SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDING THE
CURRENT REPORT ON FORM 8-K
FILED SEPTEMBER 13, 1996
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): AUGUST 29, 1996
COACH USA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-28056 76-0496471
(State of Incorporation) (Commission File (I.R.S. Employer
Number) Identification No.)
ONE RIVERWAY, SUITE 600
HOUSTON, TEXAS 77056-1903
TELEPHONE NUMBER: (713) 888-0104
(Address and phone number of principal executive office)
- --------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED
This Form 8-K/A is being filed to include in the Current Report
on Form 8-K filed by the Registrant with the Securities and Exchange
Commission on September 13, 1996 the financial statements and pro forma
financial information required by Item 7.
The required financial statements of the businesses acquired by
the Registrant are included as exhibits to this Form 8-K/A.
(B) PRO FORMA FINANCIAL INFORMATION
The required pro forma financial information of the Registrant is
included as an exhibit to this Form 8-K/A.
(C) EXHIBITS
PAGE
COACH USA, INC. PRO FORMA
Introduction to Unaudited Pro Forma Financial Statements.........F-2
Pro Forma Balance Sheet (unaudited)..............................F-3
Notes to Pro Forma Balance Sheet (unaudited).....................F-4
Pro Forma Statement of Income (unaudited)........................F-5
Notes to Pro Forma Statement of Income (unaudited)...............F-6
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants.........................F-7
Consolidated Balance Sheets......................................F-8
Consolidated Statements of Income................................F-9
Consolidated Statements of Stockholders' Equity.................F-10
Consolidated Statements of Cash Flows...........................F-11
Notes to Consolidated Financial Statements......................F-12
GULF COAST TRANSPORTATION, INC. AND SUBSIDIARIES
Report of Independent Public Accountants........................F-20
Consolidated Balance Sheets.....................................F-21
Consolidated Statements of Income...............................F-22
Consolidated Statements of Stockholders' Equity.................F-23
Consolidated Statements of Cash Flows...........................F-24
Notes to Consolidated Financial Statements......................F-25
K-T CONTRACT SERVICES, INC.
Independent Auditors' Report....................................F-31
Balance Sheet...................................................F-32
Statements of Income............................................F-33
Statements of Stockholders' Equity..............................F-34
Statements of Cash Flows........................................F-35
Notes to Financial Statements...................................F-36
CALIFORNIA CHARTER, INC.
Independent Auditors' Report....................................F-42
Balance Sheet...................................................F-43
Statements of Income............................................F-44
Statements of Stockholders' Equity..............................F-45
Statements of Cash Flows........................................F-46
Notes to Financial Statements...................................F-47
TEXAS BUS LINES
Independent Auditors' Opinion...................................F-52
Consolidated Balance Sheet......................................F-53
Consolidated Statements of Income...............................F-54
Consolidated Statement of Changes in Stockholders' Equity.......F-55
Consolidated Statement of Cash Flows............................F-56
Notes to Consolidated Financial Statements......................F-57
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COACH USA, INC.
Dated: November 12, 1996 By: /S/ LAWRENCE K. KING
Lawrence K. King
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
3
<PAGE>
INDEX TO EXHIBITS
PAGE
COACH USA, INC. PRO FORMA
Introduction to Unaudited Pro Forma Financial Statements.........F-2
Pro Forma Balance Sheet (unaudited)..............................F-3
Notes to Pro Forma Balance Sheet (unaudited).....................F-4
Pro Forma Statement of Income (unaudited)........................F-5
Notes to Pro Forma Statement of Income (unaudited)...............F-6
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants.........................F-7
Consolidated Balance Sheets......................................F-8
Consolidated Statements of Income................................F-9
Consolidated Statements of Stockholders' Equity.................F-10
Consolidated Statements of Cash Flows...........................F-11
Notes to Consolidated Financial Statements......................F-12
GULF COAST TRANSPORTATION, INC. AND SUBSIDIARIES
Report of Independent Public Accountants........................F-20
Consolidated Balance Sheets.....................................F-21
Consolidated Statements of Income...............................F-22
Consolidated Statements of Stockholders' Equity.................F-23
Consolidated Statements of Cash Flows...........................F-24
Notes to Consolidated Financial Statements......................F-25
K-T CONTRACT SERVICES, INC.
