately 6.8%. Package express revenues decreased $0.5 million, down 1.3% in 2004 compared to 2003. The
Company continues to experience reduced standard product deliveries (the traditional, low value,
terminal to terminal market segment) as a result of continued competition, as well as expanded and
improved product offerings from larger package delivery companies. Partially offsetting the loss
in standard product was a price increase on oversize packages and customer baggage. Additionally,
the Company continues to focus on its same day delivery market niche through selling a guaranteed
same day or early next morning service. Food services revenues decreased $2.4 million, down 6.0% for the year ended December 31, 2004
compared to the same period in 2003. The Company attributes the decline in food services revenues
primarily to the decrease in passenger traffic, particularly in the long-haul markets. 16




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##### Table of Contents



Other operating revenues, consisting primarily of revenue from travel services, in-terminal
sales and other services, increased $3.3 million, up 5.0% in 2004 compared to 2003. The increase
is primarily due to increases in transportation services provided to cruise lines partially offset
by declines in in-terminal sales and the expiration of transit contracts. Operating Expenses.Total operating expenses decreased $22.5 million, down 2.3% for the year
ended December 31, 2004 compared to the same period in 2003. Maintenance costs decreased $5.1 million, or 4.8% in 2004 compared to 2003. On a per mile
basis, maintenance costs increased 3.2% due in part, to a higher average fleet age, inflationary
wage rate increases for mechanics and increased material costs as a result of fewer bus engines and
transmissions under warranty. Additionally, regular service bus miles were down significantly,
8.2% for the year ended December 31, 2004, and as a result, the fixed cost component of
maintenance, principally real estate and related costs as well as supervision, increased on a per
mile basis. Transportation expenses, which consist primarily of fuel costs and driver wages, decreased
$10.5 million, or 4.3% for the year ended December 31, 2004 compared to the same period in 2003, as
the effects of operating fewer bus miles were partially offset by increases in fuel. During 2004,
the average cost per gallon of fuel increased to $1.24 from $0.91 in 2003 resulting in increased
costs of $14.8 million. Partially offsetting the increase in fuel costs, driver hiring and
training costs were $2.5 million lower in 2004 due to decreases in the number of drivers hired. On
a per-mile basis, excluding the effects of fuel price changes and driver hiring costs,
transportation expenses decreased by 1.5% for the year ended December 31, 2004, due to continued
focus on operational improvements and cost reduction initiatives. Agents commissions and station costs decreased $8.5 million, down 4.8% in 2004 compared to
2003. The decrease is primarily due to lower commissions, terminal and call center wages and
communications costs as a result of lower passenger volumes and lower rates for long distance
communication as a result of a new contract. Marketing, advertising and traffic expenses decreased $0.6 million, or 2.4%, in 2004 compared
to 2003. The decrease is a result of a change in the method, type and timing of advertising and
also a result of more focused customer and brand research as compared to prior years. Insurance and safety costs increased $2.3 million, up 3.2% in 2004 compared to 2003. On a
cost per mile basis insurance costs increased 12.1%. The increase is principally due to adverse
development on prior year claims, an increase in the number of severe accidents, an increase in the
cost of excess insurance coverage and continued medical and wage inflation. General and administrative expenses increased $3.4 million, up 2.7% for the year ended
December 31, 2004 compared to the same period in 2003. During the year higher pension and
incentive costs ($11.6 million, representing a 9% increase in general and administrative costs)
more than offset decreased wages and other costs due to lower business volumes ($8.2 million,
representing a 7% decrease in total general and administrative costs). Depreciation and amortization increased $5.2 million, or 9.4% for the year ended December 31,
2004 compared to the same period in 2003. The increase is primarily due to a decrease in the
estimated average useful life and salvage value of certain older buses. Additionally, during 2004
the Company revised its estimated life of buses from 18 to 15 years. Operating taxes and licenses expense decreased $4.0 million, or 6.7% in 2004 compared to 2003.
The decrease is principally due to decreased fuel taxes and payroll taxes as a result of a decline
in miles operated and reductions in the workforce. Operating rents decreased $3.9 million, down 4.9%, for the year ended December 31, 2004
compared to 2003. The decrease is principally due to expirations of bus operating leases that
occurred in the first half of 2004. 17




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##### Table of Contents



Food services cost of goods sold decreased $1.6 million, or 6.1% in 2004 compared to 2003
primarily due to the decrease in food services revenues related to the decline in the number of
passengers. Other operating expenses increased $0.9 million, up 15.0% for the year ended December 31, 2004
compared to the same period in 2003. The increase is principally because a software write-off and
net losses on asset sales were greater than severance paid and gains on asset sales during the
prior year. Non-operating income consists of a distribution of $3.4 million from the U.S. Bankruptcy Court
in Brownsville, Texas representing residual claims payments that went unclaimed by or were
undeliverable to creditors and, therefore, reverted to Greyhound as provided for in the Companys
1990 plan of reorganization. This recovery is partially offset by costs related to the settlement
of a legal matter. Interest expense was essentially flat for the year ended December 31, 2004 compared to the
same period in 2003. Income tax expense increased $0.3 million, up 116.6%, for the year ended December 31, 2004
compared to the same period in 2003. The tax expense represents state tax expense related to its
subsidiaries that operate in separate return states. Minority interests for the year ended December 31, 2004, reflects the minority partners share
of current year income in the Companys Hispanic ventures. The ventures were slightly less
profitable in the current year as compared to the prior year. Critical Accounting Policies The preparation of financial statements requires management to make estimates and assumptions
relating to the reporting of results of operations, financial condition and related disclosure of
contingent assets and liabilities at the date of the financial statements. Actual results may
differ from those estimates under different assumptions or conditions. The following are the
Companys most critical accounting policies, which are those that require managements most
difficult, subjective and complex judgments, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain and may change in subsequent periods. Insurance Reserves.The Company is self-insured up to certain limits for costs associated
with workers compensation claims, vehicle accidents and general business liabilities. Reserves
are established for estimates of the loss that Greyhound will ultimately incur on claims that have
been reported but not paid and claims that have been incurred but not reported. These reserves are
based upon actuarial valuations that are prepared periodically by outside actuaries. The actuarial
valuations consider a number of factors, including historical claim payment patterns and changes in
case reserves, the assumed rate of increase in healthcare costs and property damage repairs,
ultimate court awards and the discount rate. Historical experience and recent trends in the
historical experience are the most significant factors in the determination of the reserves.
Management believes that the use of actuarial methods to account for these reserves provides a
consistent and effective way to measure these highly subjective accruals. However, given the
magnitude of the claims involved and the length of time until the ultimate cost is known, the use
of any estimation technique in this area is inherently sensitive. Accordingly, the amount of
recorded reserves could differ from the Companys ultimate costs related to these claims due to
changes in the Companys accident reporting, claims payment and settlement practices or claims
reserve practices, as well as differences between assumed and future cost increases and discount
rates. 18




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##### Table of Contents



Valuation of Long-lived Assets.The Companys long-lived assets include property and equipment
(principally buses and real estate), investments in affiliates, goodwill and other intangible
assets (principally software). At December 31, 2004, the Companys Consolidated Statements of
Financial Position reflects $339.4 million of net property and equipment and $35.7 million in
investments in affiliates, goodwill and other net intangible assets, accounting for over 69% of the
Companys total assets. Long-lived assets are assessed for impairment at least annually or
whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. Important factors which could trigger an impairment review include significant
underperformance relative to historical or projected future operating results, significant changes
in the use of the acquired assets, and significant negative industry or economic trends. A
potential for impairment exists on property and equipment and other intangible assets when the
assets have been identified and undiscounted cash flows estimated to be generated by those assets
are less than their carrying amount. A potential for impairment exists on investments in
affiliates and goodwill when the fair value of the investee or reporting unit is less than their
carrying amount. If a potential impairment exists, the assets are written down to the lower of cost
or fair value. Estimates of fair value represent our best estimate based on industry trends and
reference to market rates and transactions. The determination of fair value can be highly
subjective, especially for assets that are not actively traded or when market-based prices are not
available. In assessing the recoverability of the Companys long-lived assets the Company must make
assumptions regarding estimated future cash flows and other factors to determine whether impairment
exists. Cash flow estimates are based on historical results adjusted to reflect our best estimate
of future market and operating conditions. If these estimates or their related assumptions change
in the future, or if actual results are materially different than those previously estimated, the
Company may be required to record impairment charges for these assets not previously recorded. As part of the Companys long-range strategy of implementing a simplified network of routes in
the passenger business, the Company anticipates a reduction in bus miles and resulting reduction in
the number of buses required to support the business. As a result, during the next eighteen
months, the Company may identify groups of older-model buses to be removed from active service and
held for sale. In anticipation of these actions, the Company has reduced the average useful life
of its older model buses, thereby accelerating the depreciation on these older units. However,
there can be no assurances that based on the timing, the actual number of units to be disposed of,
and the state of the used bus market at the time of sale that the Company will realize its book
value on these assets. Pension.The Companys obligation and expense for pension benefits are determined using
actuarial methods that are dependent on the selection of certain assumptions and factors. These
include assumptions about the discount rate, expected return on plan assets and rate of future
compensation increases as determined by management. The Company determines the discount rate based
upon yields available on quality long-term corporate bonds (generally by reference to the Moodys
Aa bond index and similar U.S. bond indices). For the year ended December 31, 2004, the Company
assumed a 5.75% discount rate. A 25 basis point increase or decrease in last years discount rate
would have increased or decreased the Companys annual pension expense by approximately $0.2
million. The expected return on plan assets is based on plan-specific historical long-term portfolio
performance, asset allocations and investment strategies and the views of the plans investment
advisors. The assumptions and factors that the Company uses may differ materially from the actual
return on the Companys plan assets. For the year ended December 31, 2004, the Company assumed a
7.57% long-term rate of return on plan assets. A 25 basis point increase or decrease in the
long-term rate of return would have increased or decreased the Companys annual pension expense by
approximately $1.4 million. The rate of increase in future compensation levels is based primarily on labor contracts
currently in effect with employees under collective bargaining agreements and expected future pay
rate increases for other employees. In addition, the Companys actuarial consultants also use
factors to estimate such items as retirement age and mortality rates, which are primarily based
upon historical plan experience. The assumptions and factors used by the Company may differ
materially from actual results due to changing market and economic conditions, earlier or later
retirement ages or longer or shorter life spans of participants. These differences may result in a
significant impact to the amount of pension obligation or expense. 19




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##### Table of Contents



Accounting for Income Taxes.The Consolidated Statements of Financial Position reflects net
deferred tax assets as of December 31, 2004 of $186.8 million, resulting from operating losses and
other deductible temporary differences that will reduce taxable income in future periods.
Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes requires that a
valuation allowance be established when it is more likely than not that all or a portion of net
deferred tax assets will not be realized. A review of all available positive and negative evidence
needs to be considered, including expected reversals of significant deductible temporary
differences, a companys recent financial performance, the market environment in which a company
operates and the length of operating loss carryforward periods. Furthermore, the weight given to
the potential effect of negative and positive evidence should be commensurate with the extent to
which it can be objectively verified. Therefore, current pretax losses and the reasonable
likelihood of significant near-term reversals of deductible temporary differences carry more weight
than forecasted future pretax profits. As a result of book losses incurred in 2002, 2003 and 2004,
as well as the significant pension funding required and made by the agreement with the Pension
Benefit Guaranty Corporation (PBGC) (which gives rise to tax deductions when made), the Company
concluded that it was appropriate to establish and maintain a full valuation allowance for its net
deferred tax assets. Additionally, the Company expects to continue to provide a full valuation allowance on future
tax benefits until it can achieve an appropriate level of pretax profitability that demonstrates
its ability to utilize existing operating loss carryforwards. New Accounting Pronouncements There are no recent accounting pronouncements that would have a material effect on the
Companys results or financial position if they were presently applicable. Liquidity and Capital Resources The Company requires significant cash flows to finance capital expenditures, including bus
acquisitions, and to meet its debt service and other continuing obligations. As of December 31,
2004, the Company had $203.2 million of outstanding debt, implicit debt equivalent of $223.9
million for off-balance sheet bus operating leases and $61.5 million of outstanding letters of
credit (which principally support recorded claims liabilities). Additionally, as of December 31,
2004, the Company had availability of $43.1 million under its revolving credit facility and cash
and cash equivalents of $35.9 million. The Companys principal sources of liquidity are expected
to be cash flow from operations (which is net of cash charges for interest expense and lease
payments under the Companys bus operating leases), proceeds from operating lease or other
equipment financing for new bus purchases and borrowings under the revolving credit facility. The
Company, however, has no right to access the revolving credit facility for borrowings or letters of
credit if an event of default exists or an event, which with notice or passage of time or both
would give rise to an event of default, has occurred. See Note 12 to the Consolidated Financial
Statements. Management assesses the Companys liquidity in terms of its ability to generate cash
to fund operations, finance the purchase of buses and debt servicing. Generally new term financing
(including bus operating lease financing) must be obtained to support the Companys annual capital
expenditure needs. If new bus financing cannot be obtained in the future, the Company would have
to reduce capital expenditures, resulting in an increase in fleet age and costs to operate the
fleet. 20




