##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-K
 [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003
 OR
 [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________
Commission file number 1-10841
 GREYHOUND LINES, INC. and its Subsidiaries Identified in Footnote (1) Below
 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 [X] NO [  ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [  ] NO [X] Aggregate market value of Common Stock held by non-affiliates of the
registrant on June 30, 2003, was $0. As of March 15, 2004, 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) ofForm 10-Kand is therefore filing this form in a
reduced disclosure format.




---



##### Table of Contents



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.
802 Commerce Street, 3rd Floor
Dallas, Texas 75201
(214) 849-8616
    
    
    333-27267-08
    
    
    
    75-2548617
    
    
    DelawareTexas, New Mexico & Oklahoma Coaches, Inc.
1313 13th Street
Lubbock, Texas 79408
(806) 763-5389
    
    
    333-27267-10
    
    
    
    75-0605295
    
    
    DelawareT.N.M. & O. Tours, Inc.
(Same as Texas, New Mexico & Oklahoma
Coaches, Inc.)
    
    
    333-27267-11
    
    
    
    75-1188694
    
    
    TexasVermont Transit Co., Inc.
345 Pine Street
Burlington, Vermont 05401
(802) 862-9671
    
    
    333-27267-12
    
    
    
    03-0164980
    
    
    Vermont
 As of December 31, 2003, 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




---



GREYHOUND LINES, INC. AND SUBSIDIARIES INDEX TO FORM 10-K Page No.PART IItem 1.
    
    Business
    
    
    5Item 2.
    
    Properties
    
    
    12Item 3.
    
    Legal Proceedings
    
    
    13PART IIItem 5.
    
    Market for the
Registrants Common Equity and Related Stockholder Matters
    
    
    15Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 8.
    
    Financial Statements and Supplementary Data
    
    
    29Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    57Item 9A.
    
    Controls and Procedures
    
    
    57PART IIIItem 14.
    
    Principal Accountant Fees and Services
    
    
    58PART IVItem 15.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    59Amended/Restated Certification of IncorporationBylaws of Greyhound Lines, Inc.Second Supplemental IndentureSupplemental Executive Retirement PlanFirst Amendment to Executive Retirement PlanSecond Amendment to Executive Retirement PlanThird Amendment to Executive Retirement PlanExecutive Retirement Plan Trust AgreementAmended Employment AgreementAmendment to Amended Executive Employment Agrmt.Memorandum of AgreementChange in Control Severance Pay ProgramForm of Change in Control AgreementSubsidiaries of the RegistrantCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to Section 906
  3




---



##### Table of Contents



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 effect of
future Government regulations; potential pension plan funding requirements;
limitations on financing flexibility and availability due to the potential
inability of the Company to obtain extensions of the maturity date of its
revolving credit facility or to remain in compliance with covenants required
under its various debt agreements consequently affecting the ability of the Company to continue as a going concern; changing credit markets; the ability to
renew labor agreements without incurring a work stoppage or slowdown;
disruptions to Company operations as a result of forced relocations of
terminals or garages; 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




---



##### Table of Contents



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 by
connecting rural and urban markets throughout the United States, offering
scheduled passenger service to more than 2,600 destinations with a fleet of
approximately 2,800 buses and approximately 1,700 sales locations. The Company
also provides package express service, travel services and, in some terminals,
food service. For the year ended December 31, 2003, the Company generated
total operating revenues of $975.5 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. On March 16, 1999, the Companys stockholders approved the Agreement and
Plan of Merger with Laidlaw Inc. pursuant to which the Company became a
wholly-owned subsidiary of Laidlaw Inc. (the Merger). On June 28, 2001, as part of a financial restructuring, Laidlaw Inc.,
Laidlaw USA, Inc., Laidlaw International Finance Corporation, Laidlaw
Investments Ltd., Laidlaw One, Inc. and Laidlaw Transportation, Inc. filed
voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the Western District of New
York, under a jointly administered case captioned, In re: Laidlaw USA, Inc., et
al, Case No. 01-14099. On that date, Laidlaw Inc. and Laidlaw Investments Ltd.
also filed cases under the Canada Companies Creditors Arrangement Act in the
Ontario Superior Court of Justice in Toronto, Canada, court file no.
01-CL-4178. Neither Greyhound, nor any of its subsidiaries were included in, or
made party to, these reorganization filings and proceedings. Effective June 23, 2003, Laidlaw Inc. emerged from the court-supervised
reorganization process after completing all required actions and satisfying or
reaching agreement with its creditor constituencies on all remaining conditions
to its Third Amended Plan of Reorganization. This Plan was confirmed by the U.
S. Bankruptcy Court for the Western District of New York by order dated
February 27, 2003. In accordance with the Plan of Reorganization, Laidlaw Inc.
completed an internal corporate restructuring, in which Laidlaw International,
Inc. acquired all of the assets of Laidlaw Inc., a Canadian corporation.
Additionally, pursuant to the Plan, Laidlaw International, Inc. domesticated to
the United States as a Delaware 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 50
largest sales outlets or the 1,200 largest origin/destination city pairs
producing approximately 50% of 2003 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 on
the day of departure. 5




---



##### Table of Contents



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, especially to
rural areas. Most shipments arrive 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 three metropolitan markets:
Minneapolis, MN, Chicago, IL and Houston, TX. In addition, the Company
provides shipping services at its retail counters in selected markets as an
Authorized Shipping Outlet for United Parcel Service. Food Service.The Companys food service division gives passengers the
ability to purchase food, gifts and logo merchandise in over 55 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 Star Hardees, KFC, Blimpies 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 five 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 and print media (primarily yellow pages).
Additionally, the Company offers convenient around-the-clock fare and schedule
quotations via a toll-free telephone number through its telephone information
centers and through the Companys internet web site. The Companys telephone
centers and web site handled 40.1 million requests in 2003, an increase of 2.3%
over 2002. The Company also markets its passenger and in-terminal services
through advertising in the terminal facilities and on its ticket jackets. 6




---



##### Table of Contents



Operations The Company utilizes approximately 130 company-operated bus terminals and
approximately 1,520 agency-operated terminals and/or sales agencies.
Maintenance garages are maintained at 27 strategic locations and are
supplemented by company-operated service islands and fueling points. The
Company currently has approximately 4,400 drivers based in approximately 100
different locations across the country. In the Greyhound Lines unit, drivers
report to driver supervisors who are organized into 11 districts reporting to
district managers of customer operations. 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 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. 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 center, customer service, point of sale,
payroll and finance functions. As of December 31, 2003, the Companys
automated fare and schedule quotation and ticketing system, called TRIPS, was
in use at 434 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
on 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 travel provided by the Company.
However, the Company also utilizes advance purchase discount programs in order
to attract the price sensitive customer. Price, destination choices and
convenient schedules are the ways in which the Company meets this competitive
challenge. The automobile is the most significant form of competition to the Company.
The out-of-pocket costs of operating an automobile are generally less
expensive than bus travel, particularly for multiple persons traveling in a
single car. The Company meets this competitive threat through price and
convenient scheduling. Additionally, the Company experiences competition from regional bus
companies and small local bus companies that cater to particular ethnic groups.
Price, frequency of service, and convenient scheduling are the current
strategies of the Company to meet this competition. The Companys competitors
possess operating authority for, but do not currently operate over, numerous
routes potentially competitive to the Company. Based on market and competitive
conditions, the regional bus companies could operate such routes in the future.
Competition by U.S.-based bus and van operators for the market represented by
Spanish speaking customers in the U.S. is growing. As of January 1, 1997,
barriers to entry into the regular-route cross-border bus market between the
U.S. and Mexico were scheduled to be reduced under the North American Free
Trade Agreement (NAFTA), although entry into either market would still be
regulated by the respective U.S. and Mexican regulatory authorities. In March
2002, the U.S. Department of Transportation (DOT) 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. A federal court stayed these rules late in 2002
until DOT completes an environmental impact review required by federal law. DOT
commenced the environmental impact review, but also appealed the adverse court
decision to the U.S. Supreme Court. In late 2003, the Supreme Court agreed to
hear the appeal and is expected to issue a decision in mid-2004. Once either
the environmental impact review is complete or the Supreme Court rules that no such review
is required, the Company 7




---



##### Table of Contents



could experience significant new competition on
routes, to, from and across Mexican border points. Additionally, certain
U.S.-based operators are providing cross-border service into Mexico at this
time. NAFTA also permits U.S. carriers to make controlling investments in
carriers domiciled in Mexico and permits Mexican carriers to make controlling
investments in carriers domiciled in the United States. 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 Grupo Estrella Blanca (GEB), a Mexico-based
bus carrier, and GEB sells 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. 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, and continues to develop
diversified product offerings 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 by approximately $5
million annually. 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. The
Company has also incurred significant increases in insurance costs principally
due to medical inflation, increases in excess insurance premiums and several
significant claims arising from in-transit criminal assaults against drivers.
Past terrorist acts and incidents on buses, or perceptions about future
attacks, including changes in the Homeland Security threat levels, have and
could continue to adversely affect the demand for the Companys services. 8




---



##### Table of Contents



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, 2004, the Company employed approximately 11,000 workers,
consisting of approximately 3,600 terminal employees, 4,400 drivers, 1,000
supervisory personnel, 700 mechanics, 400 telephone information agents, and 900
clerical workers. Of the total workforce, approximately 9,000 are full-time
employees and approximately 2,000 are part-time employees. At March 1, 2004, approximately 46% of the Companys employees were
represented by collective bargaining agreements. The Amalgamated Transit Union
(the ATU) represents approximately 4,400 of the Companys employees,
including drivers, about half of the Companys mechanics and terminal workers
in four locations. The largest ATU agreement (ATU 1700), covers the drivers
and maintenance employees and had an expiration date of January 31, 2004.
During January 2004, a new bargaining agreement was tentatively agreed to by
the parties. This agreement was submitted to the membership of ATU 1700 for
ratification and the expired agreement was extended to March 26, 2004. On March 26, 2004, the membership of ATU 1700 ratified the agreement. The new agreement expires on January 31, 2007. The United Transportation Union Local No. 1697 (UTU 1697) represents
approximately 140 drivers at one of the Companys wholly-owned subsidiaries.
The collective bargaining agreement covering these employees expired on
February 28, 2004, and the parties are continuing to negotiate. If the members
of the UTU 1697 were to engage in a strike or other work stoppage the Company
could experience a disruption in operations that could have an adverse effect
on the Companys financial condition and results of operations. The International Association of Machinists and Aerospace Workers (the
IAM) represents approximately 400 of the Companys employees, including the
remaining mechanics. The IAM agreements expire on October 1, 2004. 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. 9




---



##### Table of Contents



Government Regulation The Department of Transportation.As a motor carrier engaged in
interstate, as well as intrastate, transportation of passengers and express
shipments, the Company is, and must remain, registered with the DOT. 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 DOTs ordering the suspension or revocation of the
registration of the Company and its right to provide transportation. DOT
regulations also govern the qualifications, duties and hours of service of
drivers, the standards for vehicles, parts and accessories, the maintenance of
records and the submission of reports pertaining to the Companys drivers,
buses and operations. The Company is subject to periodic and random
inspections and audits by the DOT or, pursuant to cooperative arrangements with
the DOT, by state police or officials, to determine whether the Companys
drivers, buses and records are in compliance with the DOTs regulations. The
Company, from time to time, has been cited by the DOT or state authorities for
non-compliance with regulations but, nevertheless, has retained a satisfactory
safety rating. The Company has also been authorized by the DOT to partially
self-insure its bodily injury and property damage liability. See Insurance
Coverage. The DOT also administers regulations to assure compliance with
vehicle noise and emission standards prescribed by the Environmental Protection
Agency (the EPA). All of the buses in the Companys fleet contain engines
that comply with, or are exempt from compliance with, EPA regulations, but, on
occasion, the Company has been cited and fined for non-compliance with noise or
emission standards. 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 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 $35,000 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, 2003, approximately 17% of the Companys
fleet used in fixed route operations were wheelchair lift-equipped. To meet
the 50% requirement by October 2006, and assuming no change in current fleet
size, the Company must retrofit with lifts or replace 869 of its
non-lift-equipped buses with lift-equipped buses. Following the September 11, 2001 terrorist attacks the Company increased
its spending for safety and security in the bus terminals by approximately $5
million annually. Limited government assistance, in the form of grants, is
being offered to the bus industry and on August 20, 2003, the Company received
a grant of approximately $10.1 million from the TSA for the one-year period
ending August 19, 2004. 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. Although the Company has received a one-year
grant there can be no assurance that additional grants will be extended in the
future. 10




---



##### Table of Contents



Insurance Coverage Following the Merger and through August 31, 2001, the Company purchased
its insurance through Laidlaw with coverage subject to a $50,000 per occurrence
deductible for property damage claims and no deductible for all other claims.
Additionally, on December 31, 1999, the Company transferred liability for all
known, and unknown claims, and all related insurance reserves, associated with
the period prior to March 16, 1999 to Laidlaw for which Laidlaw received
compensation in an amount equal to the book value of the reserves. Effective
September 1, 2001, the Company began purchasing insurance 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 $1.0 million per occurrence deductible or self insured retention for
workers compensation and general liability. As of 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 predecessor agency to the STB granted the Company authority to
self-insure its automobile liability exposure for interstate passenger service
up to a maximum level of $5.0 million per occurrence, which has been continued
by the DOT. To maintain self-insurance authority, the Company is required to
provide periodic financial information and claims reports, maintain a
satisfactory safety rating by the DOT, a tangible net worth of $10.0 million
and a $15 million trust fund 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 DOT to maintain self-insurance
authority. In March 2003, the Company sought a waiver from DOT of this tangible
net worth requirement. On July 25, 2003, the DOT granted the waiver of this
requirement through December 31, 2004. As a condition of the waiver, the
Company was required to increase the self-insurance trust fund by $2.7 million.
As of December 31, 2003, the trust was funded in the amount of $17.7 million.
The DOT will also require the Company to make additional trust fund
contributions to the extent that self-insured reserves exceed (as measured
semi-annually) the then balance in the trust fund. During the waiver period,
the Companys self-insurance authority will be subject to periodic review by
the DOT. Insurance coverage and related administrative expenses are key components
of the Companys cost structure. Additionally, the Company is required by the
DOT, some states and some of its insurance carriers to maintain collateral
deposits or provide other security pursuant to its insurance program. At
December 31, 2003, the Company maintained $25.7 million of collateral deposits
including the above $17.7 million trust fund and had issued $49.2 million of
letters of credit in support of these programs. See Note 7 to the Consolidated
Financial Statements. The loss or further modification of self-insurance
authority from the DOT or a decision by the Companys insurers to modify the
Companys program substantially, by either increasing cost, reducing
availability or increasing collateral, could have a material adverse effect on
the Companys liquidity, financial condition, and results of operations. 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, 30 active and 11 inactive locations have been identified as sites
requiring potential clean up and/or remediation as of December 31, 2003.
Additionally, the Company is potentially liable with respect to four 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. 11