Independent Auditors' Report....................................F-31
Balance Sheet...................................................F-32
Statements of Income............................................F-33
Statements of Stockholders' Equity..............................F-34
Statements of Cash Flows........................................F-35
Notes to Financial Statements...................................F-36
CALIFORNIA CHARTER, INC.
Independent Auditors' Report....................................F-42
Balance Sheet...................................................F-43
Statements of Income............................................F-44
Statements of Stockholders' Equity..............................F-45
Statements of Cash Flows........................................F-46
Notes to Financial Statements...................................F-47
TEXAS BUS LINES
Independent Auditors' Opinion...................................F-52
Consolidated Balance Sheet......................................F-53
Consolidated Statements of Income...............................F-54
Consolidated Statement of Changes in Stockholders' Equity.......F-55
Consolidated Statement of Cash Flows............................F-56
Notes to Consolidated Financial Statements......................F-57
F-1
<PAGE>
COACH USA, INC.
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
In September 1995, Coach USA, Inc. ("Coach USA" or the "Company"), was
founded to create a nationwide provider of motorcoach and other ground
transportation services. In May 1996, Coach USA acquired, simultaneously with
the closing of an initial public offering (the "Initial Public Offering"), six
established businesses. Consideration for these businesses consisted of a
combination of cash and common stock of Coach USA. These six businesses are
referred to herein as the "Founding Companies" and the transaction pursuant to
which these six businesses were acquired is referred to herein as the "Merger"
or "Mergers." Coach USA acquired six additional businesses on August 29, 1996
("August Acquisitions"). Of these six additional businesses acquired, American
Bus Lines, Inc. and affiliated companies, Gulf Coast Transportation, Inc. and
subsidiaries, operating as Gray Line of Houston, and Yellow Cab Service
Corporation and subsidiaries were accounted for as poolings of interests and are
referred to herein as the "Pooled Companies." The remaining three businesses
acquired were accounted for as purchases and are referred to herein as the
"Purchased Companies."
The Founding Companies were not under common control or management through
May 1996. The Pooled Companies and Purchased Companies were not under common
control or management through August 1996. This pro forma information may not be
indicative of actual results if the transactions had occurred on the dates
indicated or which may be realized in the future. Neither expected benefits and
cost reductions anticipated by the Company nor future corporate costs of Coach
USA nor interest expense savings on offering proceeds have been reflected in the
pro forma information for 1995, nor for the first five months of 1996.
The following unaudited pro forma financial statements of Coach USA present
the Company (including Pooled Companies) after restatement for the Founding
Companies and Purchased Companies and give effect to the following pro forma
adjustments: (i) the initial purchase price allocation of the Purchased
Companies including the liability for the cash consideration to be paid to the
stockholders of the Purchased Companies and the issuance of convertible notes to
certain of the Purchased Companies, and the recording of Goodwill; (ii) the
issuance of 425,039 shares of Coach USA Common Stock to the Pooled Company
stockholders to reflect the conversion of certain debt to equity; (iii) certain
reductions in salaries and benefits to the owners of the Founding Companies and
the Pooled Companies which were agreed to in connection with the Mergers and the
August Acquisitions as well as a non-recurring, non-cash charge recorded by the
Company (collectively, the "Compensation Differential"); and (iv) the
incremental provision for income taxes for S Corporations and the Compensation
Differential, as if the transactions were consummated as of June 30, 1996 for
the balance sheet data and as of January 1, 1995 for the income statement data.
Certain pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The pro
forma financial data do not purport to represent what the Company's financial
position or results of operations would actually have been if such transactions
in fact had occurred on those dates or to project the Company's financial
position or results of operations for any future period.