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##### Table of Contents



Net cash provided by operating activities was $39.5 million, $38.8 million and $98.1
million for the years ended December 31, 2004, 2003 and 2002, respectively. Net cash provided by
operating activities contains two components, cash provided by the Companys operating results
(defined as the sum of net loss, cumulative effect of accounting change and non-cash expenses and
gains included in net loss) and cash provided by (or used by) changes in operating assets and
liabilities. Cash provided by the Companys operating results was $58.1 million, $37.8 million and
$43.5 million for the years ended December 31, 2004, 2003 and 2002, respectively. The increase in
cash provided by operating results in 2004 is mainly due to a decrease in the Companys operating
loss and increases in non-cash related costs for pension expense, depreciation expense and asset
write-offs. Changes in operating assets and liabilities resulted in a use of cash of $18.6 million
for the year ended December 31, 2004 compared to cash provided of $1.0 million and $54.6 million in
2003 and 2002, respectively. The use of cash in 2004 was principally due to an increase in the
Companys insurance and security deposits resulting from the modified requirements imposed by the
Federal Motor Carrier Safety Administration (FMCSA) related to the Companys self-insurance
program. The FMCSA required the Company to provide $19.3 million in additional deposits during
2004 to support the self-insurance program. During 2003, cash provided by changes in operating
assets and liabilities was principally due to an increase in the Companys claims liabilities,
which are largely comprised of insurance reserves, partially offset by increases in intangible
assets due to spending on software and decreases in accrued liabilities and rents due to payments
on an operating lease. To support the increases in insurance reserves, the Companys primary
insurance carrier required the Company to issue an additional $14.2 million in letters of credit
during 2003. In 2002, cash provided by changes in operating assets and liabilities was principally
due to the increase in the Companys claims liabilities, and reductions in accounts receivable. To
support the increases in insurance reserves, the Companys primary insurance carrier required the
Company to issue $35.0 million in letters of credit as collateral through December 31, 2002. The
decrease in accounts receivable during 2002 was principally due to the timing of the year-end which
resulted in the Company receiving all weekend receipts prior to the year-end and, therefore,
reducing receivables from agents. Net cash used for investing activities was $18.2 million, $14.9 million and $56.1 million for
2004, 2003 and 2002, respectively, principally due to capital expenditures, consisting primarily of
acquisitions of buses and real estate and facility improvements, totaling $23.6 million, $22.7
million and $65.0 million for 2004, 2003 and 2002, respectively. During 2004 capital expenditures
were partially offset by the sale of assets and the sale of the operations of a subsidiary bus
company. During 2003 capital expenditures were partially offset by proceeds from the sales of
assets and investments. Net cash used by financing activities was $4.1 million, $11.1 million and $57.0 million for
2004, 2003 and 2002, respectively. The decrease in cash used by financing activities in 2004 is
principally due to lower payments on debt and capital lease obligations and a pay down on the
revolving credit facility that occurred in 2003. On July 6, 2004, the Company amended its revolving credit facility (the Revolving Credit
Facility) to extend the maturity date two years to October 24, 2006, reset certain financial
covenants, modify rates of interest on borrowings and provide for a prepayment premium should the
Company terminate the facility before October 24, 2006. Additionally, the amendment allows the
Company to elect to extend the maturity date an additional year, to October 24, 2007, provided that
the Company meets certain terms and conditions. Borrowings under the amended Revolving Credit Facility are available at a rate, determined by
reference to a leverage ratio calculated quarterly, equal to Wells Fargo Banks prime rate plus
0.375% to 2.25% or LIBOR plus 2.375% to 4.25%. Letter of credit fees are 3.5% per annum. A 1%
prepayment premium is payable should the Company terminate the facility before October 25, 2005, if
terminated between October 25, 2005 and October 23, 2006 the premium is 0.5%, and if after October
23, 2006 there is no premium. Letters of credit or borrowings are available under the Revolving
Credit Facility based upon the total of 80% of the appraised wholesale value of bus collateral,
plus 65% of the quick sale value of certain real property collateral, minus $20 million, (which at
December 31, 2004, aggregated to $104.6 million) subject to a maximum of $125 million, inclusive of
a $70 million letter of credit sub-facility. As of December 31, 2004, the Company had no
outstanding borrowings under its Revolving Credit Facility, issued letters of credit of $61.5
million and availability of $43.1 million. 21




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##### Table of Contents



Additionally, the Company is required to maintain a minimum cash flow to interest expense
ratio, maximum indebtedness to cash flow ratio and minimum cash flow (the Financial Covenants).
The Financial Covenants were established at 15% to 20% less than the levels projected in financial
forecasts delivered to the agent bank by the Company in May 2004. As of December 31, 2004, the
Company was in compliance with all of the Financial Covenants. Based upon historical and recent
results and the current financial forecast, management believes that the Company will remain in
compliance with the Financial Covenants through 2005. However, continued increases in fuel prices,
continued softness in discretionary travel, unforeseen events or changes in assumptions may result
in material differences between the Companys future financial results or forecasts and the current
financial forecast, and those differences could result in a change in managements assessment
regarding compliance with the Financial Covenants. As described in Part I, Item 3 Legal proceedings, the Company has settled the matter brought
in a Georgia state court seeking to enforce a default garnishment judgment (the Default
Judgment). Prior to the settlement, the lenders under the Revolving Credit Facility could have,
but indicated they would not, declare a default due to the Default Judgment. Following the
settlement, the lenders have confirmed to the Company that no event of default exists under the
Revolving Credit Facility as a result of the Default Judgment. Bus Operating Leases The Company generally uses lease financing with purchase options (residual values) as the
principal source of bus financing in order to achieve the lowest net cost of bus financing. These
leases typically have terms of seven years and contain set residual values and residual value
guarantees; although some leases are for terms as long as twelve years and contain no residual
values or residual value guarantees. Because the Company generally retires buses after twelve to
fourteen years of operation, buses with residual value guarantees are purchased at lease expiration
at the residual value. Most of the leases are operating leases for accounting purposes and, as such, only the monthly
lease payment is recorded in the Consolidated Statements of Operations and the liability and value
of the underlying buses are not recorded on the Consolidated Statements of Financial Position.
Additionally, buses acquired and financed with operating leases are not included as capital
expenditures on the statement of cash flows (except for certain sale-leaseback transactions). At
December 31, 2004, the net present value of future operating lease payments, plus the residual
value or estimated fair market value for those leases that do not contain residual values,
discounted at the rate implicit in the lease was $223.9 million. Of those operating leases that contain residual value guarantees, the aggregate residual value
at lease expiration is $131.1 million, of which the Company has guaranteed $83.0 million. The
Company has the right to exercise a purchase option with respect to the leased equipment or the
equipment can be sold to a third party. At December 31, 2004, management estimates that the
residual value guarantees on certain leases will exceed the projected fair market value of the
underlying buses at lease expiration by $4.0 million and has established appropriate reserves for
this estimated liability. See Note 15 to the Consolidated Financial Statements. 22




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##### Table of Contents



At December 31, 2004, the scheduled future lease payments, residual value at lease expiration
and estimated fair market value at lease expiration for those leases which do not contain residual
values under the Companys bus operating leases are as follows (in thousands): FairLease
    
    
    Residual
    
    
    MarketPayments
    
    
    Value
    
    
    Value2005
    
    $
    44,870
    
    
    $
    14,163
    
    
    $
    12,9662006
    
    
    25,932
    
    
    
    28,599
    
    
    
    4,7062007
    
    
    16,477
    
    
    
    36,670
    
    
    
    2008
    
    
    10,324
    
    
    
    26,954
    
    
    
    1,9652009
    
    
    3,276
    
    
    
    15,306
    
    
    
    Thereafter
    
    
    1,694
    
    
    
    9,372
    
    
    
    Total
    
    $
    102,573
    
    
    $
    131,064
    
    
    $
    19,637
 Off-balance Sheet Arrangements In addition to the bus operating leases described above, the Company has entered into
operating leases for certain bus terminal space, headquarters space and for computers and other
equipment. In 2004, the Company made $78.5 million in payments on its operating leases including
its bus operating leases. The Company guarantees residual values on certain of its bus operating leases. Of those
operating leases that contain residual value guarantees, the aggregate residual value at lease
expiration is $131.1 million, of which the Company has guaranteed $83.0 million. See further
discussion above in Bus Operating Leases. Under its Revolving Credit Facility, the Company has a letter of credit sub facility whereby
the Company can issue up to a maximum of $70 million in letters of credit. At December 31, 2004,
the Company had $61.5 million in letters of credit outstanding. See further discussion above in
Liquidity and Capital Resources. Contractual Obligations The Company has entered into certain contractual obligations that will require various
payments over future periods as follows (in thousands): Scheduled Payments in Calendar Years2005
    
    
    2006-2007
    
    
    2008-2009
    
    
    Thereafter
    
    
    TotalLong-term debt (1)
    
    $
    2,609
    
    
    $
    197,384
    
    
    $
    1,705
    
    
    $
    1,516
    
    
    $
    203,214Interest on long-term debt (2)
    
    
    19,038
    
    
    
    25,194
    
    
    
    358
    
    
    
    99
    
    
    
    44,689Capital lease obligations (3)
    
    
    1,769
    
    
    
    4,056
    
    
    
    190
    
    
    
    297
    
    
    
    6,312Operating lease obligations (3)
    
    
    65,209
    
    
    
    76,880
    
    
    
    35,953
    
    
    
    30,840
    
    
    
    208,882Other long-term obligations (4)
    
    
    1,100
    
    
    
    2,200
    
    
    
    2,200
    
    
    
    1,650
    
    
    
    7,150Pension obligation (5)
    
    
    1,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,100Total
    
    $
    90,825
    
    
    $
    305,714
    
    
    $
    40,406
    
    
    $
    34,402
    
    
    $
    471,347
   (1)
    
    See Note 12 to Consolidated Financial Statements for additional information. Amount is
principal only and excludes capital lease obligations.(2)
    
    For variable rate debt the Company used the interest rate in effect at December 31,
2004 for all periods presented.(3)
    
    See Note 15 to Consolidated Financial Statements for additional information.(4)
    
    Amount represents an arrearage agreement between the Port Authority of New York and the
Company.(5)
    
    See Note 11 to Consolidated Financial Statements for additional information. 23




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##### Table of Contents



Capital Expenditures The following table summarizes the number of new and used buses acquired (including those
buses acquired and financed using operating leases, capital leases or vendor provided loans) and
used buses disposed of for cash by the Company during each of the last three years: Year Ended December 31,2004
    
    
    2003
    
    
    2002Total new and used buses acquired
    
    
    38
    
    
    
    17
    
    
    
    177Used buses disposed of for cash
    
    
    96
    
    
    
    123
    
    
    
    90
 Under U.S. generally accepted accounting principals, long-lived assets acquired that are
financed with operating leases, capital leases or vendor provided loans are considered non-cash
transactions and, therefore, are not reflected as capital expenditures in the statement of cash
flows. The following table reconciles the aggregate value of assets acquired by the Company,
including the value of assets financed with operating leases, capital leases and vendor provided
loans, to capital expenditures as reported in the Companys Consolidated Statements of Cash Flows
for the last three years (in thousands): Year Ended December 31,2004
    
    
    2003
    
    
    2002New and used buses acquired
    
    $
    9,055
    
    
    $
    4,852
    
    
    $
    58,082Disposals and government subsidies
    
    
    (1,008
    )
    
    
    (5,040
    )
    
    
    (7,203
    )Real estate, technology and other, net of disposals
    
    
    10,882
    
    
    
    14,155
    
    
    
    18,548Aggregate value of net assets acquired
    
    
    18,929
    
    
    
    13,967
    
    
    
    69,427Proceeds from operating lease financing
    
    
    (7,200
    )
    
    
    (4,268
    )
    
    
    (12,760
    )Proceeds from capital lease or vendor provided
financing
    
    
    
    
    
    
    
    
    
    
    (486
    )Buses purchased at operating lease expiration
    
    
    9,233
    
    
    
    8,070
    
    
    
    Capital expenditures, net of proceeds on disposals
    
    $
    20,962
    
    
    $
    17,769
    
    
    $
    56,181
 Potential Pension Plan Funding Requirements The Company maintains nine defined benefit pension plans (the Pension Plans) that as of
December 31, 2004 had a combined projected benefit obligation (PBO), discounted at 5.75%, of
$765.1 million. Over the last three years the PBO has remained essentially flat as interest
accretion on the obligation and the effect of a decrease in the discount rate of 1.3% have offset
reductions due to benefit payments. Plan assets have increased $89.1 million over the last three
years as net investment gains on plan assets and plan contributions, including $100 million related
to the PBGC Agreement, have exceeded benefit payments. The PBO exceeds plan assets resulting in
the plans being underfunded by $152.0 million at December 31, 2004 as compared to being underfunded
by $184.0 million at December 31, 2003. Laidlaw, collectively with all of its wholly-owned U.S. subsidiaries, including Greyhound (the
Laidlaw Group), is party to an agreement with the Pension Benefit Guaranty Corporation regarding
the funding levels of the Companys pension plans (the PBGC Agreement). On June 30, 2004, the
Laidlaw Group contributed $50 million in cash to the pension plans in accordance with the terms of
the PBGC Agreement. Additionally, under the PBGC Agreement 3.8 million shares of common stock of
Laidlaw were issued to a trust formed for the benefit of the pension plans (the Pension Plan
Trust). On February 17, 2005, Laidlaw purchased all shares from the Pension Plan Trust at the
closing market price for a total of $84.5 million. The proceeds from the sale were contributed to
the pension plans in accordance with the terms of the PBGC Agreement. 24




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##### Table of Contents



Both the June 30, 2004 and February 17, 2005 contributions have been designated by Laidlaw as
capital contributions to the Company and, accordingly, the Company recorded an increase in
additional paid-in-capital and a corresponding reduction in pension obligations for the amounts of
the contributions effective the dates the contributions were made. The most significant of the pension plans, the ATU Plan, represents approximately 90% of the
total obligations of the pension plans. Based upon current regulations, plan asset values at
December 31, 2004, the additional contribution made on February 17, 2005 and assuming annual
investment returns exceed 3%, the Company does not anticipate any significant additional minimum
funding requirements for the ATU Plan over the next several years. However, there is no assurance
that the ATU Plan will be able to earn the assumed rate of return, that new regulations may not
result in changes in the prescribed actuarial mortality table and discount rates, or that there
will be market driven changes in the discount rates, which would result in the Company being
required to make significant additional minimum funding contributions in the future. Self Insurance The Federal Motor Carrier Safety Administration (FMCSA) has authorized the Company to
self-insure its automobile liability exposure for interstate passenger service up to $3.0 million
per occurrence. To maintain self-insurance authority, the Company is required to provide periodic
financial information and claims reports, maintain a satisfactory safety rating by the FMCSA, a
tangible net worth of $10.0 million and a trust fund, initially set at $15 million, to provide
security for payment of claims. At December 31, 2002, and continuing to date, the Companys
tangible net worth has fallen below the minimum required by the FMCSA to maintain self-insurance
authority. The FMCSA granted waivers of the tangible net worth
requirement through December 31,
2005, and, as a condition of the waivers, the Company has been required to increase the
self-insurance trust fund to the greater of $17.7 million or 110% of the estimated unpaid liability
for self-insured claims. Insurance coverage and related administrative expenses are key components of the Companys
cost structure. Additionally, the Company is required by the FMCSA, some states and some of its
insurance carriers to maintain collateral deposits or provide other security pursuant to its
insurance program. At December 31, 2004, the Company maintained $50.4 million of collateral
deposits (including $37.3 million in the FMCSA trust fund) and had issued $53.7 million of letters
of credit in support of these programs. See Note 8 to the Consolidated Financial Statements. The
loss or further modification of self-insurance authority from the FMCSA 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. 25