---



##### Table of Contents



The Company has recorded a total environmental liability of $5.5 million
at December 31, 2003 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 8.0%. The Company expects the majority of
this environmental liability to be paid over the next five to ten years. 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, among others, 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, 2003, the Company used 536 parcels of real property in its
operations, of which it owned 161 properties and leased 375 properties. Of
those properties, 388 are bus terminals, 32 are maintenance facilities, 28 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 100 of
such facilities. The Company believes 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. 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. The Port
Authority has been in discussions to develop the air rights above the terminal
and should an agreement on the development be reached the Company would likely
be required to temporarily relocate its operations within the Port Authority.
Such relocation, if required, could result in an increase in the costs to
operate out of the Port Authority and potentially impact ticket and food
service revenues. See Note 16 to the Consolidated Financial Statements. 12




---



##### Table of Contents



Fleet Composition and Bus Acquisitions During 2003, the Company took delivery of 17 new and used buses, and
retired 137 buses, resulting in a fleet of 2,806 buses at December 31, 2003, of
which the Company owned 1,222 buses and leased an additional 1,584 buses. The
average age of the Companys bus fleet increased to 7.2 years at December 31,
2003, compared to 6.6 years at December 31, 2002 and 6.2 years at December 31,
2001. Although the Company believes the current fleet size and fleet age are
adequate for its operations, the Companys experience indicates that older
buses are less reliable and more costly to operate than newer buses. For
example, over the last two years the cost per mile to maintain the Companys
fleet has increased well above the rate of wage and material inflation.
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 54 of these buses. The Company is party to a long-term supply agreement
with MCI. The agreement extends through 2007, but may be canceled at the end
of any year upon six months notice. If the Company decides to acquire new
buses, the Company and its affiliates must purchase at least 80% of its new bus
requirements from MCI pursuant to the agreement. 
 ITEM 3. LEGAL PROCEEDINGS Greyhound Lines is the sole shareholder of Sistema Internacional de
Transporte de Autobuses, Inc. (SITA). SITA owns 51% of Gonzalez, Inc., d/b/a
Golden State Transportation (Golden State). On November 28, 2001 and
subsequently, Golden State and numerous individual employees, including its
senior management, were indicted by a federal grand jury for felony criminal
offenses for allegedly transporting and harboring illegal aliens and money
laundering. The case, filed before the United States District Court for the
District of Arizona, is styled U.S. v. Gonzalez, Inc, et al., Case No. CR
01-1696-TUC-RCC. The indictment also sought forfeiture to the Government of all
the property owned by Golden State, which involves Golden State, SITA and
Greyhound Lines since they were claimants to the property. Neither Greyhound
Lines nor SITA were charged with any crime. In August 2002, the Government filed a civil forfeiture action against
certain Golden State assets based on allegations similar to those described in
the indictment of Golden State. The case, filed before the United States
District Court for the District of Arizona, is styled U.S. v. 130 North 35th
Avenue, Phoenix, Arizona, et al., Case No. CV 02-409-TUC-RCC. Neither SITA nor
Greyhound Lines were a defendant in the forfeiture action; however, Greyhound
Lines and SITA were claimants to the property. Golden State ceased operations effective August 30, 2002 and filed a
voluntary petition for bankruptcy on September 30, 2002 in the United States
Bankruptcy Court for the District of Arizona in a case styled In re: Gonzalez,
Inc. d/b/a Golden State Transportation, Case No. 02-15508-PHX-GBN. In
September 2003, Golden State entered into a settlement agreement with the
Government regarding the criminal and civil forfeiture cases brought by the
Government. In September 2003, SITA and Greyhound Lines also entered into
stipulations with the Government to settle SITA and Greyhound Lines claims to
the subject property of the forfeiture action. Pursuant to these stipulations,
Greyhound Lines and SITA agreed to withdraw their claims to certain Golden
State property and cooperate in the Governments ongoing criminal proceedings.
In return, the Government dropped its forfeiture allegations against the
remaining property originally sought for forfeiture and agreed not to pursue
criminal or civil charges against SITA, Greyhound Lines and their employees
arising out of the events described in the criminal indictment. The bankruptcy
court overseeing the Golden State bankruptcy approved the settlement on
November 6, 2003 and authorized Golden State to conclude the criminal
proceedings by pleading guilty. 13




---



##### Table of Contents



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. 14




---



##### Table of Contents



PART II 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 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 111⁄2% Senior Notes and the
agreement governing the Companys revolving credit facility limit the ability
of the Company to pay dividends. At December 31, 2003, under the most
restrictive of the agreements, no dividends could be paid by the Company. 15




---



##### Table of Contents



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, which
accounted for 85.2%, 4.0% and 4.1%, respectively, of the Companys total
operating revenues for 2003. The Companys operations include a nationwide
network of terminal and maintenance facilities utilizing a current fleet of
approximately 2,800 buses. The Company operates on a capacity flexible basis
whereby the Company will supplement its scheduled service offerings with
additional departures when demand is high. The Company uses a network of
approximately 1,700 sales locations, which offers the customer the ability to
travel to more than 2,600 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. The following discussion and analysis presents factors which affected the
Companys consolidated results of operations for the year ended December 31,
2003 and the Companys consolidated financial position at December 31, 2003.
The following information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto. 2003 Overview Since the third quarter of 2001, the Company has experienced declines in
revenue, averaging 2.2% per year, from $1 billion in 2001, to $976 million in
2003. The revenue declines were first triggered by the events of September 11,
2001 and have continued through 2003 as a result of soft economic conditions
and the effects of higher terror alert levels on consumer travel.
Concurrently, the Company also experienced significant increases in fuel,
security, insurance, pension and employee health and welfare costs. The
revenue declines coupled with the cost increases culminated in an operating
loss of $3.5 million in 2003, compared to operating income of $4.4 million and
$29.9 million in 2002 and 2001, respectively. To mitigate the earnings decline, Greyhound implemented a series of
initiatives during the latter part of the second quarter of 2003 to enhance its
operating income by improving revenue per mile and reducing operating costs.
Just prior to the peak summer travel period, the Company restricted advance
purchase discount fares, eliminated the companion rides free program and
increased prices principally in its lower-yielding, long distance trips greater
than 1,000 miles. Historically, long distance travel has been very price
elastic, such that any noticeable price increase dampens demand and as a
result, decreases passenger miles. When declines in passenger miles are
predominantly due to reduced long distance trips, there is an increase in
system wide yield as the mix shifts to a greater proportion of higher yielding,
short distance trips. Furthermore, when the decrease in passenger miles is
accompanied by a comparable reduction in bus miles so that system wide load is
maintained, profitability can be sustained or improved even though revenue may
decline. In conjunction with the price increases, the Company reduced scheduled
service in certain markets, principally by reducing frequencies on particular
routes, and to a lesser extent by abandoning some routes in limited rural
areas. As a result, during the second half of 2003, bus miles were reduced by
9%, which was comparable to the decline in passenger miles, while revenue per
mile improved by 9.1%. The Company also implemented a number of cost reduction initiatives and
productivity improvements during 2003. Because bus and passenger miles drive
76% of the Companys wages, the Company reduced its terminal employees,
drivers, mechanics and telephone information center agents as the miles
declined. Additionally, the Company initiated a reduction in its headquarters
and administrative workforce of approximately 14% or 294 employees. The
reduction in workforce generated savings of $2.3 million in 2003, net of
severance costs of $2.9 million, and is expected to generate $12 million to $15
million in total annualized savings. In addition to the workforce reduction,
the Company gained productivity improvements in its telephone information
centers and accounting area, announced its intention to close the telephone
information center located in Omaha in early 2004, improved utilization of its
equipment and drivers and improved on-time performance. 16




---



##### Table of Contents



As a result of these initiatives, during the second half of 2003, the
percentage increase in revenue per mile exceeded the percentage increase in
operating cost per mile, thus resulting in an improvement in operating income
of $10.3 million compared to the prior year, despite the decline in revenue.
Although the earnings improvement during the second half of the year is
encouraging, 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 2003, 2002 and 2001: Years Ended December 31,2003
    
    2002
    
    2001Operating RevenuesPassenger services
    
    
    85.2
    %
    
    
    85.7
    %
    
    
    85.8
    %Package express
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.0Food services
    
    
    4.1
    
    
    
    4.3
    
    
    
    4.3Other operating revenues
    
    
    6.7
    
    
    
    6.0
    
    
    
    5.9Total Operating Revenues
    
    
    100.0
    
    
    
    100.0
    

    
    
    100.0Operating ExpensesMaintenance
    
    
    10.9
    
    
    
    10.2
    
    
    
    9.9Transportation
    
    
    25.1
    
    
    
    24.7
    
    
    
    25.1Agents commissions and station costs
    
    
    18.2
    
    
    
    18.5
    
    
    
    18.6Marketing, advertising and traffic
    
    
    2.7
    
    
    
    2.8
    
    
    
    3.5Insurance and safety
    
    
    7.5
    
    
    
    7.8
    
    
    
    5.9General and administrative
    
    
    12.9
    
    
    
    12.7
    
    
    
    12.7Depreciation and amortization
    
    
    5.6
    
    
    
    5.1
    
    
    
    4.8Operating taxes and licenses
    
    
    6.1
    
    
    
    6.2
    
    
    
    6.2Operating rents
    
    
    8.2
    
    
    
    8.1
    
    
    
    7.1Cost of
goods sold  food services
    
    
    2.6
    
    
    
    2.8
    
    
    
    2.9Other operating expenses
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.4Total Operating Expenses
    
    
    100.4
    
    
    
    99.6
    
    
    
    97.1Operating Income (loss)
    
    
    (0.4
    )
    
    
    0.4
    
    
    
    2.9Interest Expense
    
    
    2.5
    
    
    
    2.6
    
    
    
    2.8Income Tax Provision (Benefit)
    
    
    0.1
    
    
    
    5.3
    
    
    
    (0.1
    )Minority Interests
    
    
    0.0
    
    
    
    (0.2
    )
    
    
    0.0Cumulative Effect of Change in Accounting for Goodwill
    
    
    0.0
    
    
    
    4.0
    
    
    
    0.0Net Income (Loss)
    
    
    (3.0
    )%
    
    
    (11.3
    )%
    
    
    0.2
    %
 17




---



##### Table of Contents



The following table sets forth certain key operating data used by
management in assessing the Companys performance for 2003, 2002 and 2001.
Certain statistics have been adjusted and restated from those previously
published to provide consistent comparisons. Years Ended December 31,2003
    
    2002
    
    2001Regular Service Miles (000s)
    
    
    304,828
    
    
    
    333,154
    
    
    
    349,978Total Bus Miles (000s)
    
    
    313,337
    
    
    
    341,071
    
    
    
    358,502Passenger Miles (000s)
    
    
    7,963,086
    
    
    
    8,739,581
    
    
    
    9,191,173Passengers Carried (000s)
    
    
    21,920
    
    
    
    23,283
    
    
    
    25,167Average Trip Length (passenger miles ÷ passengers carried)
    
    
    363
    
    
    
    375
    
    
    
    365Load (avg. number of passengers per regular service mile)
    
    
    26.1
    
    
    
    26.2
    
    
    
    26.3Load Factor (% of available seats filled)
    
    
    51.5
    %
    
    
    52.1
    %
    
    
    52.5
    %Yield (passenger services revenue ÷ passenger miles)
    
    $
    0.1043
    
    
    $
    0.0972
    
    
    $
    0.0954Average Ticket Price
    
    $
    37.89
    
    
    $
    36.50
    
    
    $
    34.84Total Revenue Per Total Bus Mile
    
    $
    3.11
    
    
    $
    2.91
    
    
    $
    2.85Operating Income (Loss) Per Total Bus Mile
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.08Cost per Total Bus Mile:Maintenance
    
    $
    0.339
    
    
    $
    0.296
    
    
    $
    0.284Transportation
    
    $
    0.781
    
    
    $
    0.719
    
    
    $
    0.716
 Year ended December 31, 2003 Compared to Year ended December 31, 2002 Operating Revenues.Total operating revenues decreased $16.4 million,
down 1.7% for the year ended December 31, 2003 compared to the same period in
2002. Passenger services revenues decreased $19.1 million, or 2.3%, in 2003
compared to 2002 as a decline in passengers of 5.9% was only partially offset
by increases in ticket prices of 3.8%. A significant portion of the decline,
$14.3 million, was due to reduced revenue in the Hispanic passenger markets due
to the shutdown of operations at Golden State Transportation during the third
quarter of 2002. Additionally, during the first half of 2003, passenger
revenues were adversely affected by severe winter weather in February in the
Northeast and the war in Iraq and the resulting increases in the terror alert
levels during the Easter and Memorial Day holidays. During the first half of 2003, an 8.2% decline in passengers miles was
only partially offset by a 5.2% increase in yield resulting in a 3.3% passenger
revenue decline. The passenger mile decline was moderated somewhat as the
Company reduced restrictions on advance purchase discount tickets to stimulate
demand. Entering into the peak summer travel period, the Company replaced and
increased the restrictions on advance purchase discount tickets and raised
ticket prices on long distance trips. While the increase in ticket prices
caused a further decline in passenger miles, down 9.6%, the 9.2% increase in
yield largely offset these declines, resulting in only a 1.3% decline in
passenger revenue in the second half of 2003. Package express revenues decreased $0.5 million, down 1.2% in 2003
compared to 2002. 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. In response, the Company
continues to increase its focus on the same day delivery market niche through
the selling of Daily Direct, a guaranteed same day or early next morning
service. 18