F-2
<PAGE>
COACH USA, INC.
PRO FORMA BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------------
PURCHASED PRO FORMA
COACH USA COMPANIES ADJUSTMENTS PRO FORMA
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 3,852 $ 1,274 $ 5,126
Accounts receivable, less
allowance.................... 12,664 3,779 16,443
Notes receivable from
stockholders................. 361 2,383 2,744
Notes receivable, current
portion...................... 3,629 -- 3,629
Inventories..................... 6,148 197 6,345
Investments..................... 541 500 1,041
Prepaid expenses and other
current assets............... 7,774 1,892 9,666
--------- --------- ---------
Total current assets...... 34,969 10,025 44,994
PROPERTY AND EQUIPMENT, net.......... 104,945 51,912 156,857
INVESTMENT IN UNCONSOLIDATED
ENTITY............................. -- 3,514 (3,514)(a) --
GOODWILL............................. -- -- 28,506(a) 28,506
OTHER ASSETS......................... 12,396 230 12,626
--------- --------- ----------- ---------
Total assets.............. $ 152,310 $65,681 $ 24,992 $ 242,983
========= ========= =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 7,654 $ 6,127 $ 13,781
Accounts payable and accrued
liabilities.................. 32,848 6,116 38,964
Amounts due to stockholders..... 1,292 2,122 3,414
--------- --------- ---------
Total current
liabilities............. 41,794 14,365 56,159
--------- --------- ----------- ---------
LONG-TERM OBLIGATIONS, net of current
maturities......................... 66,632 38,665 (17,521)(b) 102,276
14,500(a)
CONVERTIBLE NOTES.................... -- -- 22,500(a) 22,500
DEFERRED INCOME TAXES................ 8,919 643 2,800(b) 12,362
--------- --------- ----------- ---------
Total liabilities......... 117,345 53,673 22,279 193,297
COMMITMENTS AND CONTINGENCIES........
STOCKHOLDERS' EQUITY:
Common stock.................... 135 52 5(b) 140
(52)(a)
Additional paid-in capital...... 40,888 3,968 10,516(b) 51,404
(3,968)(a)
Retained earnings (deficit)..... (6,058) 8,224 (8,224)(a) (1,858)
4,200(b)
Treasury stock.................. -- (236) 236(a) --
--------- --------- ----------- ---------
Total stockholders'
equity.................. 34,965 12,008 2,713 49,686
--------- --------- ----------- ---------
Total liabilities and
stockholders' equity......... $ 152,310 $65,681 $ 24,992 $ 242,983
========= ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial statements.
F-3
<PAGE>
COACH USA, INC.
NOTES TO PRO FORMA BALANCE SHEET (UNAUDITED)
(a) Records the initial purchase allocation of the Purchased Companies
including (i) the liability for the cash consideration to be paid and
the convertible notes issued to the stockholders of the Purchased
Companies, (ii) goodwill and (iii) elimination of the historical
common stock, retained earnings, treasury stock and investment in
previously unconsolidated subsidiary of the Purchased Companies.
(b) Issuance of 425,039 shares to the stockholders of the Pooled Companies
issued to convert debt to equity.
F-4
<PAGE>
COACH USA, INC.