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##### Table of Contents



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,
investment prices and interest rates. 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 fuel inventory and
historically with advance purchase commitments for fuel. The Company has fuel inventory at
December 31, 2004, at a carrying value of $1.4 million. 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 results of operations. Additionally, the Company has historically entered into advance
purchase commitments for fuel whereby the Company would take delivery of a set amount of gallons at
a fixed price. Currently the Company has no such arrangements outstanding. For the year ended
December 31, 2004, the Company recorded $57.7 million in fuel expense (exclusive of fuel taxes).
While a 10% increase or decrease in the cost of fuel would have a material effect on the Companys
operating expenses, generally periods of rising fuel costs have allowed the Company to increase
average ticket prices and periods of declining fuel costs have required the Company to lower ticket
costs, thus providing some hedge against fuel price fluctuations. However, due to the competitive
nature of the transportation industry, there can be no assurance that the Company will be able to
pass on increased fuel prices to its customers by increasing its fares or that the timing of price
increases will coincide with the timing of the fuel cost increase. Likewise, increased price
competition and lower demand because of a decline in out-of-pocket costs for automobile use may
offset any potential benefit of lower fuel prices. Investment Prices.The Company currently has exposure in the market price of investments in its
available for sale securities. At December 31, 2004, the Company has approximately $5.5 million of
investments classified as available for sale and a 10% decrease in the market price would not have
a material effect on the Companys financial position. As required by generally accepted
accounting principles, the Company has reported these investments at fair value, with any
unrecognized gains or losses excluded from earnings and reported in a separate component of
stockholders equity. Interest Rate Sensitivity.The Company currently has exposure to interest rates from its long-term
debt as it relates to the Companys Revolving Credit Facility and the Laidlaw subordinated debt.
The Revolving Credit Facility utilizes a variable rate based on prime and LIBOR. As of December
31, 2004, the Revolving Credit Facility utilized prime plus 1.5% and LIBOR plus 3.5% with no
outstanding borrowings. Borrowings under the Revolving Credit Facility currently mature on October
24, 2006. The Laidlaw subordinated debt matures 91 days after the maturity of the Revolving Credit Facility.
Interest on the debt accrues at the Applicable Federal Rate (2.5% at December 31, 2004) and is
payable at maturity. The outstanding balance as of December 31, 2004 was $37.2 million. A 10% increase or decrease in variable interest rates would not have a material effect on the
Companys results of operations or cash flows. The table below presents scheduled payments of principal and related weighted average interest
rates by contractual maturity dates for fixed rate debt as of December 31, 2004: Long Term Debt: 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    
    Fair ValueFixed Rate Debt (in thousands)
    
    $
    2,250
    
    
    $
    3,945
    
    
    $
    155,987
    
    
    $
    771
    
    
    $
    668
    
    
    $
    813
    
    
    $
    164,434
    
    
    $
    167,076Average Interest Rate
    
    
    9.3
    %
    
    
    9.7
    %
    
    
    11.4
    %
    
    
    12.2
    %
    
    
    10.9
    %
    
    
    14.2
    %
    
    
    11.4
    %
    
    
    
 26




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page No.Report
of Independent Registered Public Accounting Firm
    
    
    28Consolidated Statements of Financial Position as of December 31, 2004 and 2003
    
    
    29Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002
    
    
    30Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended December 31, 2004, 2003 and 2002
    
    
    31Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002
    
    
    32Notes to Consolidated Financial Statements
    
    
    33
 27




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholder of Greyhound Lines, Inc: In our opinion, the accompanying consolidated financial statements listed in the accompanying
index, present fairly, in all material respects, the financial position of Greyhound Lines, Inc.
and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. 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 of these
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). 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, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. As discussed in Notes 2 and 9 to the consolidated financial statements, the Company adopted
Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, as of
January 1, 2002. /s/ PRICEWATERHOUSECOOPERS LLP  Dallas, Texas
March 29, 2005 28




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##### Table of Contents



GREYHOUND LINES, INC. AND SUBSIDIARIES 
  CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 (in thousands, except share amounts)
 December 31,2004
    
    
    2003Current AssetsCash and cash equivalents
    
    $
    35,940
    
    
    $
    18,805Accounts receivable, net
    
    
    41,898
    
    
    
    39,170Inventories, net
    
    
    8,529
    
    
    
    9,428Prepaid expenses
    
    
    7,781
    
    
    
    10,687Other current assets
    
    
    3,406
    
    
    
    2,591Total Current Assets
    
    
    97,554
    
    
    
    80,681Property, plant and equipment, net
    
    
    339,406
    
    
    
    376,021Investments in unconsolidated affiliates
    
    
    13,848
    
    
    
    15,624Insurance and security deposits
    
    
    62,197
    
    
    
    38,914Goodwill
    
    
    2,939
    
    
    
    3,040Intangible assets, net
    
    
    18,905
    
    
    
    29,439Total Assets
    
    $
    534,849
    
    
    $
    543,719Current LiabilitiesAccounts payable
    
    $
    24,688
    
    
    $
    25,379Accrued liabilities
    
    
    54,345
    
    
    
    59,947Rents payable
    
    
    8,179
    
    
    
    12,852Unredeemed tickets
    
    
    11,198
    
    
    
    12,396Current portion of claims liability
    
    
    38,057
    
    
    
    26,579Current portion of debt
    
    
    2,609
    
    
    
    3,344Total Current Liabilities
    
    
    139,076
    
    
    
    140,497Pension obligation
    
    
    148,784
    
    
    
    180,959Claims liability
    
    
    70,057
    
    
    
    63,217Long-term debt
    
    
    200,605
    
    
    
    202,349Minority interests
    
    
    3,880
    
    
    
    3,625Other liabilities
    
    
    21,328
    
    
    
    24,814Total Liabilities
    
    
    583,730
    
    
    
    615,461Commitments and Contingencies (Notes 11, 12, 15, 16 and 17)Stockholders DeficitCommon stock (1,000 shares authorized; par value $.01; 587 shares issued)
    
    
    
    
    
    
    Capital in excess of par value
    
    
    420,391
    
    
    
    370,391Retained deficit
    
    
    (242,724
    )
    
    
    (219,485
    )Accumulated other comprehensive loss, net of tax benefit of $28,880
    
    
    (226,548
    )
    
    
    (222,648
    )Total Stockholders Deficit
    
    
    (48,881
    )
    
    
    (71,742
    )Total Liabilities and Stockholders Deficit
    
    $
    534,849
    
    
    $
    543,719
 The accompanying notes are an integral part of these statements. 29




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##### Table of Contents



GREYHOUND LINES, INC. AND SUBSIDIARIES  
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands)
 Years Ended December 31,2004
    
    
    2003
    
    
    2002Operating RevenuesPassenger services
    
    $
    811,480
    
    
    $
    830,648
    
    
    $
    849,771Package express
    
    
    38,973
    
    
    
    39,506
    
    
    
    39,966Food services
    
    
    37,302
    
    
    
    39,679
    
    
    
    42,164Other operating revenues
    
    
    68,979
    
    
    
    65,674
    
    
    
    60,013Total Operating Revenues
    
    
    956,734
    
    
    
    975,507
    
    
    
    991,914Operating ExpensesMaintenance
    
    
    100,958
    
    
    
    106,084
    
    
    
    100,845Transportation
    
    
    234,305
    
    
    
    244,820
    
    
    
    245,273Agents commissions and station costs
    
    
    169,178
    
    
    
    177,723
    
    
    
    183,151Marketing, advertising and traffic
    
    
    25,961
    
    
    
    26,594
    
    
    
    27,819Insurance and safety
    
    
    74,926
    
    
    
    72,577
    
    
    
    76,994General and administrative
    
    
    128,472
    
    
    
    125,045
    
    
    
    126,319Depreciation and amortization
    
    
    59,945
    
    
    
    54,778
    
    
    
    50,635Operating taxes and licenses
    
    
    55,606
    
    
    
    59,594
    
    
    
    61,718Operating rents
    
    
    76,343
    
    
    
    80,262
    
    
    
    80,262Cost of goods sold  food services
    
    
    24,101
    
    
    
    25,664
    
    
    
    27,937Other operating expenses
    
    
    6,712
    
    
    
    5,836
    
    
    
    6,580Total Operating Expenses
    
    
    956,507
    
    
    
    978,977
    
    
    
    987,533Operating Income (Loss)
    
    
    227
    
    
    
    (3,470
    )
    
    
    4,381Non-operating Income
    
    
    (2,116
    )
    
    
    
    
    
    
    Interest Expense
    
    
    24,740
    
    
    
    24,784
    
    
    
    25,409Loss Before Income Taxes, Minority
interest and Cumulative Effect of Accounting Change
    
    
    (22,397
    )
    
    
    (28,254
    )
    
    
    (21,028
    )Income Tax Provision
    
    
    587
    
    
    
    271
    
    
    
    52,621Minority Interests
    
    
    255
    
    
    
    361
    
    
    
    (2,100
    )Loss Before Cumulative Effect
of Accounting Change
    
    
    (23,239
    )
    
    
    (28,886
    )
    
    
    (71,549
    )Cumulative Effect of a Change in Accounting
for Goodwill (Note 9)
    
    
    
    
    
    
    
    
    
    
    40,047Net Loss
    
    $
    (23,239
    )
    
    $
    (28,886
    )
    
    $
    (111,596
    )
 The accompanying notes are an integral part of these statements. 30




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GREYHOUND LINES, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (in thousands, except share information)
 AccumulatedCapital in
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Excess of
    
    
    Retained
    
    
    Comprehensive
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Par Value
    
    
    Deficit
    
    
    Loss
    
    
    LossBalance, January 1, 2002
    
    
    587
    
    
    $
    
    
    
    $
    320,391
    
    
    $
    (79,003
    )
    
    $
    (53,469
    )Comprehensive Loss:Market value adjustment for securities held
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,995
    
    
    $
    1,995Adjustment for minimum pension
obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (191,830
    )
    
    
    (191,830
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111,596
    )
    
    
    
    
    
    
    (111,596
    )Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (301,431
    )Balance, December 31, 2002
    
    
    587
    
    
    
    
    
    
    
    320,391
    
    
    
    (190,599
    )
    
    
    (243,304
    )Capital contribution by Laidlaw
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    Comprehensive Loss:Market value adjustment for securities held
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,520
    )
    
    $
    (1,520
    )Adjustment for minimum pension
obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,176
    
    
    
    22,176Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,886
    )
    
    
    
    
    
    
    (28,886
    )Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,230
    )Balance, December 31, 2003
    
    
    587
    
    
    
    
    
    
    
    370,391
    
    
    
    (219,485
    )
    
    
    (222,648
    )Capital contribution by Laidlaw
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    Comprehensive Loss:Market value adjustment for securities held
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116
    )
    
    $
    (116
    )Adjustment for minimum pension
obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,784
    )
    
    
    (3,784
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,239
    )
    
    
    
    
    
    
    (23,239
    )Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (27,139
    )Balance, December 31, 2004
    
    
    587
    
    
    $
    
    
    
    $
    420,391
    
    
    $
    (242,724
    )
    
    $
    (226,548
    )
 The accompanying notes are an integral part of these statements. 31




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GREYHOUND LINES, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years Ended December 31,2004
    
    
    2003
    
    
    2002Cash Flows From Operating ActivitiesNet Loss
    
    $
    (23,239
    )
    
    $
    (28,886
    )
    
    $
    (111,596
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    40,047Non-cash expenses and gains included in net lossDepreciation and amortization
    
    
    59,945
    
    
    
    54,778
    
    
    
    50,635Other non-cash expenses and gains, net
    
    
    21,369
    
    
    
    11,869
    
    
    
    64,368Net Change in Certain Operating Assets and LiabilitiesAccounts receivable
    
    
    (2,728
    )
    
    
    8,085
    
    
    
    10,777Inventories
    
    
    899
    
    
    
    102
    
    
    
    (1,283
    )Prepaid expenses
    
    
    2,906
    
    
    
    (2,231
    )
    
    
    (1,675
    )Other current assets
    
    
    79
    
    
    
    380
    
    
    
    (1,013
    )Insurance and security deposits
    
    
    (23,401
    )
    
    
    (3,199
    )
    
    
    (445
    )Intangible assets
    
    
    979
    
    
    
    (8,165
    )
    
    
    (5,340
    )Accounts payable
    
    
    (528
    )
    
    
    2,059
    
    
    
    1,393Due to Laidlaw
    
    
    (155
    )
    
    
    (3,100
    )
    
    
    4,025Accrued liabilities and rents payable
    
    
    (10,275
    )
    
    
    (9,287
    )
    
    
    8,646Claims liability
    
    
    18,318
    
    
    
    21,818
    
    
    
    40,908Unredeemed tickets
    
    
    (1,198
    )
    
    
    (723
    )
    
    
    1,118Other liabilities
    
    
    (3,481
    )
    
    
    (4,690
    )
    
    
    (2,461
    )Net Cash Provided by Operating Activities
    
    
    39,490
    
    
    
    38,810
    
    
    
    98,104Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (23,555
    )
    
    
    (22,709
    )
    
    
    (64,994
    )Proceeds from assets sold
    
    
    2,593
    
    
    
    4,940
    
    
    
    8,813Other investing activities
    
    
    2,737
    
    
    
    2,888
    
    
    
    99Net Cash Used for Investing Activities
    
    
    (18,225
    )
    
    
    (14,881
    )
    
    
    (56,082
    )Cash Flows From Financing ActivitiesPayments on debt and capital lease obligations
    
    
    (3,667
    )
    
    
    (3,973
    )
    
    
    (7,534
    )Net change in revolving credit facility
    
    
    
    
    
    
    (7,782
    )
    
    
    (50,218
    )Proceeds from equipment and other borrowings
    
    
    458
    
    
    
    1,420
    
    
    
    1,240Other financing activities
    
    
    (921
    )
    
    
    (735
    )
    
    
    (477
    )Net Cash Used by Financing Activities
    
    
    (4,130
    )
    
    
    (11,070
    )
    
    
    (56,989
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    17,135
    
    
    
    12,859
    
    
    