---



##### Table of Contents



Food services revenues decreased $2.5 million, down 5.9% for the year
ended December 31, 2003 compared to the same period in 2002. The Company
attributes the decline in food services revenues primarily to the decline in
the number of passengers. Other operating revenues, consisting primarily of revenue from travel
services, in-terminal sales and other services, as well as interest income on
deposits and investments, increased $5.7 million, up 9.4% in 2003 compared to
2002. The increase is primarily due to increased charter services and
increases in meet and greet services provided to cruise lines. Operating Expenses.Total operating expenses decreased $8.6 million, down
0.9% for the year ended December 31, 2003 compared to the same period in 2002. Maintenance costs increased $5.2 million, or 5.2% in 2003 compared to
2002. On a per mile basis, maintenance costs increased 14.5% 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, 8.5% for the year ended December 31, 2003, 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 $0.5 million, or 0.2% for the year ended December 31, 2003
compared to the same period in 2002, as the effects of decreases in bus miles
were largely offset by increases in fuel, contractual driver wage increases and
increased driver hiring costs. During 2003, the average cost per gallon of
fuel increased to $0.91 from $0.75 in 2002 resulting in increased costs of $8.1
million. Additionally, driver hiring and training costs were $0.8 million
higher in 2003 due to increases in the number of drivers hired during the first
quarter of 2003. On a per-mile basis, excluding the effects of fuel price
changes and driver hiring costs, transportation expenses increased by 4.7% for
the year ended December 31, 2003, due mainly to contractual driver wage
increases and fewer miles operated in the Companys subsidiaries which
generally operate at a lower driver wage rate per mile than in the Greyhound
Lines unit. Agents commissions and station costs decreased $5.4 million, down 3.0% in
2003 compared to 2002. The decrease is primarily due to lower commissions and
terminal and call center wages as a result of decreased ticket sales and lower
passenger volumes. Marketing, advertising and traffic expenses decreased $1.2 million, or

4.4%, in 2003 compared to 2002. As leisure or discretionary travel has
remained soft, management continues to reduce advertising and departmental
staffing when compared to the prior year. Insurance and safety costs decreased $4.4 million, down 5.7% in 2003
compared to 2002. The decline is due primarily to a one-time charge in the
prior year of $3.1 million resulting from a change in reserving methodology
from the mid-point of the actuarial range to the high point. Additional
declines were due to the reduction in bus miles operated and in the number of
severe accidents, offset somewhat by an increase in the cost of excess
insurance coverage and growth in the average cost per claim due principally to
medical cost inflation. General and administrative expenses decreased $1.3 million, down 1.0% for
the year ended December 31, 2003 compared to the same period in 2002. During
the year higher pension costs of $6.9 million were more than offset by
decreased wages of $3.2 million resulting from a reduction in workforce,
reduced health and welfare costs of $1.9 million and decreased travel and other
costs due to lower business volumes. Depreciation and amortization increased $4.1 million, or 8.2% for the year
ended December 31, 2003 compared to the same period in 2002. The increases are
primarily due to inflationary increases in the cost of recent capital
expenditures for buses, structures and capitalized software, which due to the
long-lived nature of the Companys assets, significantly exceeds the historical
cost basis of asset disposals. 19




---



##### Table of Contents



Operating taxes and licenses expense decreased $2.1 million, or 3.4% in
2003 compared to 2002. The decrease is due principally to lower payroll and
fuel taxes resulting from lower bus miles and business volumes. Food services cost of goods sold decreased $2.3 million, or 8.1% in 2003
compared to 2002 primarily due to the decrease in food services revenues
related to the decline in the number of passengers. Other operating expenses decreased $0.7 million, down 11.3% for the year
ended December 31, 2003 compared to the same period in 2002. During 2003, the
Company incurred severance costs associated with a reduction in workforce and
the departure of the Companys Chief Executive Officer partially offset by a
gain recorded on the sale of investment. These were less than the $4.0 million
charge recorded in the prior year related to the write-off of the investment in
and accounts receivable due from Golden State Transportation. Interest expense decreased $0.6 million, down 2.5% for the year ended
December 31, 2003 compared to the same period in 2002, due to a decrease in the
average debt outstanding and a decrease in overall interest rates. During the third quarter of 2002, the Company established a full valuation
allowance for its deferred tax assets, and as a result the Companys current
year tax expense for the year ended December 31, 2003 principally represents
state tax expense related to certain of the Companys subsidiaries. See Note
12 to the Consolidated Financial Statements for further discussion. Minority interests for the year ended December 31, 2003, reflects the
minority partners share of current year income in the Companys Hispanic
ventures. The ventures were profitable in the current year as compared to the
prior year. During the first quarter of 2002, the Company adopted Statement of
Financial Accounting Standards No. 142 Accounting for Goodwill and Other
Intangible Assets (SFAS 142) and, as a result, recorded a non-cash charge as
a cumulative effect of a change in accounting principle. See Note 8 to the
Consolidated Financial Statements for further discussion. 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 quarterly 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. 20




---



##### 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, 2003, the Companys Consolidated Statements of Financial Position
reflects $376.0 million of net property and equipment and $48.1 million in
investments in affiliates, goodwill and other net intangible assets, accounting
for over 78% 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 or the strategy for the overall
business, and significant negative industry or economic trends. An impairment
loss is recognized on property and equipment and other intangible assets when
the undiscounted cash flows estimated to be generated by those assets are less
than their carrying amount. An impairment loss is recognized on investments in
affiliates and goodwill when the fair value of the investee or reporting unit
is less than their carrying amount. The net carrying value of assets not
deemed recoverable are reduced to 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. During 2002, the Company adopted 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 ($3.0
million) relates to the Courier Services reporting unit where fair value
exceeds carrying value. 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). 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 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 recorded by the Company. The Company records an additional minimum pension liability when its
accumulated benefit obligation exceeds the fair value of the pension plans
assets in excess of the amounts previously accrued for pension costs. As of
December 31, 2003, the Companys additional minimum pension liability included
in other comprehensive loss was $252 million, down from $274 million as of
December 31, 2002, primarily as a result of improved asset performance offset
somewhat by an increase in the benefit obligation due to a decline in the
discount rate. The decrease in the Companys minimum pension liability
resulted in a decrease to other comprehensive loss of approximately $22 million
in 2003. See Note 10 to the Consolidated Financial Statements for further
discussion. 21




---



##### Table of Contents



Accounting for Income Taxes.The Consolidated Statements of Financial
Position reflects net deferred tax assets as of December 31, 2003 of $176.3
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 operating losses and the reasonable likelihood of
significant near-term reversals of deductible temporary differences carry more
weight than forecasted future operating profits. As a result of book losses
incurred in 2002 and 2003, as well as the significant pension funding required
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 profitability that demonstrates its ability to utilize
existing operating loss carryforwards. The valuation allowance increased from
$173.1 million at December 31, 2002, to $176.3 million at December 31, 2003. 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, 2003, the Company had $205.7
million of outstanding debt, implicit debt equivalent of $263.6 million for
off-balance sheet bus operating leases and $56.8 million of outstanding letters
of credit (which principally support recorded claims liabilities).
Additionally, as of December 31, 2003, the Company had availability of $57.1
million under its Revolving Credit Facility and cash and cash equivalents of
$19.8 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
11 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. 22




---



##### Table of Contents



Net cash provided by operating activities was $39.8 million, $98.1 million
and $51.0 million for the years ended December 31, 2003, 2002 and 2001,
respectively. Net cash provided by operating activities contains two
components, cash provided by the Companys operating results (defined as the
sum of net income (loss), cumulative effect of accounting change and non-cash
expenses and gains included in net income (loss)) and cash provided by (or used
by) changes in operating assets and liabilities. Cash provided by the
Companys operating results was $37.8 million, $43.5 million and $60.0 million
for the years ended December 31, 2003, 2002 and 2001, respectively. The
decline in cash provided by operating results in 2003 is principally due to a
reduction in operating income offset somewhat by lower interest expense.
Changes in operating assets and liabilities provided cash of $2.0 million for
the year ended December 31, 2003 compared to $54.6 million in 2002 and uses of
cash of $9.0 million in 2001. 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 year ending on a Tuesday, thus resulting
in the Company receiving all weekend receipts prior to the year-end and,
therefore, reducing receivables from agents. In 2001, net cash used by changes
in operating assets and liabilities of $9.0 million was principally due to
spending on software. Net cash used for investing activities was $14.9 million, $56.1 million
and $33.7 million for 2003, 2002 and 2001, respectively, principally due to
capital expenditures, consisting primarily of acquisitions of buses and real
estate and facility improvements, totaling $22.7 million, $65.0 million and
$36.0 million for 2003, 2002 and 2001, respectively. During 2003 capital
expenditures were partially offset by proceeds from the sales of assets and
investments. Net cash used by financing activities was $11.1 million, $57.0 million and
$6.6 million for 2003, 2002 and 2001, respectively. The decrease in cash used
by financing activities in 2003 is principally due to paydowns on the Revolving
Credit Facility and lower payments on debt and capital lease obligations. The Company is party to a $125 million revolving credit facility, with a
$70 million letter of credit sub facility (Revolving Credit Facility).
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. Under this formula, at December 31, 2003, the
Company had aggregate availability of $113.9 million. As of December 31, 2003,
the Company had no outstanding borrowings under its Revolving Credit Facility,
issued letters of credit $56.8 million and availability of $57.1 million. As
noted earlier, however, the Company may not be able to access such availability
if an event of default or default exists. Borrowings under the Revolving Credit Facility are available to the
Company at a rate equal to Wells Fargo Banks prime rate plus 1.5% per annum or
LIBOR plus 3.5% per annum as selected by the Company. Letter of credit fees
are 3.5% per annum. Borrowings under the Revolving Credit Facility mature on
October 24, 2004. The Revolving Credit Facility is secured by liens on
substantially all of the assets of the Company and the stock and assets of
certain of its subsidiaries. Under the Revolving Credit Facility, the Company
is subject to certain financial covenants, including maximum total debt to cash
flow ratio, minimum cash flow to interest expense ratio and minimum cash flow
test. The Revolving Credit Facility is also subject to certain affirmative and
negative operating covenants, including limitation on non-bus capital
expenditures; limitations on additional liens, indebtedness, guarantees, asset
disposals, advances, investments and loans; and restrictions on the redemption
or retirement of certain subordinated indebtedness or equity interests, payment
of dividends and transactions with affiliates, including Laidlaw. As of
December 31, 2003, the Company was in compliance with all such covenants. If
an event of default occurs and is continuing, the lenders may seek to enforce
remedies under the Revolving Credit Facility, including terminating the
commitment to make loans or issue letters of credit, holding cash collateral
for payment of the Companys obligations under the Revolving Credit Facility
and selling the collateral. In addition, an event of default under the
Revolving Credit Facility may result in cross-defaults under other debt
instruments of the Company and its subsidiaries. 23




---



##### Table of Contents



In accordance with the terms of the Revolving Credit Facility the Company
submitted a financial forecast for 2004 to the agent bank. Based upon this
forecast management is unable to predict with reasonable assurance whether the
Company will remain in compliance with all of the covenants under the Revolving
Credit Facility. Additionally, there is less than one year until the
expiration of the Revolving Credit Facility. The Company intends to enter into
discussions to extend the maturity and to modify certain of the other terms of
the agreement. Although the Company has been successful in obtaining necessary
extensions and modifications to the Revolving Credit Facility in the past,
there can be no assurances that the Company will obtain them in the future or
that the cost of any future extensions, modifications or other changes in the
terms of the Revolving Credit Facility would not have a material effect on the
Company. In the event that the parties are unable to agree on an extension of
the facility beyond its current maturity date, and that modifications suitable
to the parties are not obtained, the Company will be required to seek a
replacement for the Revolving Credit Facility from other financing sources.
Should alternate sources of financing not be available, then the Company may
not be able to satisfy its obligations as they become due and may not be able
to continue as a going concern. As a result, the Company may not be able to
realize its assets and settle its liabilities in the normal course of
operations. 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 are typically purchased at lease
expiration at the residual value, or fair market value for those leases that do
not contain residual values. Most of the leases are designed to qualify as operating leases for
accounting purposes and, as such, only the monthly lease payment is recorded in
the statement of operations and the liability and value of the underlying buses
are not recorded on the statement 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, 2003, 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 $263.6 million. Of those operating leases that contain residual value guarantees, the
aggregate residual value at lease expiration is $140.6 million, of which the
Company has guaranteed $88.3 million. To date, the Company has always purchased
the buses at lease maturity at the stated residual value and therefore has
never incurred any loss as a result of residual value guarantees. See Note 14
to the Consolidated Financial Statements. At December 31, 2003, 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
    
    Value2004
    
    $
    53,679
    
    
    $
    9,173
    
    
    $
    2005
    
    
    42,839
    
    
    
    17,930
    
    
    
    13,3422006
    
    
    23,865
    
    
    
    28,599
    
    
    
    4,3352007
    
    
    14,389
    
    
    
    36,670
    
    
    
    2008
    
    
    8,100
    
    
    
    26,954
    
    
    
    Thereafter
    
    
    2,342
    
    
    
    21,275
    
    
    
    Total
    
    $
    145,214
    
    
    $
    140,601
    
    
    $
    17,677
 24




---



##### Table of Contents



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 2003, the Company made $85.3
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 $140.6 million, of which the
Company has guaranteed $88.3 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, 2003, the Company had $56.8 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 YearsTotal
    
    2004
    
    2005-2006
    
    2007-2008
    
    ThereafterLong-term debt (1)
    
    $
    199,327
    
    
    $
    2,193
    
    
    $
    38,238
    
    
    $
    156,605
    
    
    $
    2,291Capital lease obligations (2)
    
    
    8,081
    
    
    
    1,769
    
    
    
    5,493
    
    
    
    516
    
    
    
    303Operating lease obligations (2)
    
    
    245,824
    
    
    
    72,245
    
    
    
    97,856
    
    
    
    45,176
    
    
    
    30,547Other long-term obligations (3)
    
    
    8,250
    
    
    
    1,100
    
    
    
    2,200
    
    
    
    2,200
    
    
    
    2,750Total
    
    $
    461,482
    
    
    $
    77,307
    
    
    $
    143,787
    
    
    $
    204,497
    
    
    $
    35,891
    (1)
    
    See Note 11 to Consolidated Financial Statements for additional
information. Amount is principal only and excludes capital lease
obligations.(2)
    
    See Note 14 to Consolidated Financial Statements for additional
information.(3)
    
    Amount represents an arrearage agreement between the Port Authority of
New York and the Company.
See Note 16 to Consolidated Financial Statements for additional
information. Pension funding obligations are described below. 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 31,2003
    
    2002
    
    2001Total new and used buses acquired
    
    
    17
    
    
    
    177
    
    
    
    154Used buses disposed of for cash
    
    
    123
    
    
    
    90
    
    
    
    77
 25




---



##### Table of Contents



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 31,2003
    
    2002
    
    2001New and used buses acquired
    
    $
    4,852
    
    
    $
    58,082
    
    
    $
    53,272Disposals and government subsidies
    
    
    (5,040
    )
    