PRO FORMA STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------
COMBINED
FOUNDING PURCHASED PRO FORMA PRO
COACH USA COMPANIES COMPANIES ADJUSTMENTS FORMA
--------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
REVENUES............................. $47,930 $113,489 $36,102 $ (250)(a) $197,271
OPERATING EXPENSES................... 32,594 89,325 22,885 144,804
--------- --------- --------- ----------- --------
Gross profit..................... 15,336 24,164 13,217 (250) 52,467
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 8,736 14,213 5,119 (6,797)(b) 21,271
AMORTIZATION OF GOODWILL............. 712(c) 712
--------- --------- --------- ----------- --------
Operating income................. 6,600 9,951 8,098 5,835 30,484
OTHER (INCOME) EXPENSE:
Interest Expense................. 4,026 2,878 3,690 (1,298)(d) 11,472
2,176(e)
Earnings from investment in
unconsolidated subsidiary...... -- -- (762) 762(f) --
--------- --------- --------- ----------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM................. 2,574 7,073 5,170 4,195 19,012
PROVISION FOR INCOME TAXES........... 1,040 929 1,011 5,216(g) 8,196
--------- --------- --------- ----------- --------
INCOME BEFORE EXTRAORDINARY ITEM..... $ 1,534 $ 6,144 $ 4,159 $(1,021) $ 10,816
========= ========= ========= =========== ========
PRO FORMA INCOME PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM.......... $ .93
========
WEIGHTED AVERAGE SHARES
OUTSTANDING (h).................... 11,643
========
SIX MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------
COMBINED
FOUNDING PURCHASED PRO FORMA PRO
COACH USA COMPANIES COMPANIES ADJUSTMENTS FORMA
--------- --------- --------- ----------- --------
REVENUES............................. $41,869 $ 44,938 $18,825 $ $105,632
OPERATING EXPENSES................... 29,821 36,925 11,298 78,044
--------- --------- --------- ----------- --------
Gross profit..................... 12,048 8,013 7,527 -- 27,588
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,973 7,776 3,753 (4,462)(b) 13,040
AMORTIZATION OF GOODWILL............. 357(c) 357
--------- --------- --------- ----------- --------
Operating income................. 6,075 237 3,774 4,105 14,191
OTHER (INCOME) EXPENSE:
Interest Expense................. 2,647 1,220 1,892 (675)(d) 6,172
1,088(e)
Earnings from investment in
unconsolidated subsidiary...... -- -- (315) 315(f) --
--------- --------- --------- ----------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM................. 3,428 (983 ) 2,197 3,377 8,019
PROVISION FOR INCOME TAXES........... 1,280 42 657 1,553(g) 3,532
--------- --------- --------- ----------- --------
INCOME BEFORE EXTRAORDINARY ITEM..... $ 2,148 $ (1,025 ) $ 1,540 $ 1,824 $ 4,487
========= ========= ========= =========== ========
PRO FORMA INCOME PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM.......... $ .37
========
WEIGHTED AVERAGE SHARES OUTSTANDING
(h)................................ 12,177
========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial statements.
F-5
<PAGE>
COACH USA, INC.
NOTES TO PRO FORMA STATEMENT OF INCOME (UNAUDITED)
(a) Eliminates management fees charged to related companies.
(b) Adjusts compensation to the level the owners of the Founding, Pooled and
Purchased Companies have agreed to receive subsequent to their respective
Acquisition.
(c) Records the amortization of goodwill using a 40-year life.
(d) Records reduction of interest expense related to debt converted to equity
subsequent to the August Acquisitions.
(e) Records interest expense on debt incurred to fund the cash purchase price
and convertible debt issued in conjunction with the August Acquisitions.
(f) Eliminates earnings in previously unconsolidated subsidiary.
(g) Records the incremental provision for Federal and state income taxes
relating to the Compensation Differential, income taxes on S Corporation
income, utilization of loss carryforwards at the time the loss was incurred
on a combined basis, and income taxes on the income from personal assets of
a stockholder.
(h) The 1995 share data include: (i) 2,165,724 shares issued by Coach USA prior
to the Initial Public Offering; (ii) 5,099,687 shares issued to the
stockholders of the Founding Companies in connection with the Mergers; (iii)
1,700,714 of the 4,140,000 shares sold in the Initial Public Offering to pay
the cash portion of the consideration for the Founding Companies; (iv)
118,142 of the 4,140,000 shares sold in the Initial Public offering to pay
excess S Corporation distributions; (v) 2,133,541 shares issued in
connection with the acquisition of the Pooled Companies; and (vi) 425,039
shares issued in connection with the conversion of indebtedness to equity at
one of the Pooled Companies. The 1996 share data include those amounts
included in the 1995 share data plus (i) the remaining 2,321,144 of the
4,140,000 shares sold in the Initial Public Offering weighted for the month
of June 1996 and (ii) 150,879 shares attributable to dilution for
outstanding options to purchase Common Stock, using the treasury stock
method.