    (14,967
    )Cash and Cash Equivalents, Beginning of Year
    
    
    18,805
    
    
    
    5,946
    
    
    
    20,913Cash and Cash Equivalents, End of Year
    
    $
    35,940
    
    
    $
    18,805
    
    
    $
    5,946
 The accompanying notes are an integral part of these statements. 32




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##### Table of Contents



GREYHOUND LINES, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 1. BACKGROUND AND OPERATING ENVIRONMENT Greyhound Lines, Inc. and subsidiaries (Greyhound or 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, travel services and food
service at some terminals. The Companys operations include a nationwide network of terminal and
maintenance facilities, a fleet of approximately 2,700 buses and approximately 1,400 sales outlets.
The Companys wholly-owned operating subsidiaries include Texas, New Mexico & Oklahoma Coaches,
Inc. (TNM&O), Vermont Transit Co., Inc. (Vermont Transit), Carolina Coach Company (Carolina
Coach), Valley Transit Co., Inc., Crucero U.S.A., LLC, On Time Delivery Service, Inc., LSX
Delivery, L.L.C., and Greyhound Shore Services, L.L.C. Additionally, the Company maintains
investments in several other companies, principally ventures with Mexico-based bus carriers and
U.S.-based carriers that primarily serve Spanish-speaking markets. The Company is subject to
regulation by the Department of Transportation (the DOT) and certain states. In 1999, the Company became a wholly-owned subsidiary of Laidlaw Inc. The consolidated
financial statements of the Company do not reflect any purchase accounting adjustments. On June 28, 2001, Laidlaw Inc. and certain of its affiliates filed voluntary petitions for
reorganization under the U.S. Bankruptcy Code and the Canada Companies Creditors Arrangement Act.
Neither Greyhound, nor any of its subsidiaries were included in, or made party to, these
reorganization filings and proceedings. In June 2003, Laidlaw Inc. emerged from the court-supervised reorganization process and
completed an internal corporate restructuring, in which Laidlaw International, Inc., a Delaware
corporation, acquired all of the assets of Laidlaw Inc., a Canadian corporation. Laidlaw
International, Inc. and its predecessor Laidlaw Inc. are referred to as Laidlaw. The
consolidated financial statements of the Company do not reflect any fresh start accounting
adjustments relating to the reorganization of Laidlaw. 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
current year presentation. 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. 33




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##### Table of Contents



Inventories Inventories are stated at the lower of cost or market, with costs determined using the
weighted average method. This approximates fair value. Property, Plant and Equipment Property, plant and equipment, are recorded at cost, including interest during construction,
if any. Capitalized leases are recorded at the net present value of future minimum lease payments.
Depreciation is recorded over the estimated useful lives or lease terms and range from three to
twenty years for structures and improvements, four to fifteen 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 and repairs are expensed as incurred, and renewals and betterments are
capitalized. Investments in Debt Securities At December 31, 2004, the Company held debt securities that are classified as
available-for-sale securities and reported at fair value. Any temporary gains and losses
associated with changes in market value of the securities are excluded from operating results and
are recognized as a separate component of stockholders equity until realized. Fair value of
securities is determined based on market prices and gains and losses are determined using the
securities cost. Goodwill Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No.
142 (SFAS 142) Accounting for Goodwill and Other Intangible Assets and, as a result, the
Company ceased to amortize goodwill. In lieu of amortization, SFAS 142 requires that goodwill be
reviewed for impairment at least annually or whenever events or changes in circumstances indicate
the carrying value may not be recoverable. Under SFAS 142, goodwill impairment is deemed to exist
if the net book value of a reporting unit exceeds its estimated fair value. To determine estimated
fair value of the reporting units the Company utilizes both a discounted cash flow methodology as
well as the implied values of comparable companies. The Companys review of goodwill for the year
ended December 31, 2004 resulted in no change to the remaining goodwill balance after the sale of
business as discussed in Note 9. Debt Issuance Costs Costs incurred related to the issuance of debt are deferred, and such costs are amortized to
interest expense over the life of the related debt. Software Development Costs Direct costs of materials and services consumed in developing or obtaining internal use
software and certain payroll costs for employees directly associated with internal use software
projects are capitalized. Amortization of these costs begins when the software is available for
its intended use and is recognized on a straight-line basis over the estimated useful life which
generally range from five to ten years. Costs for general and administrative, overhead,
maintenance and training, as well as cost of software that does not add functionality to the
existing system, are expensed when incurred. 34




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##### Table of Contents



Claims Liability The Company maintains comprehensive automobile liability, general liability, workers
compensation and property insurance to insure its assets and operations. Prior to September, 2001,
the Company purchased its insurance from Laidlaw with coverage subject to a $50,000 deductible for
property damage claims and no deductible for all auto liability, workers compensation or general
liability claims. Between September 1, 2001 and August 31, 2003, the Company began purchasing
coverage from third-party insurers for claims up to $5.0 million subject to a $3.0 million per
occurrence deductible or self insured retention for automobile liability and a $1.0 million per
occurrence deductible or self insured retention for workers compensation and general liability.
Effective September 1, 2003, the coverage for all claims is subject to a $3.0 million per
occurrence deductible or self insured retention. The Company purchases excess coverage for
automobile liability, general liability and workers compensation insurance through Laidlaw for
claims which exceed $5.0 million. The Company also continues to purchase from Laidlaw coverage for
physical damage to Company property and business interruption subject to a $100,000 per occurrence
deductible. Claims resolved against the Company, which do not exceed the deductible, are paid out of
operating cash flows. The Company establishes reserves for claims based upon an assessment of
actual claims and claims incurred but not reported. The reserves are developed using actuarial
principles and assumptions that consider a number of factors, including historical claim payment
patterns (including legal costs) and changes in case reserves and the assumed rate of inflation in
health care costs and property damage repairs. Claims are discounted at a rate commensurate with
the interest rate on the monetary assets that are essentially risk free and have a maturity
comparable to the underlying liabilities. The accretion of imputed interest is also included as
part of insurance and safety expenses in the Consolidated Statements of Operations. Claims liabilities also includes an estimate of environmental liabilities. The environmental
liability includes all sites identified for potential clean-up and/or remediation and represents
the present value of estimated cash flows discounted at a rate commensurate with the interest rate
on monetary assets that are essentially risk free and have a maturity comparable to the underlying
liabilities. Revenue Recognition Passenger services revenue is recognized when transportation is provided rather than when a
ticket is sold. The amount of passenger ticket sales not yet recognized as revenue is reflected as
unredeemed tickets on the Consolidated Statements of Financial Position. Evaluations of this
estimated liability are performed periodically and any adjustments are included in results of
operations during the periods in which the evaluations are completed. These adjustments relate
primarily to differences between the Companys statistical estimation of refunds, travel dates,
interline transactions, and sales from manual locations, for which the final settlement or travel
occurs in periods subsequent to the sale of the related tickets at amounts or for travel dates
other than as originally estimated. Because the majority of the Companys customers purchase their
tickets within three days of departure, the liability for unredeemed tickets, and any related
adjustments, have been materially consistent from year to year. Use of Estimates The preparation of financial statements and related disclosures in conformity with generally
accepted accounting principles in the United States 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. These estimates include the
amount of outstanding and unredeemed tickets, useful life and salvage value of the bus fleet,
long-lived assets impairments, and pension and other employee benefits, among others. Estimates
and assumptions are reviewed periodically and the effects of revisions are reflected in the period
that they are determined to be necessary. Actual results could differ from these estimates. In addition to the use of estimates described above, the Company uses third party actuaries
and assumptions of future events in estimating the claims liability reserves and future pension
obligations. As a result of using assumptions, there is a possibility that the claims liability
and pension liability could change materially. 35




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Long-Lived Assets Identifiable intangibles and long-lived assets are assessed for impairment at least annually
and whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. Important factors which could trigger an impairment review include significant
underperformance relative to historical or projected future operating results, significant changes
in the use of the acquired assets or the strategy for the overall business, and significant
negative industry or economic trends. If indicators of impairment are present, management
evaluates the carrying value of property and equipment and intangibles in relation to the
projection of future undiscounted cash flows of the underlying assets. Projected cash flows are
based on historical results adjusted to reflect managements best estimate of future market and
operating conditions, which may differ from actual cash flow. Defined Benefit Pension Plans The costs of pension benefits are actuarially determined using the projected benefit method
prorated on service and managements best estimate of the expected plan investment performance,
salary escalation, retirement ages of employees and the mortality tables. Plan assets are recorded
at market value. Any net actuarial gain or loss in excess of 10% of the greater of the benefit
obligation or the market-related value of plan assets is amortized over the average remaining
service period of the participating employees for the active plans and the average remaining life
expectancy of the retired participants for the frozen plans. Guarantees The Company generally uses operating lease financing with residual value guarantees as the
principal source of bus financing. For leases entered into prior to January 1 2003, the Company
will record a liability for the residual value guarantee only when it is probable that the
guarantee will exceed the estimated value of the buses at lease expiration. When it is probable
that the guarantee will exceed the estimated value of the buses at lease expiration, the expected
deficiency is accrued using a straight-line method over the remaining term of the lease. For leases
entered into after December 31, 2002, the Company is required to estimate the fair value of the
residual value guarantees at lease inception. The fair value of the guarantee is recorded as a
liability, with the offsetting entry being recorded as prepaid rent (representing a payment in kind
made by the lessee when entering into the operating lease). The prepaid rent is amortized to
operating rent expense over the lease term. The liability for the guarantee will only be increased
if, during the lease term, it becomes probable that the guarantee will exceed the estimated value
of the buses at lease expiration by an amount that exceeds the recorded liability. If at lease
expiration the Company is not required to perform under the residual value guarantee, the entire
initial liability is then reversed as a reduction of operating rent expense. Other Comprehensive Loss Total comprehensive loss includes, in addition to net loss, changes in equity that are
excluded from the Consolidated Statements of Operations and are recorded directly into a separate
section of stockholders equity on the Consolidated Statements of Financial Position. The
Companys accumulated other comprehensive loss shown on the Consolidated Statements of Financial
Position and Consolidated Statements of Stockholders Equity (Deficit) consists of minimum pension
liability adjustments and market value adjustments for securities held. New Accounting Pronouncements There are no recent accounting pronouncements that would have a material effect on the
Companys results or financial position if they were presently applicable. 36




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3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES Cash paid for interest was $24.0 million, $24.1 million and $24.7 million for the years ended
December 31, 2004, 2003 and 2002, respectively. There were no cash payments for federal income
taxes for the years ended December 31, 2004, 2003 and 2002. In 2004 and 2003, non-cash investing and financing activities included $50 million each year
of direct contributions from Laidlaw to the Companys pension plans in accordance with the Pension
Benefit Guaranty Corporation (PBGC) agreement. See Note 11 for further information. In 2002,
non-cash investing and financing activities included $0.5 million of equipment acquired with seller
provided financing. 4. ACCOUNTS RECEIVABLE Accounts receivable is net of an allowance for doubtful accounts of $1.2 million as of
December 31, 2004 and $1.4 million as of December 31, 2003. 5. INVENTORIES Inventories consisted of the following (in thousands): December 31,2004
    
    
    2003Service parts
    
    $
    5,902
    
    
    $
    6,834Fuel
    
    
    1,385
    
    
    
    1,072Food service operations
    
    
    1,586
    
    
    
    1,831Total Inventories
    
    
    8,873
    
    
    
    9,737Less: Allowance for shrinkage
    
    
    (344
    )
    
    
    (309
    )Inventories, net
    
    $
    8,529
    
    
    $
    9,428
 6. PREPAID EXPENSES Prepaid expenses consisted of the following (in thousands): December 31,2004
    
    
    2003Taxes and licenses
    
    $
    1,206
    
    
    $
    2,883Insurance
    
    
    4,108
    
    
    
    4,358Rents
    
    
    1,115
    
    
    
    2,167Other
    
    
    1,352
    
    
    
    1,279Prepaid expenses
    
    $
    7,781
    
    
    $
    10,687
 37




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##### Table of Contents



7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands): December 31,2004
    
    
    2003Land and improvements
    
    $
    86,954
    
    
    $
    87,996Structures and improvementsOwned
    
    
    152,602
    
    
    
    149,659Capitalized leased assets
    
    
    1,010
    
    
    
    1,010Lease interests
    
    
    4,376
    
    
    
    4,376Leasehold improvements
    
    
    51,418
    
    
    
    48,070Revenue equipmentOwned
    
    
    262,055
    
    
    
    262,739Capitalized leased assets
    
    
    13,242
    
    
    
    13,242Leasehold improvements
    
    
    6,838
    
    
    
    7,707Furniture and fixtures
    
    
    53,170
    
    
    
    56,933Vehicles, machinery and equipment
    
    
    16,876
    
    
    
    18,021Property, plant and equipment
    
    
    648,541
    
    
    
    649,753Accumulated depreciation
    
    
    (309,135
    )
    
    
    (273,732
    )Property, plant and equipment, net
    
    $
    339,406
    
    
    $
    376,021
 Accumulated depreciation of capitalized leased revenue equipment amounted to $6.6 million and
$5.5 million at December 31, 2004, and 2003, respectively. 8. INSURANCE AND SECURITY DEPOSITS Insurance and security deposits consisted of the following (in thousands): December 31,2004
    
    
    2003Insurance deposits
    
    $
    50,383
    
    
    $
    26,740Long-term insurance receivable
    
    
    5,800
    
    
    
    5,520Security deposits
    
    
    5,462
    
    
    
    5,970Other
    
    
    552
    
    
    
    684Insurance and security deposits
    
    $
    62,197
    
    
    $
    38,914
 The Company is required by the Federal Motor Carrier Safety Administration (FMCSA), some
states and some of its insurance carriers to maintain collateral deposits or provide other security
pursuant to its insurance program. In addition to the collateral deposits reflected in the table
above, at December 31, 2004 and 2003, the Company has also issued $53.7 million and $49.2 million,
respectively, of letters of credit in support of these programs. See Note 17 under Insurance
Coverage for further discussion relating to insurance deposits and long-term insurance receivable. 9. GOODWILL AND INTANGIBLE ASSETS During 2002, the Company completed the initial impairment assessment as required by SFAS 142
and determined that the carrying value of its Bus Operations reporting unit exceeded that units
fair value. As a result, effective January 1, 2002, the Company recorded a non-cash charge of $40.0
million as a cumulative effect of a change in accounting for goodwill. The Companys remaining
goodwill ($2.9 million at December 31, 2004) relates to the Courier Services reporting unit where
fair value exceeds carrying value. During 2004, the Company sold its ownership interest in a
courier company in Houston, Texas for cash of $0.1 million resulting in an insignificant gain and a
reduction in goodwill of approximately $0.1 million. 38