    
    (7,203
    )
    
    
    (1,453
    )Real estate, technology and other, net of disposals
    
    
    14,155
    
    
    
    18,548
    
    
    
    26,501Aggregate value of net assets acquired
    
    
    13,967
    
    
    
    69,427
    
    
    
    78,320Proceeds from operating lease financing
    
    
    (4,268
    )
    
    
    (12,760
    )
    
    
    (37,155
    )Proceeds from capital lease or vendor provided
financing
    
    
    
    
    
    
    (486
    )
    
    
    (7,189
    )Buses purchased at operating lease expiration
    
    
    8,070
    
    
    
    
    
    
    
    Capital expenditures, net of proceeds on disposals
    
    $
    17,769
    
    
    $
    56,181
    
    
    $
    33,976
 Potential Pension Plan Funding Requirements The Company maintains nine defined benefit pension plans (the Pension
Plans) that as of December 31, 2003 had a combined projected benefit
obligation (PBO), discounted at 6.0%, of $767.5 million. Over the last two
years the PBO has increased $54.0 million as interest accretion on the
obligation and the effect of a decrease in the discount rate of 1.3% have more
than offset reductions due to benefit payments. Plan assets, however, have
declined $73.4 million over the last two years as benefit payments have
exceeded net investment gains on plan assets and plan contributions. As a
result, the PBO exceeds plan assets resulting in the plans 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), are party to an agreement with the
PBGC regarding the funding levels of the Companys pension plans (the PBGC
Agreement). Under the PBGC Agreement the Laidlaw Group contributed $50
million in cash to the pension plans during June 2003. Additionally, 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). The fair value of the
Laidlaw common stock was estimated to be $50 million at the time of bankruptcy
emergence based upon third party valuations provided to Laidlaw in connection
with their bankruptcy proceedings. The trustee of the Pension Plan Trust will
sell the stock at Laidlaws direction, but in no event later than the end of
2004. All proceeds from the stock sales will be contributed directly to the
pension plans. If the proceeds from the stock sales exceed $50 million, the
excess amount may be credited against any future required minimum funding
obligations. If the proceeds from the stock sales are less than $50 million,
the Laidlaw Group will be required to contribute the amount of the shortfall in
cash to the pension plans at the end of 2004. Further, the Laidlaw Group must
contribute an additional $50 million in cash to the pension plans in June 2004.
These contributions and transfers will be in addition to the minimum funding
obligations to the pension plans, if any, required under current regulations. The first $50 million cash contribution has been designated by Laidlaw as
a capital contribution to the Company and, accordingly, in June 2003 the
Company recorded a $50 million increase in additional paid in capital and a $50
million reduction in pension obligations. At December 31, 2003, all 3.8
million shares of Laidlaw common stock remained in the Pension Plan Trust and
no dividends had been received from Laidlaw on these shares. Based upon the
closing price of the Laidlaw stock on the New York stock exchange, the shares
had an aggregate market value of $54.8 million at March 11, 2004. 26




---



##### Table of Contents



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 and plan asset values at December 31, 2003, and assuming
annual investment returns exceed 3% and that the contributions required under
the PBGC Agreement are made along the timeframe outlined above, the Company
does not anticipate any significant additional minimum funding requirements for
the ATU Plan until 2007. 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 contributions in the future that
differ significantly from the estimates above. Self Insurance The predecessor agency to the Surface Transportation Board granted the
Company authority to self-insure its automobile liability exposure for
interstate passenger service up to a maximum level of $5.0 million per
occurrence, which has been continued by the Department of Transportation
(DOT). To maintain self-insurance authority, the Company is required to
provide periodic financial information and claims reports, maintain a
satisfactory safety rating by the DOT, a tangible net worth of $10.0 million
and a $15.0 million trust fund 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 DOT to maintain self-insurance
authority. In March 2003, the Company sought a waiver from DOT of this
tangible net worth requirement. On July 25, 2003, the DOT granted the waiver
of this requirement through December 31, 2004. As a condition of the waiver,
the Company was required to increase the self-insurance trust fund by $2.7
million. As of December 31, 2003, the trust was funded in the amount of $17.7
million. The DOT will also require the Company to make additional trust fund
contributions to the extent that self-insured reserves exceed (as measured
semi-annually) the then balance in the trust fund. During the waiver period,
the Companys self-insurance authority will be subject to periodic review by
the DOT. Insurance coverage and related administrative expenses are key components
of the Companys cost structure. Additionally, the Company is required by the
DOT, some states and some of its insurance carriers to maintain collateral
deposits or provide other security pursuant to its insurance program. At
December 31, 2003, the Company maintained $25.7 million of collateral deposits
including the above $17.7 million trust fund and had issued $49.2 million of
letters of credit in support of these programs. See Note 7 to the Consolidated
Financial Statements. The loss or further modification of self-insurance
authority from the DOT or a decision by the Companys insurers to modify the
Companys program substantially, by either increasing cost, reducing
availability or increasing collateral, could have a material adverse effect on
the Companys liquidity, financial condition and results of operations. New York Port Authority The Company operates out of its largest sales location, the Port
Authority, on a month-to-month basis pursuant to several lease agreements and a
license agreement. The Port Authority has been in discussions to develop the
air rights above the terminal and should an agreement on the development be
reached the Company would likely be required to temporarily relocate its
operations within the Port Authority. Such relocation, if required, could
result in an increase in the costs to operate out of the Port Authority and
potentially impact ticket and food service revenues. See Note 16 to the
Consolidated Financial Statements for further discussion. 27




---



##### 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, 2003, at a carrying value of
$1.1 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,
2003, the Company recorded $46.3 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, 2003, the
Company has approximately $6.0 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, 2003,
the Revolving Credit Facility utilized prime plus 1.5% and LIBOR plus 3.5% with
no outstanding borrowings. Borrowings under the Revolving Credit Facility
mature on October 24, 2004. 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 (1.7% at December 31, 2003) and is payable at maturity. The
outstanding balance as of December 31, 2003 was $36.5 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, 2003: Long Term Debt: 2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    Fair ValueFixed Rate Debt (in thousands)
    
    $
    2,991
    
    $
    1,966
    
    $
    3,909
    
    $
    156,195
    
    $
    859
    
    $
    2,363
    
    $
    168,283
    
    $
    160,306Average Interest Rate
    
    
    
    8.3%
    
    
    
    9.4%
    
    
    
    9.5%
    
    
    
    11.4%
    
    
    
    11.0%
    
    
    
    7.6%
    
    
    
    11.3%
    
    
    
 28




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page No.Report of Independent Auditors
    
    
    30Consolidated Statements of Financial Position as of December 31, 2003 and 2002
    
    
    31Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001
    
    
    32Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended December 31, 2003,
2002 and 2001
    
    
    33Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001
    
    
    34Notes to Consolidated Financial Statements
    
    
    35Schedule II
- Valuation and Qualifying Accounts - For the Years Ended December 31, 2003, 2002
and 2001
    
    
    56
 29




---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS 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, 2003 and
2002, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and the financial statement schedule are the
responsibility of the Companys management; our responsibility is to express an
opinion on these financial statements and the financial statement schedule
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America,
which 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 8 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. As discussed in
Note 11 to the financial statements, the Company restated its December 31, 2002
statement of financial position to reclassify as a current liability amounts
outstanding under its revolving credit facility. The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 11
to the financial statements, the Company may not remain in compliance with the
financial covenants of its revolving credit facility in 2004. The revolving
credit facility matures in October 2004 and will need to be extended or
refinanced. Managements financing plans are also described in Note 11. This matter raises substantial doubt
about the Companys ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties. /s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Dallas, Texas
March 26, 2004
 30




---



##### Table of Contents



GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands, except share amounts) December 31,2003
    
    2002RestatedSee Note 11Current AssetsCash and cash equivalents
    
    $
    19,806
    
    
    $
    5,946Accounts receivable, less allowance for doubtful accounts of $1,364 and $813
    
    
    39,170
    
    
    
    47,255Inventories, less allowance for shrinkage of $309 and $271
    
    
    9,428
    
    
    
    9,530Prepaid expenses
    
    
    10,687
    
    
    
    8,456Other current assets
    
    
    2,591
    
    
    
    3,364Total Current Assets
    
    
    81,682
    
    
    
    74,551Property, plant and equipment, net of accumulated depreciation of $273,732
and $244,485
    
    
    376,021
    
    
    
    407,816Investments in unconsolidated affiliates
    
    
    15,624
    
    
    
    17,679Insurance and security deposits
    
    
    32,393
    
    
    
    30,357Goodwill
    
    
    3,040
    
    
    
    3,040Intangible assets, net of accumulated amortization of $39,703 and $37,983
    
    
    29,439
    
    
    
    27,880Total Assets
    
    $
    538,199
    
    
    $
    561,323Current LiabilitiesAccounts payable
    
    $
    25,379
    
    
    $
    26,422Accrued liabilities
    
    
    59,947
    
    
    
    62,758Rents payable
    
    
    12,852
    
    
    
    19,423Unredeemed tickets
    
    
    12,396
    
    
    
    13,119Current portion of claims liability
    
    
    26,579
    
    
    
    19,578Current portion of debt
    
    
    3,344
    
    
    
    12,146Total Current Liabilities
    
    
    140,497
    
    
    
    153,446Pension obligation
    
    
    180,959
    
    
    
    242,103Claims liability
    
    
    57,697
    
    
    
    42,880Long-term debt
    
    
    202,349
    
    
    
    204,057Minority interests
    
    
    3,625
    
    
    
    3,300Other liabilities
    
    
    24,814
    
    
    
    29,049Total Liabilities
    
    
    609,941
    
    
    
    674,835Commitments and Contingencies (Notes 2, 10, 11, 14, 15 and 16)Stockholders DeficitCommon stock (1,000 shares authorized; par value $.01; 587 shares issued)
    
    
    
    
    
    
    Capital in excess of par value
    
    
    370,391
    
    
    
    320,391Retained deficit
    
    
    (219,485
    )
    
    
    (190,599
    )Accumulated other comprehensive loss, net of tax benefit of $28,880
and $28,791
    
    
    (222,648
    )
    
    
    (243,304
    )Total Stockholders Deficit
    
    
    (71,742
    )
    
    
    (113,512
    )Total Liabilities and Stockholders Deficit
    
    $
    538,199
    
    
    $
    561,323
 The accompanying notes are an integral part of these statements. 31




---



##### Table of Contents



GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands) Years Ended December 31,2003
    
    2002
    
    2001Operating RevenuesPassenger services
    
    $
    830,648
    
    
    $
    849,771
    
    
    $
    876,921Package express
    
    
    39,506
    
    
    
    39,966
    
    
    
    41,222Food services
    
    
    39,679
    
    
    
    42,164
    
    
    
    43,673Other operating revenues
    
    
    65,674
    
    
    
    60,013
    
    
    
    60,604Total Operating Revenues
    
    
    975,507
    
    
    
    991,914
    
    
    
    1,022,420Operating ExpensesMaintenance
    
    
    106,084
    
    
    
    100,845
    
    
    
    101,819Transportation
    
    
    244,820
    
    
    
    245,273
    
    
    
    256,701Agents commissions and station costs
    
    
    177,723
    
    
    
    183,151
    
    
    
    190,445Marketing, advertising and traffic
    
    
    26,594
    
    
    
    27,819
    
    
    
    35,536Insurance and safety
    
    
    72,577
    
    
    
    76,994
    
    
    
    59,868General and administrative
    
    
    125,045
    
    
    
    126,319
    
    
    
    129,703Depreciation and amortization
    
    
    54,778
    
    
    
    50,635
    
    
    
    48,911Operating taxes and licenses
    
    
    59,594
    
    
    
    61,718
    
    
    
    63,161Operating rents
    
    
    80,262
    
    
    
    80,262
    
    
    
    72,527Cost of goods sold  food services
    
    
    25,664
    
    
    
    27,937
    
    
    
    29,275Other operating expenses
    
    
    5,836
    
    
    
    6,580
    
    
    
    4,562Total Operating Expenses
    
    
    978,977
    
    
    
    987,533
    
    
    
    992,508Operating Income(Loss)
    
    
    (3,470
    )
    
    
    4,381
    
    
    
    29,912Interest Expense
    
    
    24,784
    
    
    
    25,409
    
    
    
    28,963Income (Loss) Before Income Taxes, Minority
Interest and Cumulative Effect of Accounting Change
    
    
    (28,254
    )
    
    
    (21,028
    )
    
    
    949Income Tax Provision (Benefit)
    
    
    271
    
    
    
    52,621
    
    
    
    (1,092
    )Minority Interests
    
    
    361
    
    
    
    (2,100
    )
    
    
    55Income (Loss) Before Cumulative Effect
of Accounting Change
    
    
    (28,886
    )
    
    
    (71,549
    )
    
    
    1,986Cumulative Effect of a Change in Accounting
for Goodwill (Note 8)
    
    
    
    
    
    
    40,047
    
    
    
    Net Income (Loss)
    
    $
    (28,886
    )
    
    $
    (111,596
    )
    
    $
    1,986
 The accompanying notes are an integral part of these statements. 32




---



##### Table of Contents



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, 2001
    
    
    587
    
    
    $
    
    
    
    $
    321,237
    
    
    $
    (80,945
    )
    
    $
    (5,118
    )Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44
    )
    
    
    Redemption of preferred stock
    
    
    
    
    
    
    
    
    
    
    (846
    )
    
    
    
    
    
    
    Comprehensive Loss:Market value adjustment for securities held,
net of tax of $89
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166
    
    
    $
    166Adjustment for minimum pension
obligation, net of tax of $26,124
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,517
    )
    
    
    (48,517
    )Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,986
    
    
    
    
    
    
    
    1,986Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (46,365
    )Balance, December 31, 2001
    
    
    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
    )
 The accompanying notes are an integral part of these statements. 33




---



##### Table of Contents



GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years Ended December 31,2003
    
    2002
    
    2001Cash Flows From Operating ActivitiesNet Income (Loss)
    
    $
    (28,886
    )
    
    $
    (111,596
    )
    
    $
    1,986Cumulative effect of accounting change
    
    
    
    
    
    
    40,047
    
    
    
    Non-cash expenses and gains included in net income (loss)Depreciation and amortization
    
    
    54,778
    
    
    
    50,635
    
    
    
    48,911Other non-cash expenses and gains, net
    
    
    11,869
    
    
    
    64,368
    
    
    