F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Yellow Cab Service Corporation:
We have audited the accompanying consolidated balance sheets of Yellow Cab
Service Corporation (a Delaware corporation) and subsidiaries as of October 29,
1994, and October 28, 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Yellow Cab Service Corporation and subsidiaries as of October 29, 1994, and
October 28, 1995, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
September 13, 1996
F-7
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 29 OCTOBER 28 JUNE 29
1994 1995 1996
----------- ----------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 763 $ 1,570 $ 1,045
Accounts receivable, less
allowance of $592, $645 and
$836......................... 2,886 3,227 3,907
Notes receivable from
stockholder.................. 302 303 303
Notes receivable, current
portion...................... 2,679 2,606 3,629
Inventories..................... 1,929 2,961 3,472
Prepaid expenses and other
current assets............... 1,382 1,702 2,149
----------- ----------- ------------
Total current assets...... 9,941 12,369 14,505
PROPERTY AND EQUIPMENT, net.......... 4,501 4,379 4,913
NOTES RECEIVABLE, less allowance of
$500................................. 1,181 1,978 2,452
OTHER ASSETS......................... 8,990 9,804 9,411
----------- ----------- ------------
Total assets.............. $24,613 $28,530 $ 31,281
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 2,617 $ 2,807 $ 2,793
Accounts payable and accrued
liabilities.................. 7,584 7,622 7,750
----------- ----------- ------------
Total current
liabilities............... 10,201 10,429 10,543
LONG-TERM OBLIGATIONS, due to
stockholders....................... 15,649 16,467 17,085
LONG-TERM OBLIGATIONS, net of current
maturities......................... 4,440 6,440 7,528
----------- ----------- ------------
Total liabilities......... 30,290 33,336 35,156
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value;
20,000,000 shares authorized,
18,918,293 shares issued and
outstanding.................. 189 189 189
Additional paid-in capital...... 2,238 2,238 2,238
Retained deficit................ (8,104) (7,208) (6,277)
Treasury stock, at cost......... -- (25) (25)
----------- ----------- ------------
Total stockholders'
equity.................... (5,677) (4,806) (3,875)
----------- ----------- ------------
Total liabilities and
stockholders' equity...... $24,613 $28,530 $ 31,281
=========== =========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
------------------------ ----------------------
OCTOBER 29 OCTOBER 28 JULY 1 JUNE 29
1994 1995 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................. $ 23,842 $ 26,780 $ 16,958 $ 21,902
OPERATING EXPENSES................... 17,271 18,668 11,917 15,460
---------- ---------- ---------- ----------
Gross profit.............. 6,571 8,112 5,041 6,442
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 4,331 4,298 3,052 3,328
---------- ---------- ---------- ----------
Operating income.......... 2,240 3,814 1,989 3,114
INTEREST EXPENSE..................... 2,186 2,317 1,333 1,646
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES........... 54 1,497 656 1,468
PROVISION FOR INCOME TAXES........... 50 601 251 537
---------- ---------- ---------- ----------
NET INCOME........................... $ 4 $ 896 $ 405 $ 931
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
----------------------- PAID-IN ------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT EQUITY
-------------- ------ ---------- ---------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
OCTOBER 30, 1993................... 18,918,293 $ 189 $2,238 -- $-- $ (8,108) $(5,681)
Net income......................... -- -- -- -- -- 4 4
-------------- ------ ---------- ---------- ------ -------- -------------
BALANCE AT
OCTOBER 29, 1994................... 18,918,293 189 2,238 -- -- (8,104) (5,677)
Purchase of treasury stock......... -- -- -- (25,000) (25 ) -- (25)
Net income......................... -- -- -- -- -- 896 896
-------------- ------ ---------- ---------- ------ -------- -------------
BALANCE AT
OCTOBER 28, 1995................... 18,918,293 189 2,238 (25,000) (25 ) (7,208) (4,806)
Net income (unaudited)............. -- -- -- -- -- 931 931
-------------- ------ ---------- ---------- ------ -------- -------------
BALANCE AT