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In connection with adopting SFAS 142 the Company reassessed the useful lives and
classification of its identifiable intangible assets and, with the exception of the useful life of
trademarks, determined that the useful lives and classifications continue to be appropriate.
Trademarks, which had previously been amortized over a fifteen year life, are now considered to
have an indefinite life and are no longer amortized. The following table provides information relating to the Companys amortized and unamortized
intangible assets as of December 31, 2004 and December 31, 2003 (in thousands): December 31, 2004
    
    
    December 31, 2003Accumulated
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationLong-lived intangible assets:Software
    
    $
    48,181
    
    
    $
    34,822
    
    
    $
    55,910
    
    
    $
    33,010Debt issuance costs
    
    
    7,139
    
    
    
    5,114
    
    
    
    7,456
    
    
    
    4,723Deferred lease costs
    
    
    1,170
    
    
    
    976
    
    
    
    2,196
    
    
    
    1,736Other
    
    
    261
    
    
    
    247
    
    
    
    267
    
    
    
    234Total
    
    $
    56,751
    
    
    $
    41,159
    
    
    $
    65,829
    
    
    $
    39,703Indefinite-lived intangible assets:Trademark
    
    $
    3,313
    
    
    
    
    
    
    $
    3,313
 Amortization expense for intangible assets for the years ended December 31, 2004, 2003 and
2002 was $6.5 million, $7.3 million and $6.8 million, respectively. Estimated amortization
expense, excluding the effect of costs that may be capitalized in future periods, for the year
ended December 31, 2005 and the four succeeding years are as follows: $4.8 million (2005); $3.8
million (2006); $2.4 million (2007); $1.9 million (2008) and $1.1 million (2009). 10. ACCRUED LIABILITIES Accrued liabilities consisted of the following (in thousands): December 31,2004
    
    
    2003Compensation, benefits and payroll-related taxes
    
    $
    26,166
    
    
    $
    27,634Unvouchered invoices
    
    
    9,248
    
    
    
    9,827Interest
    
    
    4,011
    
    
    
    4,045Operating, property and income taxes
    
    
    4,477
    
    
    
    5,053Other expenses
    
    
    10,443
    
    
    
    13,388Accrued liabilities
    
    $
    54,345
    
    
    $
    59,947
 11. BENEFIT PLANS Pension Plans The Company has nine defined benefit pension plans. The first plan (the ATU Plan) covers
approximately 13,000 current and former employees, fewer than 600 of which are active employees of
the Company. The ATU Plan was closed to new participants on October 31, 1983 and service and wage
accruals were frozen for active employees effective March 15, 2002. 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 fourth plan covered
substantially all employees at Vermont Transit through June 30, 2000, when the plan was curtailed.
The remaining plans are held by TNM&O and Carolina Coach and cover substantially all of their
salaried and hourly personnel. Except for funding required by the agreement with the PBGC it is
the Companys policy to fund the minimum required contribution under existing laws. 39




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The Company uses a December 31 measurement date for its pension plans. Years ended December 31,2004
    
    
    2003
    
    
    2002(in thousands)Components of Net Periodic Pension Cost:Service Cost
    
    $
    1,540
    
    
    $
    1,422
    
    
    $
    1,680Interest Cost
    
    
    44,144
    
    
    
    45,921
    
    
    
    50,097Expected Return on Assets
    
    
    (41,083
    )
    
    
    (40,010
    )
    
    
    (46,827
    )Amortization of Actuarial Loss
    
    
    12,437
    
    
    
    5,670
    
    
    
    1,120Net Periodic Pension Expense
    
    $
    17,038
    
    
    $
    13,003
    
    
    $
    6,070
 Years ended December 31,2004
    
    
    2003(in thousands)Change in Benefit Obligation:Benefit Obligation at Beginning of Year
    
    $
    767,478
    
    
    $
    767,978Service Cost
    
    
    1,540
    
    
    
    1,422Interest Cost
    
    
    44,144
    
    
    
    45,921Plan Participants Contributions
    
    
    328
    
    
    
    323Actuarial Loss
    
    
    26,755
    
    
    
    31,447Benefits Paid
    
    
    (75,131
    )
    
    
    (79,613
    )Benefit Obligation at End of Year
    
    $
    765,114
    
    
    $
    767,478Change in Plan Assets:Fair Value of Plan Assets at Beginning of Year
    
    $
    583,511
    
    
    $
    523,956Actual Return on Plan Assets
    
    
    51,387
    
    
    
    86,875Employer Contributions
    
    
    52,997
    
    
    
    51,970Plan Participants Contributions
    
    
    328
    
    
    
    323Benefits Paid
    
    
    (75,131
    )
    
    
    (79,613
    )Fair Value of Plan Assets at End of Year
    
    $
    613,092
    
    
    $
    583,511Funded Status
    
    $
    (152,022
    )
    
    $
    (183,967
    )Unrecognized Prior Service Cost
    
    
    (6,801
    )
    
    
    (7,332
    )Unrecognized Net Loss
    
    
    265,992
    
    
    
    262,509Prepaid Benefit Cost (Net Amount Recognized)
    
    $
    107,169
    
    
    $
    71,210Amounts Recognized in the Statements of Financial Position:Accrued Benefit Liability
    
    $
    (148,784
    )
    
    $
    (180,959
    )Accumulated Other Comprehensive Loss
    
    
    255,953
    
    
    
    252,169Prepaid Benefit Cost (Net Amount Recognized)
    
    $
    107,169
    
    
    $
    71,210Increase (Decrease) in Minimum Pension Liability reflected
in Other Comprehensive Loss
    
    $
    3,784
    
    
    $
    (22,176
    )
 40




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As of December 31, 2004 and 2003, six and seven of the Companys pension plans, respectively
have accumulated benefit obligations in excess of plan assets. As of December 31, 2004 and 2003,
seven and eight of the Companys pension plans, respectively have projected benefit obligations in
excess of plan assets. The accumulated benefit obligations in excess of plan assets, projected
benefit obligations in excess of plan assets and total accumulated benefit obligation are as
follows (in thousands): Year ended December 31,2004
    
    
    2003Accumulated Obligations in Excess of Plan AssetsProjected Benefit Obligations
    
    $
    757,074
    
    
    $
    760,529Accumulated Benefit Obligation
    
    
    755,840
    
    
    
    759,618Fair Value of Assets
    
    
    605,872
    
    
    
    577,370Projected Benefit Obligations in Excess of Plan AssetsProjected Benefit Obligations
    
    $
    764,949
    
    
    $
    767,478Accumulated Benefit Obligation
    
    
    762,427
    
    
    
    765,218Fair Value of Assets
    
    
    612,894
    
    
    
    583,511Total Accumulated Benefit Obligation
    
    $
    762,592
    
    
    $
    765,218
 The weighted-average assumptions used to determine the pension plans benefit obligations and
net periodic costs are as follows: Benefit Obligation
    
    
    Net Periodic CostsYears ended December 31,
    
    
    Years ended December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2002Discount
Rate
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.50
    %
    
    
    7.25
    %Rate of Salary
Progression
    
    
    4.00
    %
    
    
    3.67
    %
    
    
    3.67
    %
    
    
    4.51
    %
    
    
    4.10
    %Expected Long-Term
Rate of Return on
Plan Assets
    
    
    
    
    
    
    
    
    
    
    7.57
    %
    
    
    7.10
    %
    
    
    7.28
    %
 The expected return on plan assets is based on plan specific, historical long-term portfolio
performance, asset allocations and investment strategies, and the views of the plans investment
advisors along with economic and other indicators of future performance. Plan Assets Plan assets generally consist of equity and fixed income securities of U.S. and foreign
issuers. Furthermore, equity investments are diversified across large and small capitalizations.
The plan assets at December 31, 2004 and 2003 contain no investments in debt securities of the
Company and contain no investments in equity securities of Laidlaw. Asset management objectives are to maximize plan returns at an acceptable level of risk such
that the plan will be able to pay retirement benefits to plan participants while minimizing cash
contributions from the Company over the life of the plan. Investment risk is measured and
monitored on an ongoing basis through periodic investment reviews. Additionally, the asset
allocations are reviewed periodically using projected benefit payments and long-term historical
returns by asset class to determine the optimal allocation for meeting the long-term strategy. The
reviews are generally conducted by the plans investment advisors and are reviewed by the plans
actuaries and other experts. The investment and asset allocation policies of the plans prohibit
concentrations greater than 10% in any single equity security, prohibit the use of derivative
instruments and do not allow investments in hedge funds. 41




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Target investment allocations, along with the actual weighted-average asset allocations of the
collective pension plans are as follows: Percentage of Plan AssetsTarget Allocation
    
    December 31,As of December 31, 2004
    
    2004
    
    2003Equity securities
    
    
    56
    %
    
    
    64
    %
    
    
    56
    %Debt securities
    
    
    44
    %
    
    
    36
    %
    
    
    44
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Plan Contributions and Potential Funding Requirements Laidlaw, collectively with all of its wholly-owned U.S. subsidiaries, including Greyhound (the
Laidlaw Group), is party to an agreement with the Pension Benefit Guaranty Corporation regarding
the funding levels of the Companys pension plans (the PBGC Agreement). On June 30, 2004, the
Laidlaw Group contributed $50 million in cash to the pension plans in accordance with the terms of
the PBGC Agreement. Additionally, under the PBGC Agreement 3.8 million shares of common stock of
Laidlaw were issued to a trust formed for the benefit of the pension plans (the Pension Plan
Trust). On February 17, 2005, Laidlaw purchased all shares from the Pension Plan Trust at the
closing market price for a total of $84.5 million. The proceeds from the sale were contributed to
the pension plans in accordance with the terms of the PBGC Agreement. Both the June 30, 2004 and February 17, 2005 contributions have been designated by Laidlaw as
capital contributions to the Company and, accordingly, the Company recorded an increase in
additional paid in capital and a corresponding reduction in pension obligations for the amounts of
the contributions effective the dates the contributions were made. In addition to the cash contributions to the pension plans pursuant to the PBGC Agreement
described above, in 2005, the Company expects to contribute $1.1 million to all plans other than
the ATU Plan, for which there is no funding requirement in 2005. The most significant of the pension plans, the ATU Plan, represents approximately 90% of the
total obligations of the pension plans. Based upon current regulations, plan asset values at
December 31, 2004, the additional contribution made on February 17, 2005 and assuming annual
investment returns exceed 3% the Company does not anticipate any significant additional minimum
funding requirements for the ATU Plan over the next several years. However, there is no assurance
that the ATU Plan will be able to earn the assumed rate of return, that new regulations may not
result in changes in the prescribed actuarial mortality table and discount rates, or that there
will be market driven changes in the discount rates, which would result in the Company being
required to make significant additional minimum funding contributions in the future. 42




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##### Table of Contents



Expected Future Benefit Payments Based on current estimates, the future benefit payments under the Companys defined benefit
pension plans over the next ten years are expected to be as follows (in thousands): Year ending December 31,2005
    
    $
    73,8652006
    
    
    71,9762007
    
    
    70,0572008
    
    
    68,4752009
    
    
    66,926Calendar years 2010 through 2014
    
    
    306,622$
    657,921
 Multi-employer Plans Included in the pension plans is a multi-employer pension plan, instituted in 1992 to cover
certain union mechanics, for which the Company made contributions of $0.8 million and $0.9 million
for the years ended December 31, 2004 and 2003, respectively. Cash or Deferred Retirement Plans The Company sponsors 401(k) cash or deferred retirement plans that are available to
substantially all of its ongoing salaried, hourly and represented employees. Costs to the Company
related to these plans were $2.7 million, $2.6 million, and $3.3 million for the years ended
December 31, 2004, 2003 and 2002, respectively. Other Plans A contributory trusteed health and welfare plan has been established for all active hourly
employees represented by the ATU National Local 1700. Other employees who are represented by a
collective bargaining agreement may be under a Greyhound contributory health and welfare plan or a
multi-employer plan established by the respective union. A contributory health and welfare plan
has been established for salaried employees and all other hourly employees who are not represented
by collective bargaining agreements. For the years ended December 31, 2004, 2003 and 2002, the
Company incurred costs of $27.7 million, $30.1 million, and $32.3 million, respectively, related to
these plans. No post-retirement health and welfare plans exist. The Company also has a defined contribution Supplemental Executive Retirement Plan (the
SERP), which covers only key executives of the Company. For the years ended December 31, 2004,
2003 and 2002, the Company incurred costs of $0.7 million, $0.6 million and $0.8 million,
respectively, related to the SERP. 43




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##### Table of Contents



12. INDEBTEDNESS Short-term and long-term debt consisted of the following (in thousands): December 31,2004
    
    
    2003Secured IndebtednessRevolving bank loan due 2006
    
    $
    
    
    
    $
    Capital lease obligations (weighted average 10.6% at December 31, 2004
and 10.5% at December 31, 2003) due through 2033
    
    
    5,215
    
    
    
    6,366Real estate and equipment notes (weighted average 9.0% at December
31, 2004 and 8.6% at December 31, 2003) due through 2010
    
    
    4,410
    
    
    
    6,316Unsecured Indebtedness111/2% Senior notes, due 2007
    
    
    150,000
    
    
    
    150,000Laidlaw subordinated debt (2.5% at December 31, 2004 and
1.7% at December 31, 2003) due 2007
    
    
    37,198
    
    
    
    36,46981/2% Convertible debentures, due 2007
    
    
    5,164
    
    
    
    5,164Other long-term debt (weighted average 5.2% at December 31, 2004
and 7.1% at December 31, 2003) due through 2013
    
    
    1,227
    
    
    
    1,378Total indebtedness
    
    
    203,214
    
    
    
    205,693Less current portion of debt
    
    
    (2,609
    )
    
    
    (3,344
    )Long-term debt, net
    
    $
    200,605
    
    
    $
    202,349
 At December 31, 2004, maturities of long-term debt for the next five years ending December 31
and all years thereafter, are as follows (in thousands): 2005
    