    9,087Net Change in Certain Operating Assets and LiabilitiesAccounts receivable
    
    
    8,085
    
    
    
    10,777
    
    
    
    (2,045
    )Inventories
    
    
    102
    
    
    
    (1,283
    )
    
    
    (621
    )Prepaid expenses
    
    
    (2,231
    )
    
    
    (1,675
    )
    
    
    (2,311
    )Other current assets
    
    
    380
    
    
    
    (1,013
    )
    
    
    783Insurance and security deposits
    
    
    (2,198
    )
    
    
    (445
    )
    
    
    (4,450
    )Intangible assets
    
    
    (8,165
    )
    
    
    (5,340
    )
    
    
    (7,082
    )Accounts payable
    
    
    2,059
    
    
    
    1,393
    
    
    
    (85
    )Due to Laidlaw
    
    
    (3,100
    )
    
    
    4,025
    
    
    
    Accrued liabilities and rents payable
    
    
    (9,287
    )
    
    
    8,646
    
    
    
    (15,232
    )Claims liability
    
    
    21,818
    
    
    
    40,908
    
    
    
    13,256Unredeemed tickets
    
    
    (723
    )
    
    
    1,118
    
    
    
    251Other liabilities
    
    
    (4,690
    )
    
    
    (2,461
    )
    
    
    8,557Net Cash Provided by Operating Activities
    
    
    39,811
    
    
    
    98,104
    
    
    
    51,005Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (22,709
    )
    
    
    (64,994
    )
    
    
    (36,011
    )Proceeds from assets sold
    
    
    4,940
    
    
    
    8,813
    
    
    
    2,035Payments for business acquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (1,320
    )Other investing activities
    
    
    2,888
    
    
    
    99
    
    
    
    1,548Net Cash Used for Investing Activities
    
    
    (14,881
    )
    
    
    (56,082
    )
    
    
    (33,748
    )Cash Flows From Financing ActivitiesPayments on debt and capital lease obligations
    
    
    (3,973
    )
    
    
    (7,534
    )
    
    
    (5,797
    )Redemption of Preferred Stock
    
    
    
    
    
    
    
    
    
    
    (3,541
    )Net change in revolving credit facility
    
    
    (7,782
    )
    
    
    (50,218
    )
    
    
    (4,148
    )Proceeds from equipment and other borrowings
    
    
    1,420
    
    
    
    1,240
    
    
    
    7,850Other financing activities
    
    
    (735
    )
    
    
    (477
    )
    
    
    (914
    )Net Cash Used by Financing Activities
    
    
    (11,070
    )
    
    
    (56,989
    )
    
    
    (6,550
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    13,860
    
    
    
    (14,967
    )
    
    
    10,707Cash and Cash Equivalents, Beginning of Year
    
    
    5,946
    
    
    
    20,913
    
    
    
    10,206Cash and Cash Equivalents, End of Year
    
    $
    19,806
    
    
    $
    5,946
    
    
    $
    20,913
 The accompanying notes are an integral part of these statements. 34




---



##### Table of Contents



GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 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 2,800 buses and
approximately 1,700 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., On Time Delivery Service, Inc.,
LSX Delivery, L.L.C., Greyhound Xpress Delivery, L.L.C., Greyhound Shore
Services, L.L.C., and Rockford Coach Lines, 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. On March 16, 1999, the Companys stockholders approved the Agreement and
Plan of Merger with Laidlaw Inc. pursuant to which the Company became a wholly
owned subsidiary of Laidlaw Inc. (the Merger). The consolidated financial
statements of the Company do not reflect any purchase accounting adjustments
relating to the Merger. On June 28, 2001, as part of a financial restructuring, Laidlaw Inc.,
Laidlaw USA, Inc., Laidlaw International Finance Corporation, Laidlaw
Investments Ltd., Laidlaw One, Inc. and Laidlaw Transportation, Inc. filed
voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the Western District of New
York, under a jointly administered case captioned, In re: Laidlaw USA, Inc., et
al, Case No. 01-14099. On that date, Laidlaw Inc. and Laidlaw Investments Ltd.
also filed cases under the Canada Companies Creditors Arrangement Act in the
Ontario Superior Court of Justice in Toronto, Canada, court file no.
01-CL-4178. Neither Greyhound, nor any of its subsidiaries were included in, or
made party to, these reorganization filings and proceedings. Effective June 23, 2003, Laidlaw Inc. emerged from the court-supervised
reorganization process after completing all required actions and satisfying or
reaching agreement with its creditor constituencies on all remaining conditions
to its Third Amended Plan of Reorganization. This Plan was confirmed by the U.
S. Bankruptcy Court for the Western District of New York by order dated
February 27, 2003. In accordance with the Plan of Reorganization, Laidlaw Inc.
completed an internal corporate restructuring, in which Laidlaw International,
Inc. acquired all of the assets of Laidlaw Inc., a Canadian corporation.
Additionally, pursuant to the Plan, Laidlaw International, Inc. domesticated
into the United States as a Delaware 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. 35




---



##### Table of Contents



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. Inventories Inventories are stated at the lower of cost or market, with costs
determined using the weighted average method. Property, Plant and Equipment Property, plant and equipment, including capitalized leases, are recorded
at cost, including interest during construction, if any. Depreciation is
recorded over the estimated useful lives or lease terms and range from three to
twenty years for structures and improvements, four to eighteen years for
revenue equipment, and five to ten years for all other items. The Company
principally uses the straight-line method of depreciation for financial
reporting purposes and accelerated methods for tax reporting purposes.
Maintenance costs are expensed as incurred, and renewals and betterments are
capitalized. Investments in Equity and Debt Securities At December 31, 2003, the Company held several debt securities which 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. 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. 36




---



##### 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. The Company had previously purchased insurance through Laidlaw
with coverage subject to a $50,000 per occurrence deductible for physical
damage to Company property and no deductible for all other claims. Effective
September 1, 2001, 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 $1.0 million
per occurrence deductible or self insured retention for workers compensation
and general liability. As of 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. A claims liability has been established
for these claims payments and is based on an assessment of actual claims and
claims incurred but not reported, discounted at 5.5%. This liability 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 8.0%. 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 on the day 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 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. Actual results could differ
from these estimates. 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. 37




---



##### Table of Contents



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. 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. 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. 3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES Cash paid for interest was $24.1 million, $24.7 million and $27.4 million
for the years ended December 31, 2003, 2002 and 2001, respectively. There were
no cash payments for federal income taxes for the years ended December 31,
2003, 2002 and 2001. In 2003, non-cash investing and financing activities included a $50
million direct contribution from Laidlaw to the Companys pension plans in
accordance with the Pension Benefit Guaranty Corporation (PBGC) agreement.
See Note 10 for further information. In 2002, non-cash investing and financing
activities included $0.5 million of equipment acquired with seller provided
financing. In 2001, non-cash investing and financing activities included $7.2
million of buses acquired with seller provided financing. 4. INVENTORIES Inventories consisted of the following (in thousands): December 31,2003
    
    2002Service parts
    
    $
    6,834
    
    
    $
    6,745Fuel
    
    
    1,072
    
    
    
    1,056Food service operations
    
    
    1,831
    
    
    
    2,000Total Inventories
    
    
    9,737
    
    
    
    9,801Less: Allowance for shrinkage
    
    
    (309
    )
    
    
    (271
    )Inventories, net
    
    $
    9,428
    
    
    $
    9,530
 38




---



##### Table of Contents



5. PREPAID EXPENSES Prepaid expenses consisted of the following (in thousands): December 31,2003
    
    2002Taxes and licenses
    
    $
    2,883
    
    
    $
    1,007Insurance
    
    
    4,358
    
    
    
    4,352Rents
    
    
    2,167
    
    
    
    2,114Other
    
    
    1,279
    
    
    
    983Prepaid expenses
    
    $
    10,687
    
    
    $
    8,456
 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands): December 31,2003
    
    2002Land and improvements
    
    $
    87,996
    
    
    $
    88,206Structures and improvementsOwned
    
    
    149,659
    
    
    
    142,447Capitalized leased assets
    
    
    1,010
    
    
    
    1,013Lease interests
    
    
    4,376
    
    
    
    4,376Leasehold improvements
    
    
    48,070
    
    
    
    45,932Revenue equipmentOwned
    
    
    262,739
    
    
    
    273,806Capitalized leased assets
    
    
    13,242
    
    
    
    13,242Leasehold improvements
    
    
    7,707
    
    
    
    6,827Furniture and fixtures
    
    
    56,933
    
    
    
    59,282Vehicles, machinery and equipment
    
    
    18,021
    
    
    
    17,170Property, plant and equipment
    
    
    649,753
    
    
    
    652,301Accumulated depreciation
    
    
    (273,732
    )
    
    
    (244,485
    )Property, plant and equipment, net
    
    $
    376,021
    
    
    $
    407,816
 Accumulated depreciation of capitalized leased revenue equipment amounted
to $5.5 million and $4.7 million at December 31, 2003, and 2002, respectively. 7. INSURANCE AND SECURITY DEPOSITS Insurance and security deposits consisted of the following (in thousands): December 31,2003
    
    2002Insurance deposits
    
    $
    25,739
    
    
    $
    22,906Security deposits
    
    
    5,970
    
    
    
    6,533Other
    
    
    684
    
    
    
    918Insurance and security deposits
    
    $
    32,393
    
    
    $
    30,357
 The Company is required by the DOT, 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, 2003 and 2002, the Company has also issued $49.2
million and $35.0 million, respectively, of letters of credit in support of
these programs. 39




---



##### Table of Contents



8. 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 ($3.0 million) relates to the Courier Services
reporting unit where fair value exceeds carrying value. 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, 2003 and
December 31, 2002 (in thousands): December 31, 2003
    
    December 31, 2002Accumulated
    
    
    
    
    
    AccumulatedCost
    
    Amortization
    
    Cost
    
    AmortizationLong-lived intangible assets:Software
    
    $
    55,910
    
    
    $
    33,010
    
    
    $
    50,998
    
    
    $
    31,008Debt issuance costs
    
    
    7,456
    
    
    
    4,723
    
    
    
    7,428
    
    
    
    3,895Deferred lease costs
    
    
    2,196
    
    
    
    1,736
    
    
    
    3,847
    
    
    
    2,904Other
    
    
    267
    
    
    
    234
    
    
    
    277
    
    
    
    176Total
    
    $
    65,829
    
    
    $
    39,703
    
    
    $
    62,550
    
    
    $
    37,983Indefinite-lived intangible assets:Trademark
    
    $
    3,313
    
    
    
    
    
    
    $
    3,313
 Amortization expense for intangible assets for the years ended December
31, 2003, 2002 and 2001 was $7.3 million, $6.8 million and $6.4 million,
respectively. Estimated amortization expense, excluding the effect of costs
that may be capitalized in future periods, for the year ended December 31, 2004
and the four succeeding years are as follows: $6.9 million (2004); $5.9 million
(2005); $4.8 million (2006); $3.3 million (2007) and $2.6 million (2008). Actual and adjusted results of operations for the year ended December 31,
2001 had the Company applied the provisions of SFAS 142 in that period are as
follows (in thousands): December 31,2001Reported net income
    
    $
    1,986Add: goodwill and trademark amortization,
net of tax
    
    
    2,111Adjusted net income
    
    $
    4,097
 40




---



##### Table of Contents



9. ACCRUED LIABILITIES Accrued liabilities consisted of the following (in thousands): December 31,2003
    
    2002Compensation, benefits and payroll-related taxes
    
    $
    27,634
    
    
    $
    28,109Unvouchered invoices
    
    
    9,827
    
    
    
    10,984Interest
    
    
    4,045
    
    
    
    3,937Operating, property and income taxes
    
    
    5,053
    
    
    
    6,437Other expenses
    
    
    13,388
    
    
    
    13,291Accrued liabilities
    
    $
    59,947
    
    
    $
    62,758
 10. BENEFIT PLANS Pension Plans The Company has nine defined benefit pension plans. The first plan (the
ATU Plan) covers approximately 13,500 current and former employees, fewer
than 900 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. The Company uses a December 31 measurement date for its pension plans. Years ended December 31,2003
    
    2002
    
    2001(in thousands)Components of Net Periodic Pension Cost:Service Cost
    
    $
    1,422
    
    
    $
    1,680
    
    
    $
    4,828Interest Cost
    
    
    45,921
    
    
    
    50,097
    
    
    
    51,405Expected Return on Assets
    
    
    (40,010
    )
    
    
    (46,827
    )
    
    
    (53,191
    )Amortization of Actuarial Loss
    
    
    5,670
    
    
    
    1,120
    
    
    
    692Net Periodic Pension Expense
    
    $
    13,003
    
    
    $
    6,070
    
    
    $
    3,734
 41




---



##### Table of Contents



Years ended December 31,2003
    
    2002(in thousands)Change in Benefit Obligation:Benefit Obligation at Beginning of Year
    
    $
    767,978
    
    
    $
    713,505Service Cost
    
    
    1,422
    
    
    
    1,680Interest Cost
    
    
    45,921
    
    
    
    50,097Plan Participants Contributions
    
    
    323
    
    
    
    250Actuarial Loss
    
    
    31,447
    
    
    
    77,719Benefits Paid
    
    
    (79,613
    )
    
    
    (75,273
    )Benefit Obligation at End of Year
    
    $
    767,478
    
    
    $
    767,978Change in Plan Assets:Fair Value of Plan Assets at Beginning of Year
    
    $
    523,956
    
    
    $
    656,888Actual Return on Plan Assets
    
    
    86,875
    
    
    
    (60,137
    )Employer Contributions
    
    
    51,970
    
    
    
    2,228Plan Participants Contributions
    
    
    323
    
    
    
    250Benefits Paid
    
    
    (79,613
    )
    
    
    (75,273
    )Fair Value of Plan Assets at End of Year
    
    $
    583,511
    
    
    $
    523,956Funded Status
    
    $
    (183,967
    )
    
    $
    (244,022
    )Unrecognized Prior Service Cost
    
    
    (7,332
    )
    
    
    (7,862
    )Unrecognized Net Loss
    
    
    262,509
    
    
    
    284,126Prepaid Benefit Cost (Net Amount Recognized)
    
    $
    71,210
    
    
    $
    32,242Amounts Recognized in the Statements of Financial Position:Accrued Benefit Liability
    
    $
    (180,959
    )
    
    $
    (242,103
    )Accumulated Other Comprehensive Loss
    
    
    252,169
    
    
    
    274,345Prepaid Benefit Cost (Net Amount Recognized)
    