JUNE 29, 1996 (unaudited).......... 18,918,293 $ 189 $2,238 (25,000) $ (25 ) $ (6,277) $(3,875)
============== ====== ========== ========== ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS ENDED
----------------------- ----------------------
OCTOBER 29 OCTOBER 28 JULY 1 JUNE 29
1994 1995 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 4 $ 896 $ 405 $ 931
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation and
amortization.............. 2,465 2,496 1,603 1,954
Deferred tax provision....... 50 572 381 148
Changes in operating assets
and liabilities --
Accounts receivable,
net.................. 556 (341) 200 (680)
Inventories............. (1,189) (2,489) (1,960) (1,415)
Prepaid expenses and
other current
assets............... (24) (86) 171 (380)
Notes receivable, net... 1,256 (724) 80 (1,497)
Accounts payable and
accrued liabilities.. 636 856 49 1,120
Other assets............ 143 (1,821) (174) (218)
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities......... 3,897 (641) 755 (37)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (339) (717) (478) (1,188)
---------- ---------- ---------- ----------
Net cash used in investing
activities................... (339) (717) (478) (1,188)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations..................... (5,262) (4,157) (3,297) (4,654)
Proceeds from issuance of long-term
obligations..................... 2,209 6,347 3,034 5,354
Purchase of treasury stock......... -- (25) (25) --
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities......... (3,053) 2,165 (288) 700
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... 505 807 (11) (525)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 258 763 763 1,570
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 763 $ 1,570 $ 752 $ 1,045
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 639 $ 1,002 $ 639 $ 772
Cash paid for income taxes...... -- 28 14 61
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Yellow Cab Service Corporation and subsidiaries (the Company) provides
support services, car sales and related financing to independent contractors who
operate taxicabs and towne cars in the Houston and Austin, Texas, and Colorado
Springs, Colorado, metropolitan areas. The Company also provides local commuter
bus service in the Austin, Texas, metropolitan area.
The Company merged with Coach USA, Inc. (Coach USA) (the Merger) in August
1996. All outstanding shares of the Company's common stockholders and certain
obligations due to stockholders were exchanged for shares of Coach USA's common
stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and results of
operations of Yellow Cab Service Corporation, all its subsidiaries and certain
land and buildings owned by a stockholder and utilized in the operations of the
business. All significant intercompany transactions and balances have been
eliminated in consolidation. The Company's fiscal year ends on the last Saturday
in October of each calendar year.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the consolidated
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.
INVENTORIES
Inventories primarily consist of taxicabs held for sale and taxicab
replacement parts. Taxicabs held for sale are depreciated over their estimated
useful lives of 4.5 years. Depreciation and amortization in the accompanying
consolidated statements of cash flows includes $1,053,000 and $1,457,000 of
depreciation related to taxicabs held for sale in 1994 and 1995, respectively.
Replacement parts are accounted for on the first-in, first-out basis and are
reported at the lower of cost or market.
NOTES RECEIVABLE
Notes receivable result from the sale of taxicabs to independent
contractors. The notes bear interest ranging from 15 percent to 17.75 percent
and are due in weekly installments over periods ranging up to 42 months. Notes
receivable and the taxicabs sold under these contracts are assigned as
collateral for related notes payable.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs, including replacement of engines and certain other significant
costs, are expensed as costs are incurred.
F-12
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation on transportation equipment and other assets for financial
reporting purposes is computed on the straight-line basis over the estimated
useful lives of the assets, net of their estimated residual values.