    $
    2,6092006
    
    
    4,1992007
    
    
    193,1852008
    
    
    8432009
    
    
    862Thereafter
    
    
    1,516$
    203,214
 Revolving Credit Facility On July 6, 2004, the Company amended its revolving credit facility (the Revolving Credit
Facility) to extend the maturity date two years to October 24, 2006, reset certain financial
covenants, modify rates of interest on borrowings and provide for a prepayment premium should the
Company terminate the facility before October 24, 2006. Additionally, the amendment allows the
Company to elect to extend the maturity date an additional year, to October 24, 2007, provided that
the Company meets certain terms and conditions. Borrowings under the amended Revolving Credit Facility are available at a rate, determined by
reference to a leverage ratio calculated quarterly, equal to Wells Fargo Banks prime rate plus
0.375% to 2.25% or LIBOR plus 2.375% to 4.25%. Letter of credit fees are 3.5% per annum. A 1%
prepayment premium is payable should the Company terminate the facility before October 25, 2005, if
terminated between October 25, 2005 and October 23, 2006 the premium is 0.5%, and if after October
23, 2006 there is no premium. Letters of credit or borrowings are available under the Revolving
Credit Facility based upon the total of 80% of the appraised wholesale value of bus collateral,
plus 65% of the quick sale value of certain real property collateral, minus $20 million, (which at
December 31, 2004, aggregated to $104.6 million) subject to a maximum of $125 million, inclusive of
a $70 million letter of credit sub-facility. As of December 31, 2004, the Company had no
outstanding borrowings under its Revolving Credit Facility, issued letters of credit of $61.5
million and availability of $43.1 million. 44




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##### Table of Contents



Additionally, the Company is required to maintain a minimum cash flow to interest expense
ratio, maximum indebtedness to cash flow ratio and minimum cash flow (the Financial Covenants).
The Financial Covenants were established at 15% to 20% less than the levels projected in financial
forecasts delivered to the agent bank by the Company in May 2004. As of December 31, 2004, the
Company was in compliance with all of the Financial Covenants. Based upon historical and recent
results and the current financial forecast, management believes that the Company will remain in
compliance with the financial covenants through 2005. However, continued increases in fuel prices,
continued softness in discretionary travel, unforeseen events or changes in assumptions may result
in material differences between the Companys future financial results or forecasts and the current
financial forecast, and those differences could result in a change in managements assessment
regarding compliance with the Financial Covenants. As described below in Note 16, Legal Matters, the Company has settled the matter brought in a
Georgia state court seeking to enforce a default garnishment judgment (the Default Judgment).
Prior to the settlement, the lenders under the Revolving Credit Facility could have, but indicated
they would not, declare a default due to the Default Judgment. Following the settlement, the
lenders have confirmed to the Company that no event of default exists under the Revolving Credit
Facility as a result of the Default Judgment. 111/2% Senior Notes The Companys 111/2% Senior Notes due 2007 (the 111/2% Senior Notes) bear interest at the rate
of 111/2% per annum, payable each April 15 and October 15. The 111/2% Senior Notes are redeemable at
the option of the Company in whole or in part, at a redemption price of 101.917% until April 15,
2005 at which time they are redeemable at their $150 million par value, plus accrued but unpaid
interest. The 111/2% 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, 2004, the Company was
in compliance with all such covenants. Laidlaw International, Inc. Subordinated Debt The intercompany loan is subordinate to the Revolving Credit Facility and matures 91 days
after the maturity of the Revolving Credit Facility. Interest on the loan accrues at the
Applicable Federal Rate and is payable at maturity. 81/2% Convertible Debentures Interest on the 81/2% Convertible Subordinated Debentures due 2007 (Convertible Debentures) is
payable semiannually (each March 31 and September 30). The Convertible Debentures may be converted
into $525.27 in cash per $1,000 principal amount of Convertible Debentures. 13. INCOME TAXES Tax Allocation Agreement The Company is a member of Laidlaws U.S. consolidated tax return group (U.S. Group) and
subject to a tax allocation agreement. The Company is allocated its share of the tax liability of
the U.S. Group or receives a benefit for any losses used by the U.S. Group based on its separate
taxable income or loss. 45




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##### Table of Contents



Income Tax Provision The income tax provision (benefit) consisted of the following (in thousands): Years Ended December 31,2004
    
    
    2003
    
    
    2002CurrentFederal
    
    $
    
    
    
    $
    (459
    )
    
    $
    (8,990
    )State
    
    
    587
    
    
    
    730
    
    
    
    764Total Current
    
    
    587
    
    
    
    271
    
    
    
    (8,226
    )DeferredFederal
    
    
    
    
    
    
    
    
    
    
    60,961State
    
    
    
    
    
    
    
    
    
    
    (114
    )Total Deferred
    
    
    
    
    
    
    
    
    
    
    60,847Income tax provision (benefit)
    
    $
    587
    
    
    $
    271
    
    
    $
    52,621
 Effective Tax Rate The difference between the actual income tax provision (benefit) and the tax provision
(benefit) computed by applying the statutory federal income tax rate to earnings before taxes and
extraordinary items is attributable to the following (in thousands): Years Ended December 31,2004
    
    
    2003
    
    
    2002Tax benefit at statutory tax rate
    
    $
    (7,839
    )
    
    $
    (9,889
    )
    
    $
    (7,360
    )State income taxes, net of federal benefit
    
    
    381
    
    
    
    475
    
    
    
    423Change in valuation allowance except for items
included in other comprehensive loss
    
    
    9,170
    
    

    
    10,933
    
    
    
    60,847Other
    
    
    (1,125
    )
    
    
    (1,248
    )
    
    
    (1,289
    )Income tax provision
    
    $
    587
    
    
    $
    271
    
    
    $
    52,621
 Deferred Tax Assets Significant components of deferred income taxes were as follows (in thousands): December 31,2004
    
    
    2003Deferred Tax AssetsFederal and state NOL carryforwards
    
    $
    94,018
    
    
    $
    82,773Claims liabilities
    
    
    35,466
    
    
    
    29,279Other accrued expenses and liabilities
    
    
    8,969
    
    
    
    10,797Pension liabilities
    
    
    53,202
    
    
    
    64,682Other deferred tax assets
    
    
    840
    
    
    
    438Total deferred tax assets
    
    
    192,495
    
    
    
    187,969Deferred Tax LiabilitiesTax over book depreciation and amortization
    
    
    5,313
    
    
    
    11,502Other deferred tax liabilities
    
    
    371
    
    
    
    148Total deferred tax liabilities
    
    
    5,684
    
    
    
    11,650Net deferred tax assets
    
    
    186,811
    
    
    
    176,319Valuation allowance
    
    
    (186,811
    )
    
    
    (176,319
    )Net deferred tax assets, net of valuation allowance
    
    $
    
    
    
    $
    
 46




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##### Table of Contents



The Company has significant net deferred tax assets resulting from operating losses and other
deductible temporary differences that will reduce taxable income in future periods. Statement of
Financial Accounting Standards No. 109 Accounting for Income Taxes requires that a valuation
allowance be established when it is more likely than not that all or a portion of net deferred
tax assets will not be realized. A review of all available positive and negative evidence needs to
be considered, including expected reversals of significant deductible temporary differences, a
companys recent financial performance, the market environment in which a company operates and the
length of operating loss carryforward periods. Furthermore, the weight given to the potential
effect of negative and positive evidence should be commensurate with the extent to which it can be
objectively verified. Therefore, current pretax losses and the reasonable likelihood of
significant near-term reversals of deductible temporary differences carry more weight than
forecasted future pretax profits. As a result of book losses incurred in 2002, 2003 and 2004, as
well as the significant pension funding required by the PBGC agreement (which gives rise to tax
deductions when made), the Company concluded that it was appropriate to establish and maintain a
full valuation allowance for its net deferred tax assets. Additionally, the Company expects to
continue to provide a full valuation allowance on future tax benefits until it can achieve an
appropriate level of pretax profitability that demonstrates its ability to utilize existing
operating loss carryforwards. The valuation allowance increased from $176.3 million at December
31, 2003, to $186.8 million at December 31, 2004. The change in the valuation reserve includes a
$1.3 million increase resulting from an adjustment to other comprehensive loss related to the
increase in minimum pension liability. Availability and Amount of NOLs As a result of the ownership changes in 1992 and 1999, Section 382 of the Internal Revenue
Code places an annual limitation on the amount of federal net operating loss (NOL) carryforwards
which the Company and the U.S. Group may utilize. Consequently, $30.4 million and $144.9 million
of the Companys NOL carryforwards are subject to annual limitations of $6.3 million and $22.2
million respectively. In addition, as a result of Laidlaws ownership change in June 2003, upon
emergence from bankruptcy Greyhounds NOL carryforwards could be subject to another annual
limitation under Section 382. The total NOL carryforwards of $239.2 million expire in the years
2005-2025. Additionally, the Company has a $2.1 million capital loss carryforward which expires
August 2007. 14. FAIR VALUES 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
revolving bank loans, the carrying amounts reported in the Consolidated Statements of Financial
Position approximate fair value. The fair values of the short-term deposits and long-term
insurance deposits and security deposits are based upon quoted market prices at December 31, 2004
and 2003, where available. For the portion of short-term deposits and long-term insurance deposits
where no quoted market price is available, the carrying amounts are believed to approximate fair
value. For the Laidlaw indebtedness, 8 1/2% Convertible Debentures 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 11 1/2% Senior
Notes were based upon quoted market prices at December 31, 2004 and 2003. 47




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The carrying amounts and fair values of the Companys financial instruments are as follows (in
thousands): December 31, 2004
    
    
    December 31, 2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueOther Current AssetsOther Deposits
    
    $
    164
    
    
    $
    164
    
    
    $
    167
    
    
    $
    167Insurance and Security DepositsInsurance Deposits
    
    
    50,383
    
    
    
    50,383
    
    
    
    26,740
    
    
    
    26,740Security Deposits
    
    
    5,462
    
    
    
    5,462
    
    
    
    5,970
    
    
    
    5,970Long-Term DebtLaidlaw subordinated debt
    
    
    (37,198
    )
    
    
    (33,198
    )
    
    
    (36,469
    )
    
    
    (34,739
    )111/2% Senior Notes
    
    
    (150,000
    )
    
    
    (152,250
    )
    
    
    (150,000
    )
    
    
    (144,000
    )81/2% Convertible Debentures
    
    
    (5,164
    )
    
    
    (5,241
    )
    
    
    (5,164
    )
    
    
    (4,957
    )Other Long-term Debt
    
    
    (10,852
    )
    
    
    (10,836
    )
    
    
    (14,060
    )
    
    
    (14,447
    )
 15. LEASE COMMITMENTS The Company leases certain vehicles, bus terminals, office space and other equipment from
various parties pursuant to capital and operating lease agreements expiring at various dates
through 2033. The Company generally uses lease financing as the principal source of bus financing
in order to achieve the lowest net cost of bus financing. Most of the leases qualify as operating
leases for accounting purposes and, as such, only the monthly lease payment is recorded in the
Consolidated Statements of Operations and the liability and value of the underlying buses are not
recorded on the Consolidated Statements of Financial Position. The leases on most of the operating
vehicles contain certain purchase provisions or residual value guarantees and typically have lease
terms of seven years. Of those leases that contain residual value guarantees, the aggregate
residual value at lease expiration is $131.1 million of which the Company has guaranteed $83.0
million. The Company has the right to exercise a purchase option with respect to the leased
equipment or the equipment can be sold to a third party. At December 31, 2004, management
estimates that the residual value on certain leases will exceed the projected fair market value of
the underlying buses by $4.0 million and has established appropriate reserves for this estimated
liability. In January 2003 and June 2004, the Company entered into seven-year operating leases covering
10 and 20 buses, respectively. The leases have an aggregate residual value at lease expiration of
$1.4 million and $2.9 million, respectively, of which the Company has guaranteed $0.8 million and
$1.7 million, respectively. As required under Financial Accounting Standards Board Interpretation
No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, the Company recorded a liability in an insignificant amount
in both the January 2003 and June 2004 leases for the estimated fair value of the residual value
guarantee imbedded in these leases. For the years ended December 31, 2004, 2003 and 2002, rental expenses for all operating leases
(net of sublease rental income of approximately $2.6 million, $2.9 million and $3.3 million,
respectively) amounted to $69.7 million, $73.9 million and $76.0 million, respectively. Rental
expenses for bus operating leases, excluding casual rents and other short term leases during peak
periods, amounted to $49.2 million, $52.9 million and $54.0 million in 2004, 2003 and 2002,
respectively. 48




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At December 31, 2004, scheduled future minimum payments (excluding any payment related to the
residual value guarantee which may be due upon termination of the lease) for the next five years
ending December 31, under capital leases and non-cancelable operating leases are as follows (in
thousands): Capital
    
    
    OperatingLeases
    
    
    Leases2005
    
    $
    1,769
    
    
    $
    65,2092006
    
    
    3,724
    
    
    
    44,5152007
    
    
    332
    
    
    
    32,3652008
    
    
    184
    
    
    
    23,1802009
    
    
    6
    
    
    
    12,773Thereafter
    
    
    297
    
    
    
    30,840Total minimum lease payments
    
    
    6,312
    
    
    $
    208,882Amounts representing interest
    
    
    1,097Present value of minimum lease payments
    
    $
    5,215
 16. LEGAL MATTERS On September 20, 2004, Greyhound responded to proceedings brought in Georgia state court
seeking to enforce a default garnishment judgment on funds in a Greyhound bank account. This
action stemmed from an October 1995 default judgment in the amount of approximately $7 million (the
1995 Judgment) against Gary Jones, a former consultant to Greyhound. More than four years later,
in October 2000, the plaintiff who obtained the 1995 Judgment (the Plaintiff) began garnishment
proceedings against Greyhound in Georgia state court seeking to recover amounts owed to Gary Jones,
who then allegedly owed the Plaintiff the amount of approximately $11 million based on the 1995
Judgment plus post-judgment interest. On May 2, 2001, a default judgement for $11 million was
entered by the Georgia state court against Greyhound. On March 10, 2005, Greyhound settled this
matter for an immaterial amount and has reflected the cost of the settlement as a component of
non-operating income in its Consolidated Statements of Operations for the year ended December 31,
2004. The Company is also 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
deductible portion of the policies. Management believes that there are no proceedings either
threatened or pending against the Company relating to such personal injury, property damage and
employment-related claims that, if resolved against the Company, would materially exceed the
amounts recorded as estimated liabilities by the Company. For information relating to certain environmental matters relating to the Company, see note 17
below under Environmental Matters. 49