    $
    71,210
    
    
    $
    32,242Increase (Decrease) in Minimum Pension Liability reflected
in Other Comprehensive Loss
    
    $
    (22,176
    )
    
    $
    191,830
 As of December 31, 2003 and 2002, seven of the Companys pension plans
have accumulated benefit obligations in excess of plan assets. As of December
31, 2003 and 2002, eight and seven 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 31,2003
    
    2002Accumulated Obligations in Excess of Plan AssetsProjected Benefit
Obligations
    
    $
    760,529
    
    
    $
    767,787Accumulated Benefit
Obligation
    
    
    759,618
    
    
    
    765,774Fair Value of
Assets
    
    
    577,370
    
    
    
    523,748Projected Benefit Obligations in Excess of Plan AssetsProjected Benefit
Obligations
    
    $
    767,478
    
    
    $
    767,787Accumulated Benefit
Obligation
    
    
    765,218
    
    
    
    765,774Fair Value of
Assets
    
    
    583,511
    
    
    
    523,748Total Accumulated Benefit
Obligation
    
    $
    765,218
    
    
    $
    765,965
 42




---



##### Table of Contents



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 31,2003
    
    2002
    
    2003
    
    2002
    
    2001Discount
Rate
    
    
    6.00
    %
    
    
    6.50
    %
    
    
    6.50
    %
    
    
    7.25
    %
    
    
    7.76
    %Rate of Salary
Progression
    
    
    3.67
    %
    
    
    4.51
    %
    
    
    4.51
    %
    
    
    4.10
    %
    
    
    4.10
    %Expected Long-Term
Rate of Return on
Plan Assets
    
    
    
    
    
    
    
    
    
    
    7.10
    %
    
    
    7.28
    %
    
    
    7.52
    %
 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, 2003
and 2002 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 quarterly investment reviews. Additionally, the asset
allocations are reviewed annually 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. 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, 2003
    
    2003
    
    2002Equity securities
    
    
    53
    %
    
    
    56
    %
    
    
    60
    %Debt securities
    
    
    47
    %
    
    
    44
    %
    
    
    40
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 43




---



##### Table of Contents



Plan Contributions and Potential Funding Requirements Laidlaw, collectively with all of its wholly-owned U.S. subsidiaries,
including Greyhound (the Laidlaw Group), are party to an agreement with the
PBGC regarding the funding levels of the Companys pension plans (the PBGC
Agreement). Under the PBGC Agreement the Laidlaw Group contributed $50
million in cash to the pension plans during June 2003. Additionally, 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). The fair value of the
Laidlaw common stock was estimated to be $50 million at the time of bankruptcy
emergence based upon third party valuations provided to Laidlaw in connection
with their bankruptcy proceedings. The trustee of the Pension Plan Trust will
sell the stock at Laidlaws direction, but in no event later than the end of
2004. All proceeds from the stock sales will be contributed directly to the
pension plans. If the proceeds from the stock sales exceed $50 million, the
excess amount may be credited against any future required minimum funding
obligations. If the proceeds from the stock sales are less than $50 million,
the Laidlaw Group will be required to contribute the amount of the shortfall in
cash to the pension plans at the end of 2004. Further, the Laidlaw Group must
contribute an additional $50 million in cash to the pension plans in June 2004.
These contributions and transfers will be in addition to the minimum funding
obligations to the pension plans, if any, required under current regulations. The first $50 million cash contribution has been designated by Laidlaw as
a capital contribution to the Company and, accordingly, in June 2003 the
Company recorded a $50 million increase in additional paid in capital and a $50
million reduction in pension obligations. At December 31, 2003, all 3.8
million shares of Laidlaw common stock remained in the Pension Plan Trust and
no dividends had been received from Laidlaw on these shares. Based upon the
closing price of the Laidlaw stock on the New York stock exchange, the shares
had an aggregate market value of $54.8 million at March 11, 2004. In addition to the contributions to the pension plans pursuant to the PBGC
agreement described above, the Company expects to contribute $3.3 million to
all plans other than the ATU Plan (which will require none) in 2004. 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 and plan asset values at December 31, 2003, and assuming
annual investment returns exceed 3% and that the contributions required under
the PBGC Agreement are made along the timeframe outlined above, the Company
does not anticipate any significant additional minimum funding requirements for
the ATU Plan until 2007. 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 contributions in the future that
differ significantly from the estimates above. 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 $0.9 million and $0.8 million for the years ended December 31,
2003 and 2002, 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 $2.6 million, $3.3
million, and $3.1 million for the years ended December 31, 2003, 2002 and 2001,
respectively. 44




---



##### Table of Contents



Other Plans A contributory trusteed health and welfare plan has been established for
all active hourly employees represented by the ATU National Local 1700 for
drivers, mechanics, and the Omaha Ticket Information Center. 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, 2003, 2002 and 2001, the Company incurred costs of $30.1 million,
$32.3 million, and $28.5 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, 2003, 2002 and 2001, the Company incurred
costs of $0.6 million, $0.8 million and $0.8 million, respectively, related to
the SERP. 11. INDEBTEDNESS Short-term and long-term debt consisted of the following (in thousands): December 31,2003
    
    2002Secured IndebtednessRevolving bank loan, prime plus 1.5% or LIBOR plus 3.5% (weighted
average 4.5% at December 31, 2002) due 2004
    
    $
    
    
    
    $
    7,782Capital lease obligations (weighted average 10.5% at December 31, 2003
and 10.0% at December 31, 2002) due through 2033
    
    
    6,366
    
    
    
    8,695Real estate and equipment notes (weighted average 8.6% at December
31, 2003 and 8.5% at December 31, 2002) due through 2010
    
    
    6,316
    
    
    
    7,173Unsecured Indebtedness111⁄2% Senior notes, due 2007
    
    
    150,000
    
    
    
    150,000Laidlaw subordinated debt (1.7% at December 31, 2003 and
1.8% at December 31, 2002) due 2005
    
    
    36,469
    
    
    
    35,92081⁄2% Convertible debentures, due 2007
    
    
    5,164
    
    
    
    5,383Other long-term debt (weighted average 7.1% at December 31, 2003
and 7.8% at December 31, 2002) due through 2013
    
    
    1,378
    
    
    
    1,250Total indebtedness
    
    
    205,693
    
    
    
    216,203Less current portion of debt, including revolving bank loan
    
    
    (3,344
    )
    
    
    (12,146
    )Long-term debt, net
    
    $
    202,349
    
    
    $
    204,057
 At December 31, 2003, maturities of long-term debt for the next five years
ending December 31 and all years thereafter, are as follows (in thousands): 2004
    
    $
    3,3442005
    
    
    38,7912006
    
    
    4,1622007
    
    
    156,1742008
    
    
    859Thereafter
    
    
    2,363$
    205,693
 45




---



##### Table of Contents



Revolving Credit Facility The Company is party to a $125 million revolving credit facility, with a
$70 million letter of credit sub facility (Revolving Credit Facility).
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. Under this formula, at December 31, 2003, the
Company had aggregate availability of $113.9 million. As of December 31, 2003,
the Company had no outstanding borrowings under its Revolving Credit Facility,
issued letters of credit $56.8 million and availability of $57.1 million.
However, the Company may not be able to access such availability if an event of
default or default exists. Borrowings under the Revolving Credit Facility are available to the
Company at a rate equal to Wells Fargo Banks prime rate plus 1.5% per annum or
LIBOR plus 3.5% per annum as selected by the Company. Letter of credit fees
are 3.5% per annum. Borrowings under the Revolving Credit Facility mature on
October 24, 2004. The Revolving Credit Facility is secured by liens on
substantially all of the assets of the Company and the stock and assets of
certain of its subsidiaries. Under the Revolving Credit Facility, the Company
is subject to certain financial covenants, including maximum total debt to cash
flow ratio, minimum cash flow to interest expense ratio and minimum cash flow
test. The Revolving Credit Facility is also subject to certain affirmative and
negative operating covenants, including limitation on non-bus capital
expenditures; limitations on additional liens, indebtedness, guarantees, asset
disposals, advances, investments and loans; and restrictions on the redemption
or retirement of certain subordinated indebtedness or equity interests, payment
of dividends and transactions with affiliates, including Laidlaw. As of
December 31, 2003, the Company was in compliance with all such covenants. If
an event of default occurs and is continuing, the lenders may seek to enforce
remedies under the Revolving Credit Facility, including terminating the
commitment to make loans or issue letters of credits, holding cash collateral
for payment of the Companys obligations under the Revolving Credit Facility
and selling the collateral. In addition, an event of default under the
Revolving Credit Facility may result in cross-defaults under other debt
instruments of the Company and its subsidiaries. In accordance with the terms of the Revolving Credit Facility the Company
submitted a financial forecast for 2004 to the agent bank. Based upon this
forecast management is unable to predict with reasonable assurance whether the
Company will remain in compliance with all of the covenants under the Revolving
Credit Facility. Additionally, there is less than one year until the
expiration of the Revolving Credit Facility. The Company intends to enter into
discussions to extend the maturity and to modify certain of the other terms of
the agreement. Although the Company has been successful in obtaining necessary
extensions and modifications to the Revolving Credit Facility in the past,
there can be no assurances that the Company will obtain them in the future or
that the cost of any future extensions, modifications or other changes in the
terms of the Revolving Credit Facility would not have a material effect on the
Company. In the event that the parties are unable to agree on an extension of
the facility beyond its current maturity date, and that modifications suitable
to the parties are not obtained, the Company will be required to seek a
replacement for the Revolving Credit Facility from other financing sources.
Should alternate sources of financing not be available, then the Company may
not be able to satisfy its obligations as they become due and may not be able
to continue as a going concern. As a result, the Company may not be able to
realize its assets and settle its liabilities in the normal course of
operations. At December 31, 2002, the amount outstanding under the Revolving Credit
Facility was $7.8 million, the maturity extended beyond one year and the
Company classified the outstanding obligation as a long-term liability. The
Revolving Credit Facility provides that a material adverse change at the
Company could be considered an event of default and requires automatic
remittances of the Companys cash receipts to a lockbox. During the first
quarter of 2004 the Company determined that because of the lockbox provision
and material adverse change clause, generally accepted accounting principles
require that the borrowings under the Revolving Credit Facility be classified
as short-term obligations. Accordingly, the December 31, 2002 Revolving Credit
Facility balance has been reclassified as a current liability in the Statement
of Financial Position. There were no other changes to the Statement of
Financial Position and no changes to the Companys results of operations. 46




---



##### Table of Contents



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 any time on or after April 15 of the year
indicated, at redemption prices of 101.917% in 2004 and 100% in 2005 and
thereafter plus any 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, 2003, 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. 12. 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. Income Tax Provision The income tax provision (benefit) consisted of the following (in
thousands): Years Ended December 31,2003
    
    2002
    
    2001CurrentFederal
    
    $
    (459
    )
    
    $
    (8,990
    )
    
    $
    (5,908
    )State
    
    
    730
    
    
    
    764
    
    
    
    1,487Total Current
    
    
    271
    
    
    
    (8,226
    )
    
    
    (4,421
    )DeferredFederal
    
    
    
    
    
    
    60,961
    
    
    
    4,544State
    
    
    
    
    
    
    (114
    )
    
    
    (1,215
    )Total Deferred
    
    
    
    
    
    
    60,847
    
    
    
    3,329Income tax provision (benefit)
    
    $
    271
    
    
    $
    52,621
    
    
    $
    (1,092
    )
 47




---



##### Table of Contents



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 is attributable to the following (in thousands): Years Ended December 31,2003
    
    2002
    
    2001Tax at statutory tax rate
    
    $
    (9,889
    )
    
    $
    (7,360
    )
    
    $
    332State income taxes, net of federal benefit
    
    
    475
    
    
    
    423
    
    
    
    177Change in valuation allowance except for items
included in other comprehensive loss
    
    
    10,933
    
    
    
    60,847
    
    
    
    2,450Other
    
    
    (1,248
    )
    
    
    (1,289
    )
    
    
    (4,051
    )Income tax provision (benefit)
    
    $
    271
    
    
    $
    52,621
    
    
    $
    (1,092
    )
 Deferred Tax Assets Significant components of deferred income taxes were as follows (in
thousands): December 31,2003
    
    2002Deferred Tax AssetsFederal and state NOL carryforwards
    
    $
    82,773
    
    
    $
    69,977Claims liabilities
    
    
    29,279
    
    
    
    21,878Other accrued expenses and liabilities
    
    
    10,797
    
    
    
    10,564Pension liabilities
    
    
    64,682
    
    
    
    86,186Other deferred tax assets
    
    
    438
    
    
    
    762Total deferred tax assets
    
    
    187,969
    
    
    
    189,367Deferred Tax LiabilitiesTax over book depreciation and amortization
    
    
    11,502
    
    
    
    16,074Other deferred tax liabilities
    
    
    148
    
    
    
    145Total deferred tax liabilities
    
    
    11,650
    
    
    
    16,219Net deferred tax assets
    
    
    176,319
    
    
    
    173,148Valuation allowance
    
    
    (176,319
    )
    
    
    (173,148
    )Net deferred tax assets, net of valuation allowance
    
    $
    
    
    
    $
    
 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
operating losses and the reasonable likelihood of significant near-term
reversals of deductible temporary differences carry more weight than forecasted
future operating profits. As a result of book losses incurred in 2002 and
2003, 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 profitability that demonstrates its ability to utilize
existing operating loss carryforwards. The valuation allowance increased from
$173.1 million at December 31, 2002, to $176.3 million at December 31, 2003.
The increase in the valuation reserve is net of a $7.7 million charge to other
comprehensive loss related to the decrease in minimum pension
liability. 48




---



##### Table of Contents



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. The total NOL carryforwards of $211.1 million expire in
the years 2005-2024. Additionally, the Company has a $2.1 million capital loss
carryforward which expires August 2007. 13. 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, 2003 and 2002, 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 and other long-term debt, the fair values
are estimated using discounted cash flow analysis, based upon the Companys
incremental borrowing rates for similar types of borrowing arrangements. The
fair values of the Senior Notes and the Convertible Debentures were based upon
quoted market prices at December 31, 2003 and 2002. The carrying amounts and fair values of the Companys financial
instruments are as follows (in thousands): December 31, 2003
    
    December 31, 2002Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueOther Current AssetsOther Deposits
    
    $
    167
    
    
    $
    167
    
    
    $
    167
    
    
    $
    167Investment in Equity Securities
    
    
    
    
    
    
    
    
    
    
    2,010
    
    
    