OTHER ASSETS
Taxicab permits and related costs are carried at cost, less accumulated
amortization. The permit costs are amortized using the straight-line method over
a period of not more than 40 years. Annual renewal fees are charged to
operations as incurred.
CONCENTRATION OF CREDIT RISKS
The Company's credit risks primarily consist of accounts receivable and
notes receivable from various independent contractors. Management performs
ongoing credit evaluations of its customers and provides allowances as deemed
necessary.
REVENUE RECOGNITION
The Company recognizes revenue from taxicab support services and sales to
independent taxicab operators when such services and sales are performed. The
Company recognizes financing income on notes receivable using the effective
interest method over the term of the note. Costs associated with the revenues
are incurred and recorded as services and sales are performed. The Company's
revenues consist of the following:
YEAR ENDED
--------------------------
OCTOBER 29 OCTOBER 28
1994 1995
----------- -----------
(IN THOUSANDS)
Services............................. $18,450 $20,176
Sales................................ 4,483 5,734
Financing income..................... 909 870
----------- -----------
$23,842 $26,780
=========== ===========
INCOME TAXES
The Company files a consolidated return for federal income tax purposes.
Income taxes are provided under the liability method considering the tax effects
of transactions reported in the financial statements which are different from
the tax return. The deferred tax assets and liabilities represent the future tax
consequences of those differences, which will either be taxable or deductible
when the underlying assets or liabilities are recovered or settled.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-13
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACCOUNTS RECEIVABLE:
The Company's accounts receivable consist of the following:
OCTOBER 29 OCTOBER 28
1994 1995
----------- -----------
(IN THOUSANDS)
Accounts receivable, independent
contractors.......................... $ 2,343 $ 2,439
Accounts receivable, trade........... 1,135 1,433
Less -- Allowance for doubtful
accounts............................. (592) (645)
----------- -----------
$ 2,886 $ 3,227
=========== ===========
Accounts receivable from independent contractors relate primarily to
support services provided to independent taxicab operators. Accounts receivable
from trade represent amounts due under the Company's long-term service contract
with a governmental entity and vouchers collected by independent taxicab
operators from governmental entities and corporations which are remitted to the
Company in payment of support services and notes receivable.
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
OCTOBER 29 OCTOBER 28
1994 1995
----------- -----------
(IN THOUSANDS)
Prepaid insurance.................... $ 447 $ 536
Deferred income tax asset, current... 498 732
Other................................ 437 434
----------- -----------
$ 1,382 $ 1,702
=========== ===========
NOTES RECEIVABLE FROM STOCKHOLDER
The Company had notes receivable from the majority stockholder of $302,000
and $303,000 at October 29, 1994, and October 28, 1995, respectively. These
notes receivable were unsecured, noninterest-bearing and payable on demand and
were offset against accrued interest payable to the stockholder in connection
with the merger with Coach USA in August 1996.
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED OCTOBER 29 OCTOBER 28
USEFUL LIVES 1994 1995
------------- ----------- -----------
(YEARS) (IN THOUSANDS)
Transportation equipment........... 4-7 $ 5,461 $ 5,734
Building and leasehold
improvements....................... 5-31.5 3,758 3,837
Computer equipment and other
property........................... 5-7 7,229 7,518
----------- -----------
16,448 17,089
Less -- Accumulated depreciation... (11,947) (12,710)
----------- -----------
Total property and
equipment............... $ 4,501 $ 4,379
=========== ===========
Included in property and equipment at October 29, 1994, and October 28,
1995, are $3,423,000 of assets held under capital leases.