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17. COMMITMENTS AND CONTINGENCIES Insurance Coverage The FMCSA has authorized the Company to self-insure its automobile liability exposure for
interstate passenger service up to $3.0 million per occurrence. To maintain self-insurance
authority, the Company is required to provide periodic financial information and claims reports,
maintain a satisfactory safety rating by the FMCSA, a tangible net worth of $10.0 million and a
trust fund, initially set at $15 million, to provide security for payment of claims. At December
31, 2002, and continuing to date, the Companys tangible net worth has fallen below the minimum
required by the FMCSA to maintain self-insurance authority. The FMCSA
granted waivers of the
tangible net worth requirement through December 31, 2005, and,
as a condition of the waivers, the
Company has been required to increase the self-insurance trust fund to the greater of $17.7 million
or 110% of the estimated unpaid liability for self-insured claims. Insurance coverage and related administrative expenses are key components of the Companys
cost structure. Additionally, the Company is required by the FMCSA, some states and some of its
insurance carriers to maintain collateral deposits or provide other security pursuant to its
insurance program. At December 31, 2004, the Company maintained $50.4 million of collateral
deposits (including $37.3 million in the FMCSA trust fund) and had issued $53.7 million of letters
of credit in support of these programs. The loss or further modification of self-insurance
authority from the FMCSA 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. Environmental Matters The Company may be liable for certain environmental liabilities and clean-up costs at the
various facilities presently or formerly owned or leased by the Company. Based upon surveys
conducted solely by Company personnel or its experts, 28 active and 21 inactive locations have been
identified as sites requiring potential clean up and/or remediation as of December 31, 2004.
Additionally, the Company is potentially liable with respect to five active and seven inactive
locations which the Environmental Protection Agency (EPA) has designated as 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 nominal settlement amounts. The Company has recorded a total environmental liability of $4.6 million at December 31, 2004
of which approximately $0.7 million is indemnifiable by the predecessor owner of the Companys
domestic bus operations, now known as Viad Corp. The environmental liability relates to sites
identified for potential clean up and/or remediation and represents the present value of estimated
cash flows discounted at a rate commensurate with the interest rate on monetary assets that are
essentially risk free and have a maturity comparable to the underlying liabilities. 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. New York Port Authority The Company operates out of its largest sales location, the Port Authority Bus Terminal of New
York (the Port Authority) on a month-to-month basis pursuant to several lease agreements and a
license agreement. Although the Company has reached agreement with the Port Authority on the terms
of new long-term lease and license agreements and expects to operate out of its existing space in
the Port Authority for the foreseeable future, because the Port Authority has not yet executed new
long-term agreements, the Port Authority could terminate its agreements with the Company upon
30-day notice at any time. If the Port Authority were to require the Company to relocate, such
relocation could result in an increase in the costs to operate out of the Port Authority and
potentially impact ticket and food service revenues. 50




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Other Non-operating income includes a January, 2005, distribution of $3.4 million from the U.S.
Bankruptcy Court in Brownsville, Texas representing residual claims payments that went unclaimed by
or were undeliverable to creditors and, therefore, reverted to Greyhound as provided for in the
Companys 1990 plan of reorganization. 18. RELATED PARTY TRANSACTIONS The Company purchases excess coverage for automobile liability, general liability and workers
compensation insurance through Laidlaw for claims which exceed $5.0 million and for physical damage
to Company property and business interruption subject to a $100,000 deductible. For the years
ended December 31, 2004, 2003 and 2002, the Company has recorded $10.4 million, $9.7 million and
$5.9 million in insurance expense under these programs, respectively. During the year ended December 31, 2002, the Company received a refund of $3.3 million from
Laidlaw for the Companys share of federal income taxes, based upon the Companys separate taxable
loss, utilized by Laidlaw on its U.S. consolidated tax return. During 2000, the Company issued $33.3 million of subordinated debt to Laidlaw in satisfaction
of accounts payable due from the Company to Laidlaw. Additionally, during the years ended December
31, 2004 and 2003 the Company accrued interest on this note of $0.7 million and $0.6 million,
respectively. At December 31, 2004 and 2003, the outstanding balance on this note, including
accrued interest was $37.2 million and $36.5 million, respectively. Laidlaw provides certain management services to the Company including risk management, income
tax and treasury services. During the years ended December 31, 2004, 2003 and 2002, Laidlaw
charged the Company $1.8 million, $1.6 million and $1.6 million for these services, respectively. Laidlaw has provided credit support in the form of corporate guarantees and letters of credit
for certain of the Companys operating leases. As of December 31, 2004, Laidlaw has guaranteed
$77.8 million of future minimum lease payments on buses under lease by the Company, and has
provided $13.1 million in letters of credit. The Companys SERP has been funded, through a rabbi trust, with a $3.0 million letter of
credit issued by Laidlaw. Management of the Company is responsible for managing Greyhound Canada Transportation Corp.
and affiliated companies (GCTC), an affiliated company owned by Laidlaw. GCTCs primary business
consists of scheduled passenger service, package express service and travel services in Canada.
Management services provided to GCTC include oversight of the accounting and finance, strategic
planning, real estate, telephone information center, information technology, travel services,
marketing and pricing, internal audit and maintenance functions along with supplying technology
support services. During the years ended December 31, 2004 and 2003, the Company charged GCTC $2.1
million and $2.0 million, respectively for these services. Also, during 2004, the Company charged
GCTC $1.4 million, representing its share of costs related to a software development project
benefiting the charter and tour operations of both the U.S. and Canadian entities.
Additionally, during 2002, the Company sold buses to GCTC, which resulted in a recorded gain
of $0.3 million on gross proceeds from the sale of approximately $5.7 million. 51




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The Company makes available to Hotard Coaches, Inc. (Hotard), an affiliated company engaged
in the travel services business in the U.S., a revolving credit line subject to a maximum
availability of $4.0 million. Borrowings are available at a rate equal to the prime rate plus
2.5%, and mature the earlier of October 23, 2005 or upon 30 days notice by the Company. The
revolving credit line is secured by liens on substantially all of the assets of Hotard. At
December 31, 2004 and 2003, outstanding borrowings were $2.8 million and $3.2 million,
respectively. During the year ended December 31, 2004, 2003 and 2002, the Company received $0.2
million, $0.3 million and $0.2 million, respectively of interest income pursuant to this revolving
credit line. Additionally, during 2004, the Company charged Hotard $0.1 million, representing its
share of costs related to a software development project benefiting the charter and tour operations
of both the U.S. and Canadian entities. During 2003, the Company purchased six buses from Interstate Leasing, Inc., an affiliated
company owned by Laidlaw engaged in the travel services business in the U.S. Greyhound paid
approximately $1.5 million for these buses, which approximates the price it would have paid to an
independent third party. The Company provides 38 buses, subject to intermediate term operating leases, and insurance
coverage to Hotard. Additionally, the Company purchases charter services from Hotard, principally
for transport of cruise ship passengers in connection with the Companys travel services business.
During the year ended December 31, 2004, 2003 and 2002, the Company received lease and insurance
income of $1.6 million, $0.6 million and $0.4 million, respectively, and purchased $1.1 million,
$0.7 million and $0.3 million, respectively of charter services from Hotard. The Company provided 30 buses, subject to intermediate term operating leases, to Roesch Lines,
a division of Laidlaw Transit Services, Inc., an affiliated company owned by Laidlaw. Roesch Lines
is primarily engaged in providing charter services in the U.S. Additionally, the Company purchased
charter services from Roesch Lines, principally for transport of cruise ship passengers in
connection with the Companys travel services business. During the years ended December 31, 2004,
2003 and 2002, the Company received lease and insurance income of $0.6 million, $0.6 million and
$0.3 million, respectively, and purchased $0.7 million, $1.0 million and $0.9 million,
respectively, of charter services from Roesch Lines. Included in accounts receivable on the Companys Consolidated Statements of Financial Position
at December 31, 2004 and 2003 are amounts due from Laidlaw, GCTC, Hotard and Roesch of $3.5 million
and $3.6 million, respectively. Included in accounts payable on the Companys Consolidated
Statements of Financial Position at December 31, 2004 and 2003 are amounts payable to Laidlaw,
Hotard and Roesch of $0.8 million and $1.1 million, respectively. 52




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19. QUARTERLY FINANCIAL DATA (Unaudited) Selected unaudited quarterly financial data for the years ended December 31, 2004 and 2003 are
as follows (in thousands): First
    
    
    Second
    
    
    Third
    
    
    FourthYear Ended December 31, 2004
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterOperating revenues
    
    $
    220,098
    
    
    $
    245,345
    
    
    $
    259,851
    
    
    $
    231,440Operating expenses
    
    
    235,351
    
    
    
    242,947
    
    
    
    250,513
    
    
    
    227,696Operating income (loss)
    
    
    (15,253
    )
    
    
    2,398
    
    
    
    9,338
    
    
    
    3,744Non-operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,116
    )Interest expense
    
    
    6,140
    
    
    
    6,136
    
    
    
    6,304
    
    
    
    6,160Income tax provision (benefit)
    
    
    15
    
    
    
    614
    
    
    
    302
    
    
    
    (344
    )Minority interest
    
    
    (297
    )
    
    
    (65
    )
    
    
    127
    
    
    
    490Net income (loss)
    
    $
    (21,111
    )
    
    $
    (4,287
    )
    
    $
    2,605
    
    
    $
    (446
    )
 First
    
    
    Second
    
    
    Third
    
    
    FourthYear Ended December 31, 2003
    
    Quarter

    
    
    Quarter
    
    
    Quarter
    
    
    QuarterOperating revenues
    
    $
    217,731
    
    
    $
    241,818
    
    
    $
    276,640
    
    
    $
    239,318Operating expenses
    
    
    240,162
    
    
    
    245,726
    
    
    
    254,946
    
    
    
    238,143Operating income (loss)
    
    
    (22,431
    )
    
    
    (3,908
    )
    
    
    21,694
    
    
    
    1,175Interest expense
    
    
    5,895
    
    
    
    6,244
    
    
    
    6,352
    
    
    
    6,293Income tax provision (benefit)
    
    
    35
    
    
    
    934
    
    
    
    96
    
    
    
    (794
    )Minority interest
    
    
    (306
    )
    
    
    (167
    )
    
    
    132
    
    
    
    702Net income (loss)
    
    $
    (28,055
    )
    
    $
    (10,919
    )
    
    $
    15,114
    
    
    $
    (5,026
    )
 53




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20. VALUATION AND QUALIFYING ACCOUNTS Allowance for doubtful accounts, inventory reserves, income tax valuation reserves and claims
liability reserves were as follows (in thousands): Additions
    
    
    AdditionsBalance at
    
    
    Charged to
    
    
    Charged to
    
    
    
    
    
    
    BalanceBeginning
    
    
    Costs and
    
    
    Other
    
    
    
    
    
    
    at EndClassification
    
    of Year
    
    
    Expenses
    
    
    Accounts
    
    
    Deductions
    
    
    of YearDecember 31, 2002:Allowance for Doubtful Accounts
    
    $
    915
    
    
    $
    773
    
    
    $
    32
    
    
    $
    (907
    ) (a)
    
    $
    813Inventory Reserves
    
    
    177
    
    
    
    80
    
    
    
    41
    
    
    
    (27
    ) (c)
    
    
    271Deferred Income Tax Asset
Valuation Reserve
    
    
    27,500
    
    
    
    60,847
    
    
    
    84,801
    
    
    
    
    
    
    
    173,148Claims Liability
    
    
    26,982
    
    
    
    55,130
    
    
    
    56
    
    
    
    (14,222
    ) (b)
    
    
    67,946Total Reserves and Allowances
    
    $
    55,574
    
    
    $
    116,830
    
    
    $
    84,930
    
    
    $
    (15,156
    )
    
    $
    242,178December 31, 2003:Allowance for Doubtful Accounts
    
    $
    813
    
    
    $
    705
    
    
    $
    
    
    
    $
    (154
    ) (a)
    
    $
    1,364Inventory Reserves
    
    
    271
    
    
    
    70
    
    
    
    
    
    
    
    (32
    ) (c)
    
    
    309Deferred Income Tax Asset
Valuation Reserve
    
    
    173,148
    
    
    
    
    
    
    
    3,171
    
    
    
    
    
    
    
    176,319Claims Liability
    
    
    67,946
    
    
    
    50,155
    
    
    
    (103
    )
    
    
    (28,202
    ) (b)
    
    
    89,796Total Reserves and Allowances
    
    $
    242,178
    
    
    $
    50,930
    
    
    $
    3,068
    
    
    $
    (28,388
    )
    
    $
    267,788December 31, 2004:Allowance for Doubtful Accounts
    
    $
    1,364
    
    
    $
    562
    
    
    $
    
    
    
    $
    (771
    ) (a)
    
    $
    1,155Inventory Reserves
    
    
    309
    
    
    
    35
    
    
    
    
    
    
    
    
    (c)
    
    
    344Deferred Income Tax Asset
Valuation Reserve
    
    
    176,319
    
    
    
    
    
    
    
    10,492
    
    
    
    
    
    
    
    186,811Claims Liability
    
    
    89,796
    
    
    
    53,879
    
    
    
    429
    
    
    
    (35,990
    ) (b)
    
    
    108,114Total Reserves and Allowances
    
    $
    267,788
    
    
    $
    54,476
    
    
    $
    10,921
    
    
    $
    (36,761
    )
    
    $
    296,424
   (a)
    
    Write-off of uncollectible receivables, net of recovery of receivables previously
written-off.(b)
    
    Payments of settled claims.(c)
    
    Write-off of inventory shrinkage. 54




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES The Company maintains a set of disclosure controls and procedures designed to ensure that
information required to be disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms. As of the end of the
period covered by this report, an evaluation was carried out under the supervision and with the
participation of the Companys management, including its Principal Executive Officer and Principal
Financial Officer, of the effectiveness of the Companys disclosure controls and procedures. Based
on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded
that the Companys disclosure controls and procedures are effective. There has not been any change in the Companys internal control over financial reporting that
occurred during the last quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting. 55




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PART III 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Following is a summary of fees for professional services rendered by PricewaterhouseCoopers
LLP for Greyhound for the years ended December 31, 2004 and 2003 (in thousands): 2004
    