    2,010Insurance and Security DepositsInsurance Deposits
    
    
    25,739
    
    
    
    25,739
    
    
    
    22,906
    
    
    
    22,906Security Deposits
    
    
    5,970
    
    
    
    5,970
    
    
    
    6,533
    
    
    
    6,533Long-Term DebtLaidlaw subordinated debt
    
    
    (36,469
    )
    
    
    (34,739
    )
    
    
    (35,920
    )
    
    
    (30,006
    )111⁄2% Senior Notes
    
    
    (150,000
    )
    
    
    (144,000
    )
    
    
    (150,000
    )
    
    
    (101,535
    )81⁄2% Convertible Subordinated Debentures
    
    
    (5,164
    )
    
    
    (2,712
    )
    
    
    (5,383
    )
    
    
    (2,827
    )Other Long-term Debt
    
    
    (14,060
    )
    
    
    (14,447
    )
    
    
    (17,118
    )
    
    
    (17,421
    )
 14. 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 leases on most of the
vehicles contain certain purchase provisions or residual value guarantees and
have terms of typically seven years. Of those leases that contain residual
value guarantees, the aggregate residual value at lease expiration is $140.6
million, of which the Company has guaranteed $88.3 million. To date, the
Company always purchased the buses at lease maturity at the stated residual
value and therefore has never incurred any loss as a result of residual value
guarantees. 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 are designed to 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. 49




---



##### Table of Contents



In January 2003, the Company entered into a seven year operating lease
covering 10 buses. The lease has an aggregate residual value at lease
expiration of $1.4 million of which the Company has guaranteed $0.8 million.
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, for the estimated fair value of the
residual value guarantee imbedded in this lease. For the years ended December 31, 2003, 2002 and 2001, rental expenses for
all operating leases (net of sublease rental income of approximately $2.9
million, $3.3 million and $3.5 million, respectively) amounted to $73.9
million, $76.0 million and $61.5 million, respectively. Rental expenses for
bus operating leases, excluding casual rents and other short term leases during
peak periods, amounted to $52.9 million, $54.0 million and $49.5 million in
2003, 2002 and 2001, respectively. At December 31, 2003, 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
    
    Leases2004
    
    $
    1,769
    
    
    $
    72,2452005
    
    
    1,769
    
    
    
    59,5322006
    
    
    3,724
    
    
    
    38,3242007
    
    
    332
    
    
    
    26,7672008
    
    
    184
    
    
    
    18,409Thereafter
    
    
    303
    
    
    
    30,547Total minimum lease payments
    
    
    8,081
    
    
    $
    245,824Amounts representing interest
    
    
    1,715Present value of minimum lease payments
    
    $
    6,366
 15. LEGAL MATTERS Greyhound Lines is the sole shareholder of Sistema Internacional de
Transporte de Autobuses, Inc. (SITA). SITA owns 51% of Gonzalez, Inc., d/b/a
Golden State Transportation (Golden State). On November 28, 2001 and
subsequently, Golden State and numerous individual employees, including its
senior management, were indicted by a federal grand jury for felony criminal
offenses for allegedly transporting and harboring illegal aliens and money
laundering. The case, filed before the United States District Court for the
District of Arizona, is styled U.S. v. Gonzalez, Inc, et al., Case No. CR
01-1696-TUC-RCC. The indictment also sought forfeiture to the Government of all
the property owned by Golden State, which involves Golden State, SITA and
Greyhound Lines since they were claimants to the property. Neither Greyhound
Lines nor SITA were charged with any crime. In August 2002, the Government filed a civil forfeiture action against
certain Golden State assets based on allegations similar to those described in
the indictment of Golden State. The case, filed before the United States
District Court for the District of Arizona, is styled U.S. v. 130 North 35th
Avenue, Phoenix, Arizona, et al., Case No. CV 02-409-TUC-RCC. Neither SITA nor
Greyhound Lines were a defendant in the forfeiture action; however, Greyhound
Lines and SITA were claimants to the property. 50




---



##### Table of Contents



Golden State ceased operations effective August 30, 2002 and filed a
voluntary petition for bankruptcy on September 30, 2002 in the United States
Bankruptcy Court for the District of Arizona in a case styled In re: Gonzalez,
Inc. d/b/a Golden State Transportation, Case No. 02-15508-PHX-GBN. In
September 2003, Golden State entered into a settlement agreement with the
Government regarding the criminal and civil forfeiture cases brought by the
Government. In September 2003, SITA and Greyhound Lines also entered into
stipulations with the Government to settle SITA and Greyhound Lines claims to
the subject property of the forfeiture action. Pursuant to these stipulations,
Greyhound Lines and SITA agreed to withdraw their claims to certain Golden
State property and cooperate in the Governments ongoing criminal proceedings.
In return, the Government dropped its forfeiture allegations against the
remaining property originally sought for forfeiture and agreed not to pursue
criminal or civil charges against SITA, Greyhound Lines and their employees
arising out of the events described in the criminal indictment. The bankruptcy
court overseeing the Golden State bankruptcy approved the settlement on
November 6, 2003 and authorized Golden State to conclude the criminal
proceedings by pleading guilty. 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 16 below under Environmental Matters. 16. COMMITMENTS AND CONTINGENCIES Insurance Coverage The predecessor agency to the Surface Transportation Board granted the
Company authority to self-insure its automobile liability exposure for
interstate passenger service up to a maximum level of $5.0 million per
occurrence, which has been continued by the Department of Transportation
(DOT). To maintain self-insurance authority, the Company is required to
provide periodic financial information and claims reports, maintain a
satisfactory safety rating by the DOT, a tangible net worth of $10.0 million
and a $15.0 million trust fund 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 DOT to maintain self-insurance
authority. In March 2003, the Company sought a waiver from DOT of this
tangible net worth requirement. On July 25, 2003, the DOT granted the waiver
of this requirement through December 31, 2004. As a condition of the waiver,
the Company was required to increase the self-insurance trust fund by $2.7
million. As of December 31, 2003, the trust was funded in the amount of $17.7
million. The DOT will also require the Company to make additional trust fund
contributions to the extent that self-insured reserves exceed (as measured
semi-annually) the then balance in the trust fund. During the waiver period,
the Companys self-insurance authority will be subject to periodic review by
the DOT. Insurance coverage and related administrative expenses are key components
of the Companys cost structure. Additionally, the Company is required by the
DOT, some states and some of its insurance carriers to maintain collateral
deposits or provide other security pursuant to its insurance program. At
December 31, 2003, the Company maintained $25.7 million of collateral deposits
including the above $17.7 million trust fund and had issued $49.2 million of
letters of credit in support of these programs. The loss or further
modification of self-insurance authority from the DOT or a decision by the
Companys insurers to modify the Companys program substantially, by either
increasing cost, reducing availability or increasing collateral, could have a
material adverse effect on the Companys liquidity, financial condition and
results of operations. 51




---



##### Table of Contents



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, 30 active and 11 inactive locations have been identified as sites
requiring potential clean up and/or remediation as of December 31, 2003.
Additionally, the Company is potentially liable with respect to four 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 $5.5 million
at December 31, 2003 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 8.0%. The Company expects the majority of
this environmental liability to be paid over the next five to ten years. 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 a license agreement which expired in 1994. The Companys fee was
based upon a fixed charge for dedicated space, a fixed charge for each
departing bus and a percentage of certain ticket sales. Because the majority
of the other bus operators utilizing the Port Authority are principally
commuter or local transit operators which are exempt from paying license fees
on their sales, the Company had paid a disproportionate share of the total fees
received from bus operators that use the Port Authority relative to the
Companys share of bus departures, passengers, bus gates or square footage
utilized. The Company had been negotiating with the Port Authority for several
years to structure a market-based fee for the renewal of the license agreement
and, beginning in June 1999, without Port Authority concurrence, began paying a
lower fixed fee in lieu of a percentage of sales. The lower fee payment was
based on the Companys research of the local real estate market in Midtown
Manhattan and transportation facilities nationwide, both of which demonstrated
that this fee reflected fair market value. Nevertheless, because the Company
did not yet have Port Authority concurrence for the new fee structure, the
Company continued to accrue for the license fee based upon the 1994 agreement. In May 2001, the Port Authority and the Company reached an agreement in
principle related to fees for the periods June 1999 through March 31, 2001 (the
arrearage), as well as on the form of the ongoing license fees. In August
2001, the Company and the Port Authority executed the arrearage agreement. The
agreement on the arrearage calls for payment to the Port Authority of $12
million over a 10-year period, interest free. The terms of the agreement
required an initial lump sum payment of $1 million and equal monthly
installments of $91,667 thereafter. In the second quarter of 2001, the Company
recorded a reduction in operating rents of approximately $7.5 million which
represented the accrued rent outstanding to the Port Authority at March 31,
2001 less the present value, using a discount rate of 11%, of the $12 million
payback agreement. The present value of the payback agreement, less the
current portion, is classified as part of other liabilities while the current
portion is classified as part of rents payable on the Consolidated Statements
of Financial Position. Additionally, effective April 1, 2001, with Port
Authority concurrence, the Company began paying the monthly license fee based
upon a flat fee per gate utilized and bus departure. The license fee expense
recorded by the Company utilizing this new methodology is significantly lower
than the fee as calculated under the expired agreement. The Company and the
Port Authority are currently negotiating the final details of the license
agreement. 52




---



##### Table of Contents



The Port Authority has been in discussions to develop the air rights above
the terminal and should an agreement on the development be reached the Company
would likely be required to temporarily relocate its operations within the Port
Authority. Such relocation, if required, could result in an increase in the
costs to operate out of the Port Authority and potentially impact ticket and
food service revenues. 17. RELATED PARTY TRANSACTIONS Following the Merger and through August 31, 2001, the Company had
purchased its insurance through Laidlaw subject to a $50,000 deductible for
property damage claims and no deductible for all other claims. Effective
September 1, 2001, the Company purchased excess coverage for automobile
liability, general liability and workers compensation insurance through
Laidlaw for claims which exceed $5.0 million and continues to purchase from
Laidlaw coverage for physical damage to Company property and business
interruption subject to a $100,000 deductible. For the years ended December
31, 2003, 2002 and 2001, the Company has recorded $9.7 million, $5.9 million
and $33.3 million in insurance expense under these programs, respectively,
which the Company believes is comparable to the cost under its previous and
current third-party insurance programs. During the years ended December 31, 2002 and 2001, the Company received a
refund of $3.3 million and $4.7 million, respectively, 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, 2003 and 2002 the Company
accrued interest on this note of $0.6 million and $0.9 million, respectively.
At December 31, 2003 and 2002, the outstanding balance on this note, including
accrued interest was $36.5 million and $35.9 million, respectively. Laidlaw provides certain management services to the Company including risk
management, income tax and treasury services. During the years ended December
31, 2003, 2002 and 2001, Laidlaw charged the Company $1.6 million, $1.6 million
and $3.8 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, 2003, Laidlaw has guaranteed $93.2 million of future minimum lease
payments on buses under lease by the Company, and has provided $19.1 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, 2003 and 2002, the Company charged GCTC $2.0
million and $1.4 million, respectively for these services. 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. 53




---



##### Table of Contents



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, 2004 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, 2003 and 2002, outstanding borrowings were
$3.2 million and $3.4 million, respectively. During the year ended December
31, 2003, 2002 and 2001, the Company received $0.3 million, $0.2 million and
$0.1 million, respectively of interest income pursuant to this revolving credit
line. 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 22 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, 2003 and 2002, the Company received lease and
insurance income of $0.6 million and $0.4 million, respectively, and purchased
$0.7 million and $0.3 million, respectively of charter services from Hotard. The Company provides 17 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 will purchase
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, 2003, 2002 and 2001, the Company received lease
and insurance income of $0.6 million, $0.3 million and $0.1 million,
respectively, and purchased $1.0 million, $0.9 million and $2.2 million,
respectively, of charter services from Roesch Lines. Included in accounts receivable on the Companys Consolidated Statements
of Financial Position at December 31, 2003 and 2002 are amounts due from
Laidlaw, GCTC, Hotard and Roesch of $3.6 million and $3.9 million,
respectively. Included in accounts payable on the Companys Consolidated
Statements of Financial Position at December 31, 2003 and 2002 are amounts
payable to Laidlaw, Hotard and Roesch of $1.1 million and $4.1 million,
respectively. 54




---



##### Table of Contents



18. QUARTERLY FINANCIAL DATA (Unaudited) Selected unaudited quarterly financial data for the years ended December
31, 2003 and 2002 are as follows (in thousands): 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
    )
 First
    
    Second
    
    Third
    
    FourthYear Ended December 31, 2002
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterOperating revenues
    
    $
    222,334
    
    
    $
    249,964
    
    
    $
    280,770
    
    
    $
    238,846Operating expenses
    
    
    231,324
    
    
    
    249,154
    
    
    
    263,633
    
    
    
    243,422Operating income (loss)
    
    
    (8,990
    )
    
    
    810
    
    
    
    17,137
    
    
    
    (4,576
    )Interest expense
    
    
    6,809
    
    
    
    6,702
    
    
    
    6,122
    
    
    
    5,776Income tax provision (benefit)
    
    
    (9,480
    )
    
    
    804
    
    
    
    66,155
    
    
    
    (4,858
    )Minority interest
    
    
    (1,094
    )
    
    
    (465
    )
    
    
    (271
    )
    
    
    (270
    )Cumulative effect of a change in accounting
for goodwill
    
    
    (37,564
    )
    
    
    
    
    
    
    (2,483
    )
    
    
    Net loss
    
    $
    (42,789
    )
    
    $
    (6,231
    )
    
    $
    (57,352
    )
    
    $
    (5,224
    )
 55




---



##### Table of Contents



SCHEDULE II
GREYHOUND LINES, INC. AND SUBSIDIARIES (a)
VALUATION AND QUALIFYING ACCOUNTS
(in thousands) Additions
    
    AdditionsBalance at
    
    Charged to
    
    Charged to
    
    
    
    
    
    
    
    
    
    BalanceBeginning
    
    Costs and
    
    Other
    
    
    
    
    
    
    
    
    
    at EndClassification
    
    of Year
    
    Expenses
    
    Accounts
    
    Deductions
    
    
    
    
    
    of YearDecember 31, 2001:Allowance for Doubtful Accounts
    
    $
    398
    
    
    $
    1,064
    
    
    $
    
    
    
    $
    (547
    )
    
    
    (b
    )
    
    $
    915Inventory Reserves
    
    
    29
    
    
    
    158
    
    
    
    
    
    
    
    (10
    )
    
    
    (e
    )
    
    
    177Accumulated Amortization of
Intangible Assets
    
    
    37,571
    
    
    
    7,052
    
    
    
    
    
    
    
    (10,136
    )
    
    
    (c
    )
    
    
    34,487Claims Liability
    
    
    8,294
    
    
    
    14,327
    
    
    
    
    
    
    
    (1,071
    )
    
    
    (d
    )
    
    
    21,550Total Reserves and Allowances
    
    $
    46,292
    
    
    $
    22,601
    
    
    $
    
    
    
    $
    (11,764
    )
    
    
    
    
    
    $
    57,129December 31, 2002:Allowance for Doubtful Accounts
    
    $
    915
    
    
    $
    773
    
    
    $
    32
    
    
    $
    (907
    )
    
    
    (b
    )
    
    $
    813Inventory Reserves
    
    
    177
    
    
    
    80
    
    
    
    41
    
    
    
    (27
    )
    
    
    (e
    )
    
    
    271Accumulated Amortization of
Intangible Assets
    
    
    34,487
    
    
    
    6,807
    
    
    
    
    
    
    
    (3,311
    )
    
    
    (c
    )
    
    
    37,983Claims Liability
    
    
    21,550
    
    
    
    55,130
    
    
    
    
    
    
    
    (14,222
    )
    
    
    (d
    )
    
    
    62,458Total Reserves and Allowances
    
    $
    57,129
    
    
    $
    62,790
    
    
    $
    73
    
    
    $
    (18,467
    )
    
    
    
    
    
    $
    101,525December 31, 2003:Allowance for Doubtful Accounts
    
    $
    813
    
    
    $
    705
    
    
    $
    
    
    
    $
    (154
    )
    
    
    (b
    )
    
    $
    1,364Inventory Reserves
    
    
    271
    
    
    
    70
    
    
    
    
    
    
    
    (32
    )
    
    
    (e
    )
    
    
    309Accumulated Amortization of
Intangible Assets
    
    
    37,983
    
    
    
    6,889
    
    
    
    
    
    
    
    (5,169
    )
    
    
    (c
    )
    
    
    39,703Claims Liability
    
    
    62,458
    
    
    
    50,155
    
    
    
    (135
    )
    
    
    (28,202
    )
    
    
    (d
    )
    
    
    84,276Total Reserves and Allowances
    
    $
    101,525
    
    
    $
    57,819
    
    
    $
    (135
    )
    
    $
    (33,557
    )
    
    
    
    
    
    $
    125,652
   (a)
    
    This schedule should be read in conjunction with the Companys audited
consolidated financial statements and related notes thereto.(b)
    
    Write-off of uncollectible receivables, net of recovery of receivables
previously written-off.(c)
    
    Write-off or amortization of other assets and deferred costs.(d)
    
    Payments of settled claims.(e)
    
    Write-off of inventory shrinkage. 56




---



##### Table of Contents



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 fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting. 57




---



##### Table of Contents



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, 2003
and 2002 (in thousands): 2003
    
    2002Audit Fees
    
    $
    415
    
    
    $
    400Audit-Related Fees
    
    
    82
    
    
    
    72Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    37
    
    
    
    63Total Fees
    
    $
    534
    
    
    $
    535
 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 will replace
PricewaterhouseCoopers LLP with respect to the actuarial services. In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee of
the Companys parent, Laidlaw, has established policies and procedures under
which all audit and non-audit services performed by the Companys principal
accountants must be approved in advance by the Audit Committee of Laidlaw. As
provided in the Sarbanes-Oxley Act, all audit and non-audit services to be
provided after May 6, 2003 must be pre-approved by the Audit Committee in
accordance with these policies and procedures. Based in part on consideration
of the non-audit services provided by PricewaterhouseCoopers LLP during fiscal
2003, the Audit Committee determined that such non-audit services were
compatible with maintaining the independence of PricewaterhouseCoopers LLP.
Since May 6, 2003, all of the services described above were approved by the
Audit Committee of Laidlaw. The Company believes that none of the time
expended on PricewaterhouseCoopers LLPs engagement to audit the Companys
financial statements for fiscal 2003 was attributable to work performed by
persons other than PricewaterhouseCoopers LLPs full-time, permanent employees. 58




---



##### Table of Contents



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 and Financial Statements Schedules The following financial statements and financial statement schedule 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 Auditors
    
    
    30Consolidated Statements of Financial Position at December 31, 2003 and 2002
    
    
    31Consolidated Statements of Operations for the Years ended December 31, 2003, 2002
and 2001
    
    
    32Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended December 31,
2003, 2002 and 2001
    
    
    33Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002
and 2001
    
    
    34Notes to Consolidated Financial Statements
    
    
    35Schedule II - Valuation and Qualifying Accounts
    
    
    56
 3. Exhibits 3.1
    
    
    
    Second Amended and Restated Certificate of Incorporation of
Greyhound Lines, Inc. (12)3.2
    
    
    
    Bylaws of Greyhound Lines, Inc. (12)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. (12)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. (9)4.6
    
    
    
    Second Supplemental Indenture dated as of August 25, 1997
between the Registrant and PNC Bank, N.A. as Trustee. (9)4.7
    
    
    
    Third Supplemental Indenture dated as of February 1, 1999,
between the Registrant and Chase Manhattan Trust Company as
Trustee. (6)4.8
    
    
    
    Fourth Supplemental Indenture dated as of May 14, 1999, between
the Registrant and Chase Manhattan Trust Company as Trustee.
(6)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. (12)*10.2
    
    
    
    First Amendment to Supplemental Executive Retirement Plan. (12)*10.3
    
    
    
    Second Amendment to Supplemental Executive Retirement Plan. (12)*
 59




---



##### Table of Contents



10.4
    
    
    
    Third Amendment to Supplemental Executive Retirement Plan (12)*10.5
    
    
    
    Supplemental Executive Retirement Plan Trust Agreement (12)*10.6
    
    
    
    Second Amended Employment Agreement dated March 16, 1999,
between Registrant and John Werner Haugsland. (12)*10.7
    
    
    
    First Amendment to the Second Amended Executive Employment
Agreement dated December 1999 between Registrant and John
Warner Haugsland. (12)*10.8
    
    
    
    Affiliated Companies Demand Loan Agreement dated March 16,
1999, between the Registrant and Laidlaw Transportation Inc.
(7)10.9
    
    
    
    Tax Allocation Agreement dated June 1, 1982, between the
Registrant and Laidlaw Transportation Inc. (7)10.10
    
    
    
    Loss Portfolio Transfer Agreement dated December 31, 1999,
between the Registrant and Laidlaw Transportation Inc. (7)10.11
    
    
    
    Memorandum of Agreement, dated September 30, 1998, between the
Registrant and the Amalgamated Transit Union National Local
1700. (12)10.12
    
    
    
    Greyhound Lines, Inc. Change in Control Severance Pay Program. (12)*10.13
    
    
    
    Form of Change in Control Agreement between the Company and
certain officers of the Company. (12)*10.14
    
    
    
    Intercompany Agreement dated as of October 24, 2000, between
Registrant and Laidlaw Transportation, Inc. (8)10.15
    
    
    
    Letter of Separation between Greyhound Lines, Inc. and Craig R.
Lentzsch dated June 25, 2003 (11)*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 (10)21
    
    
    
    Subsidiaries of the Registrant (12)31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (12)31.2
    
    
    
    Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (12)32.1
    
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (12)
   *
    
    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 Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.(7)
    
    Incorporated by reference from the Registrants Annual Report on Form
10-K for the year ended December 31, 1999.(8)
    
    Incorporated by reference from the Registrants Annual Report on Form
10-K for the year ended December 31, 2000. 60




---



##### Table of Contents



(9)
    
    Incorporated by reference from the Registrants Annual Report on Form
10-K for the year ended December 31, 2002.(10)
    
    Incorporated by reference from the Registrants Current Report on Form
8-K filed on May 21, 2003.(11)
    
    Incorporated by reference from the Registrants Quarterly Report on Form
10-Q for the quarter ended June 30, 2003.(12)
    
    Filed herewith. (b) Reports on Form 8-K On February 2, 2004, the Company filed a current report on Form 8-K with
the Securities and Exchange Commission reporting Other Events. No financial
statements were included. On March 26, 2004, the Company filed a current report on Form 8-K with the Securities and Exchange
Commission reporting Other Events. No financial statements were included. 61




---



##### 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 30, 2004. 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
Kevin E. Benson
    
    Director
    
    March 30, 2004/s/  DOUGLAS A. CARTY
Douglas A. Carty
    
    Director
    
    March 30, 2004/s/  JEFFREY W. SANDERS
Jeffrey W. Sanders
    
    Director
    
    March 30, 2004/s/  STEPHEN E. GORMAN
Stephen E. Gorman
    
    Director, President and Chief
Executive Officer(Principal Executive Officer)
    
    March 30, 2004/s/  CHERYL W. FARMER
Cheryl W. Farmer
    
    Vice President - Finance(Principal Financial Officer)
    
    March 30, 2004
 CO-REGISTRANTS ATLANTIC GREYHOUND LINES OF VIRGINIA, INC. By: /s/  JACK W. HAUGSLAND
Jack W. Haugsland
    
    Director, Chairman of the Board,
President and Chief Executive Officer(Principal Executive Officer)
    
    March 30, 2004/s/  STEPHEN E. GORMAN
Stephen E. Gorman
    
    Director
    
    March 30, 2004/s/  CHERYL W. FARMER
Cheryl W. Farmer
    
    Vice President - Finance(Principal Financial and Accounting Officer)
    
    March 30, 2004
 62




---



##### Table of Contents



GLI HOLDING COMPANY By: /s/  STEPHEN E. GORMAN
Stephen E. Gorman
    
    Director, President and
Chief Executive Officer(Principal Executive Officer)
    
    March 30, 2004/s/  JACK W. HAUGSLAND
Jack W. Haugsland
    
    Director
    
    March 30, 2004/s/  CHERYL W. FARMER
Cheryl W. Farmer
    
    Vice President - Finance(Principal Financial and Accounting Officer)
    
    March 30, 2004
 GREYHOUND de MEXICO, S.A. de C.V. By: /s/  STEPHEN E. GORMAN
Stephen E. Gorman
    
    Director and President(Principal Executive Officer)
    
    March 30, 2004/s/  JACK W. HAUGSLAND
Jack W. Haugsland
    
    Director
    
    March 30, 2004/s/  CHERYL W. FARMER
Cheryl W. Farmer
    
    Director
    
    March 30, 2004/s/  WILLIAM J. GIESEKER
William J. Gieseker
    
    Examiner(Principal Financial and Accounting Officer)
    
    March 30, 2004
 SISTEMA INTERNACIONAL de TRANSPORTE de AUTOBUSES, INC. By: /s/  STEPHEN E. GORMAN
Stephen E. Gorman
    
    Director, President, and
Chief Executive Officer(Principal Executive Officer)
    
    March 30, 2004/s/  ALFONSO PENEDO
Alfonso Penedo
    
    Director
    
    March 30, 2004/s/  JACK W. HAUGSLAND
Jack W. Haugsland
    
    Director
    
    March 30, 2004/s/  CHERYL W. FARMER
Cheryl W. Farmer
    
    Vice President - Finance(Principal Financial and Accounting Officer)
    
    March 30, 2004
 63




---



##### Table of Contents



TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC. By: /s/  JACK W. HAUGSLAND
Jack W. Haugsland
    
    Director and Chief
Executive Officer(Principal Executive Officer)
    
    March 30, 2004/s/  ROBERT D. GREENHILL
Robert D. Greenhill
    
    Director
    
    March 30, 2004/s/  GREGORY ALEXANDER
Gregory Alexander
    
    Director
    
    March 30, 2004/s/  CHERYL W. FARMER
Cheryl W. Farmer
    
    Vice President - Finance(Principal Financial and Accounting Officer)
    
    March 30, 2004
 T.N.M. & O. TOURS, INC. By: /s/  JACK W. HAUGSLAND
Jack W. Haugsland
    
    Director and Chief
Executive Officer(Principal Executive Officer)
    
    March 30, 2004/s/ GREGORY ALEXANDER
Gregory Alexander
    
    Director
    
    March 30, 2004/s/  ROBERT D. GREENHILL
Robert D. Greenhill
    
    Director
    
    March 30, 2004/s/  RICHARD M. PORTWOOD
Richard M. Portwood
    
    Director
    
    March 30, 2004/s/  CHERYL W. FARMER
Cheryl W. Farmer
    
    Vice President - Finance(Principal Financial and Accounting Officer)
    
    March 30, 2004
 VERMONT TRANSIT CO., INC. By: /s/  JACK W. HAUGSLAND
Jack W. Haugsland
    
    Director Chief Executive Officer(Principal Executive Officer)
    
    March 30, 2004/s/  GREGORY ALEXANDER
Gregory Alexander
    
    Director
    
    March 30, 2004/s/  CHERYL W. FARMER
Cheryl W. Farmer
    
    Vice President - Finance(Principal Financial and Accounting Officer)
    
    March 30, 2004
 64




---



##### Table of Contents



INDEX TO EXHIBITS Exhibit No
    
    Description3.1
    
    Second Amended and Restated Certification of Incorporation of
Greyhound Lines, Inc.3.2
    
    Bylaws of Greyhound Lines, Inc.4.3
    
    Second Supplemental Indenture to the 8 1/2% Convertible
Subordinated Debentures Indenture between the Registrant and State
Street Bank and Trust Company, as Trustee.10.1
    
    Greyhound Lines, Inc. Supplemental Executive Retirement Plan.*10.2
    
    First Amendment to Supplemental Executive Retirement Plan.*10.3
    
    Second Amendment to Supplemental Executive Retirement Plan.*10.4
    
    Third Amendment to Supplemental Executive Retirement Plan.*10.5
    
    Supplemental Executive Retirement Plan Trust Agreement.*10.6
    
    Second Amended Employment Agreement dated March 16, 1999, between
Registrant and John Werner Haugsland.*10.7
    
    First Amendment to Second Amended Executive Employment Agreement
dated December 1999 between Registrant and John Werner Haugsland.*10.11
    
    Memorandum of Agreement dated September 30, 1998, between the
Registrant and the Amalgamated Transit Union National Local 1700.10.12
    
    Greyhound Lines, Inc. Change in Control Severance Pay Program.*10.13
    
    Form of Change in Control Agreement between the Company and
certain officers of the Company.*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.
   *
    
    Management contract or compensatory plan. 65