    
    2003Audit Fees
    
    $
    439
    
    
    $
    415Audit-Related Fees
    
    
    73
    
    
    
    82Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    2
    
    
    
    37Total Fees
    
    $
    514
    
    
    $
    534
 Audit Fees:Consist of fees for the audit of the Companys consolidated financial statements,
for review of the interim condensed financial statements included in the Companys quarterly
reports on Form 10-Q and subsidiary audits. Audit Related Fees:Consist of fees for the audit of the Companys benefit plans and attest
services that are not required by statute or regulation. Tax Fees:None All Other Fees:Consist of fees for professional services other than those reported above.
These services were for access to research software for the Company and for actuarial services
performed for a pension plan of one of the Companys subsidiaries. In 2004, the Company replaced
PricewaterhouseCoopers LLP with respect to the actuarial services. In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee Charter governing the
Audit Committee of Laidlaws Board of Directors (the Laidlaw Audit Committee) provides that the
Laidlaw Audit Committee has the sole authority and responsibility to pre-approve all services and
fees related to annual audit services and audit-related and tax services to be performed for the
Company by its independent auditors. The independent auditor may be considered for other services
not specifically approved as audit services or audit-related and tax services so long as the
services are not prohibited by SEC rules and are routine and recurring services, and would not
impair the independence of the auditor. Pursuant to its charter, the Laidlaw Audit Committee has
established pre-approval policies and procedures for such permitted non-audit services. Written
documentation outlining the scope of work, timing, reasons why the independent auditor should
perform the work and the proposed fees are submitted to Laidlaws Chief Financial Officer for
management approval and if approved, then to the Laidlaw Audit Committee for approval. Approvals
may be received by facsimile or e-mail, or verbally received first and then followed up in writing.
With respect to each proposed pre-approved service, the independent auditor will provide detailed
back-up documentation, which will be provided to the Laidlaw Audit Committee, regarding the fees
and specific services to be provided. All of the services described above were pre-approved by the
Laidlaw Audit Committee. The Company believes that none of the time expended on
PricewaterhouseCoopers LLPs engagement to audit the Companys financial statements for fiscal 2004
and 2003 was attributable to work performed by persons other than PricewaterhouseCoopers LLPs
full-time, permanent employees. 56




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PART IV 
 ITEM 15. 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 The following financial statements 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. Financial statements
for 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. Page No.Report of
Independent Registered Public Accounting Firm
    
    28Consolidated Statements of Financial Position at December 31, 2004 and 2003
    
    29Consolidated Statements of Operations for the Years ended December 31, 2004, 2003
and 2002
    
    30Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended December 31,
2004, 2003 and 2002
    
    31Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003
and 2002
    
    32Notes to Consolidated Financial Statements
    
    33
 3. Exhibits 3.1
    
    
    
    Second Amended and Restated Certificate of Incorporation of Greyhound Lines, Inc. (8)3.2
    
    
    
    Bylaws of Greyhound Lines, Inc. (8)4.1
    
    
    
    Indenture governing the 81/2% Convertible Subordinated Debentures due March 31, 2007,
including the form of 81/2% Convertible Subordinated Debentures due March 31, 2007. (1)4.2
    
    
    
    First Supplemental Indenture to the 81/2% Convertible Subordinated Debentures Indenture
between the Registrant and Shawmut Bank Connecticut, N.A., as Trustee. (2)4.3
    
    
    
    Second Supplemental Indenture to the 81/2% Convertible Subordinated Debentures
Indenture between the Registrant and State Street Bank and Trust Company, as trustee. (8)4.4
    
    
    
    Indenture, dated April 16, 1997, by and among the Company, the Guarantors and PNC
Bank, N.A., as Trustee. (3)4.5
    
    
    
    First Supplemental Indenture dated as of July 9, 1997 between the Registrant and PNC
Bank, N.A. as Trustee. (7)4.6
    
    
    
    Second Supplemental Indenture dated as of August 25, 1997 between the Registrant and
PNC Bank, N.A. as Trustee. (7)4.7
    
    
    
    Third Supplemental Indenture dated as of February 1, 1999, between the Registrant and
Chase Manhattan Trust Company as Trustee. (15)4.8
    
    
    
    Fourth Supplemental Indenture dated as of May 14, 1999, between the Registrant and
Chase Manhattan Trust Company as Trustee. (15)4.9
    
    
    
    Form of 111/2% Series A Senior Notes due 2007. (3)4.10
    
    
    
    Form of 111/2% Series B Senior Notes due 2007. (5)4.11
    
    
    
    Form of Guarantee of 111/2% Series A and B Senior Notes. (5)4.12
    
    
    
    Indenture dated April 16, 1997, by and between the Company and U.S. Trust of Texas,
N.A., as Trustee. (4)10.1
    
    
    
    Greyhound Lines, Inc. Supplemental Executive Retirement Plan. (8)*10.2
    
    
    
    First Amendment to Supplemental Executive Retirement Plan. (8)*10.3
    
    
    
    Second Amendment to Supplemental Executive Retirement Plan. (8)*
 57




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##### Table of Contents



10.4
    
    
    
    Third Amendment to Supplemental Executive Retirement Plan (8)*10.5
    
    
    
    Fourth Amendment to Supplemental
Executive Retirement Plan (14)*10.6
    
    
    
    Supplemental Executive Retirement Plan Trust Agreement (8)*10.7
    
    
    
    Executive Employment Agreement dated January 26, 2005 between Registrant and John Werner
Haugsland. (11)*10.8
    
    
    
    Appendix A  Change in Control Severance Agreement to Executive Employment Agreement
dated January 26, 2005 between Registrant and John Werner Haugsland. (11) *10.9
    
    
    
    Tax Allocation Agreement dated June 1, 1982, between the Registrant and Laidlaw
Transportation Inc. (15)10.10
    
    
    
    Loss Portfolio Transfer Agreement dated December 31, 1999, between the Registrant and
Laidlaw Transportation Inc. (15)10.11
    
    
    
    Memorandum of Agreement, dated March 27, 2004, between the Registrant and the
Amalgamated Transit Union National Local 1700. (13)10.12
    
    
    
    Greyhound Lines, Inc. Change in Control Severance Pay Program. (8)*10.13
    
    
    
    Form of Change in Control Agreement between the Company and certain officers of the
Company. (8)*10.14
    
    
    
    Intercompany Agreement dated as of October 24, 2000, between Registrant and Laidlaw
Transportation, Inc. (6)10.15
    
    
    
    Letter of Separation between Greyhound Lines, Inc. and Craig R. Lentzsch dated June 25, 2003
(12)*10.16
    
    
    
    Amended and Restated Loan and Security Agreement among Greyhound Lines, Inc., as
Borrower, the Financial Institutions named as lenders, and Foothill Capital Corporation as Agent dated as of
May 14, 2003 (9)10.17
    
    
    
    Amendment Number One to Amended and Restated Loan and Security Agreement amoung
Greyhound Lines, Inc., as Borrower, the Financial Institutions named as lenders, and Wells Fargo
Foothill, Inc. as Agent dated as of July 6, 2004. (10)21
    
    
    
    Subsidiaries of the Registrant (15)31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (15)31.2
    
    
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (15)32.1
    
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (15)
   *
    
    Management contract or compensatory plan.(1)
    
    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.(2)
    
    Incorporated herein by reference from the Registrants Issuer Tender Offer Statement on
Schedule 13E-4 (File No. 5-41800).(3)
    
    Incorporated by reference from the Companys Registration Statement on Form S-4 regarding the
Companys 111/2% Series B Senior Notes due 2007.(4)
    
    Incorporated by reference from the Companys Registration Statement on Form S-3 regarding the
Companys 81/2% Convertible Exchangeable preferred Stock, Common Stock and 81/2% Convertible
Subordinated Debentures due 2009.(5)
    
    Incorporated by reference from Amendment 1 to Form S-4 filed on June 27, 1997.(6)
    
    Incorporated by reference from the Registrants Annual Report on Form 10-K for the year ended
December 31, 2000. 58




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##### Table of Contents



(7)
    
    Incorporated by reference from the Registrants Annual Report on Form 10-K for the year
ended December 31, 2002.(8)
    
    Incorporated by reference from the Registrants Annual Report on Form 10-K for the year ended
December 31, 2003.(9)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed on May 21,
2003.(10)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed on July 6,
2004.(11)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed on January
31, 2005.(12)
    
    Incorporated by reference from the Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003.(13)
    
    Incorporated by reference from the Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2004.(14)
    
    Incorporated by reference from the Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004.(15)
    
    Filed herewith. 59




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##### Table of Contents



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, 2005. GREYHOUND LINES, INC.By:
    
    /s/ STEPHEN E. GORMANStephen E. GormanPresident 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. Signature
    
    Title
    
    Date/s/ KEVIN E. BENSON
    
    Director
    
    March 31, 2005Kevin E. Benson/s/ DOUGLAS A. CARTY
    
    Director
    
    March 31, 2005Douglas A. Carty/s/ JEFFREY W. SANDERS
    
    Director
    
    March 31, 2005Jeffrey W. Sanders/s/ STEPHEN E. GORMAN
    
    Director, President and Chief
Executive Officer
    
    March 31, 2005Stephen E. Gorman
    
    (Principal Executive Officer)/s/ JACK W. HAUGSLAND
    
    Director, Executive Vice President and Chief
    
    March 31, 2005Jack W. Haugsland
    
    Operating Officer/s/ CHERYL W. FARMER
    
    Senior Vice President  Finance
and Treasurer
    
    March 31, 2005Cheryl W. Farmer
    
    (Principal Financial Officer)
 CO-REGISTRANTS ATLANTIC GREYHOUND LINES OF VIRGINIA, INC. By: /s/ JACK W. HAUGSLAND
    
    Director, Chairman of the Board,
President and Chief Executive Officer
    
    March 31, 2005Jack W. Haugsland(Principal Executive Officer)/s/ STEPHEN E. GORMAN
    
    Director
    
    March 31, 2005Stephen E. Gorman/s/ CHERYL W. FARMER
    
    Senior Vice President  Finance
and Treasurer
    
    March 31, 2005Cheryl W. Farmer
    
    (Principal Financial and Accounting Officer)
 60




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##### Table of Contents



GLI HOLDING COMPANY By: /s/ STEPHEN E. GORMAN
    
    Director, President and
Chief Executive Officer
    
    March 31, 2005Stephen E. Gorman
    
    (Principal Executive Officer)/s/ JACK W. HAUGSLAND
    
    Director, Executive Vice President
and Chief Operating Officer
    
    March 31, 2005Jack W. Haugsland/s/ CHERYL W. FARMER
    
    Senior Vice President  Finance
and Treasurer
    
    March 31, 2005Cheryl W. Farmer
    
    (Principal Financial and Accounting Officer)
 GREYHOUND de MEXICO, S.A. de C.V. By: /s/ STEPHEN E. GORMAN
    
    Director and President
    
    March 31, 2005Stephen E. Gorman
    
    (Principal Executive Officer)/s/ JACK W. HAUGSLAND
    
    Director and Vice President
    
    March 31, 2005Jack W. Haugsland/s/ CHERYL W. FARMER
    
    Director
    
    March 31, 2005Cheryl W. Farmer/s/ WILLIAM J. GIESEKER
    
    Examiner
    
    March 31, 2005William J. Gieseker
    
    (Principal Financial and Accounting Officer)
 SISTEMA INTERNACIONAL de TRANSPORTE de AUTOBUSES, INC. By: /s/ STEPHEN E. GORMAN
    
    Director, President and
Chief Executive Officer
    
    March 31, 2005Stephen E. Gorman
    
    (Principal Executive Officer)/s/ ALFONSO PENEDO
    
    Director, Executive Vice President
and Director General and Chief
Operating Officer
    
    March 31, 2005Alfonso Penedo/s/ JACK W. HAUGSLAND
    
    Director
    
    March 31, 2005Jack W. Haugsland/s/ CHERYL W. FARMER
    
    Senior Vice President  Finance
and Treasurer
    
    March 31, 2005Cheryl W. Farmer
    
    (Principal Financial and Accounting Officer)
 61




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##### Table of Contents



TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC. By: /s/ JACK W. HAUGSLAND
    
    Director, President and Chief
Executive Officer
    
    March 31, 2005Jack W. Haugsland
    
    (Principal Executive Officer)/s/ GREGORY ALEXANDER
    
    Director
    
    March 31, 2005Gregory Alexander/s/ CHERYL W. FARMER
    
    Senior Vice President  Finance
and Treasurer
    
    March 31, 2005Cheryl W. Farmer
    
    (Principal Financial and Accounting Officer)
 T.N.M. & O. TOURS, INC. By: /s/ JACK W. HAUGSLAND
    
    Director, President and Chief
Executive Officer
    
    March 31, 2005Jack W. Haugsland
    
    (Principal Executive Officer)/s/ GREGORY ALEXANDER
    
    Director
    
    March 31, 2005Gregory Alexander/s/ CHERYL W. FARMER
    
    Senior Vice President  Finance
and Treasurer
    
    March 31, 2005Cheryl W. Farmer
    
    (Principal Financial and Accounting Officer)
 VERMONT TRANSIT CO., INC. By: /s/ JACK W. HAUGSLAND
    
    Director, Chairman of the Board,
President and Chief Executive Officer
    
    March 31, 2005Jack W. Haugsland(Principal Executive Officer)/s/ GREGORY ALEXANDER
    
    Director
    
    March 31, 2005Gregory Alexander/s/ CHERYL W. FARMER
    
    Senior Vice President  Finance
and Treasurer
    
    March 31, 2005Cheryl W. Farmer
    
    (Principal Financial and Accounting Officer)
 62




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##### Table of Contents



INDEX TO EXHIBITS Exhibit No
    
    Description4.7
    
    Third Supplemental Indenture dated as of February 1, 1999, between the Registrant and
Chase Manhattan Trust Company as Trustee.4.8
    
    Fourth Supplemental Indenture dated as of May 14, 1999, between the Registrant and
Chase Manhattan Trust Company as Trustee.10.9
    
    Tax Allocation Agreement dated June 1, 1982, between the Registrant and
Laidlaw Transportation Inc.10.10
    
    Loss Portfolio Transfer Agreement dated December 31, 1999, between Registrant and
Laidlaw Transportation Inc.21
    
    Subsidiaries of the Registrant.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
   63