F-14
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER ASSETS:
Other assets consist of the following:
OCTOBER 29 OCTOBER 28
1994 1995
---------- ----------
(IN THOUSANDS)
Taxicab permit costs, net of
accumulated amortization of
$2,034,000 and $2,194,000..... $3,242 $4,263
Noncurrent deferred income tax
asset......................... 5,553 4,747
Other, net of accumulated
amortization of $631,000 and
$672,000...................... 195 794
---------- ----------
$8,990 $9,804
========== ==========
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
OCTOBER 29 OCTOBER 28
1994 1995
---------- ----------
(IN THOUSANDS)
Accrued interest to majority
stockholder, current
portion....................... $ 600 $ 600
Trade accounts payable.......... 838 906
Accrued compensation and
benefits...................... 364 374
Accrued insurance claims
payable....................... 4,339 4,174
Driver deposits................. 453 529
Other........................... 990 1,039
---------- ----------
$7,584 $7,622
========== ==========
8. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
OCTOBER 29 OCTOBER 28
1994 1995
----------- -----------
(IN THOUSANDS)
Revolving credit agreement (credit
line increased to $5,700,000 in
November 1995 from $3,500,000 which
existed at October 28, 1995),
interest at the bank's prime rate
(8.75% at October 28, 1995) plus
1%, secured by receivables, taxicab
equipment and other assets and
guaranteed by the majority
stockholder. The amount outstanding
is limited to a borrowing base
based upon a percentage of trade
receivables and book value of
vehicles purchased................. $ 1,242 $ 2,972
Notes payable to a bank, interest at
prime plus .75%, but not less than
8%, due in monthly principal
installments of $13,050, secured by
land and building.................. 1,865 1,708
Note payable to a bank, interest at
prime plus 1.5%, due in monthly
principal installments of $23,333,
secured by assignment of taxicab
permits and equipment and
guaranteed by the majority
stockholder........................ -- 1,353
F-15
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 29 OCTOBER 28
1994 1995
----------- -----------
(IN THOUSANDS)
Note payable to a corporation,
interest at 10%, due in variable
monthly installments, secured by
taxicabs........................... -- 491
Various notes, bearing interest at
rates ranging from 7.25% to 10.75%,
due in variable monthly
installments, secured by taxicabs
and vans........................... 1,403 96
Obligations under capital leases,
interest at rates ranging from 10%
to 15.4%, due in variable monthly
installments, secured by taxicabs
and computer equipment............. 2,306 1,817
Other................................ 241 810
----------- -----------
7,057 9,247
Less current maturities.............. (2,617) (2,807)
----------- -----------
$ 4,440 $ 6,440
=========== ===========
Long term obligations due to
stockholder consist of the following:
Note payable to majority stockholder,
interest at rates ranging from
11.75% to 12.25%, due 2002,
interest payments due monthly not
to exceed $600,000 per year,
subordinate to revolving credit
agreement and notes payable to a
bank, includes excess accrued
interest of $1,330,000 and
$1,919,000 at October 29, 1994, and
October 28, 1995, respectively,
secured by substantially all of the
assets of the Company.............. 8,612 9,201
Various subordinated notes to
stockholders, each bearing interest
at 3% per annum through June 30,
1999, 6% per annum through June 30,
2002, and 9% per annum thereafter,
due 2005, includes accrued interest
of $294,000 and $523,000 at October
29, 1994, and October 28, 1995,
respectively, secured by
substantially all of the assets of
the Company........................ 7,637 7,866
----------- -----------
16,249 17,067
Less -- Accrued interest to majority
stockholder, current portion......... (600) (600)
----------- -----------
$15,649 $16,467
=========== ===========
F-16
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future principal payments of long-term obligations excluding excess accrued
interest of $2,442,000 and minimum lease payments under capital lease
obligations as of October 28, 1995 are as follows:
LONG-TERM CAPITAL LEASE
OBLIGATIONS OBLIGATIONS
----------- -------------
(IN THOUSANDS)
1996................................. $ 2,079 $ 812
1997................................. 1,743 812
1998................................. 1,571 609
1999................................. 1,586 --
2000................................. 246 --
Thereafter........................... 14,780 --
----------- -------------
$22,005 2,233
===========
Less -- Amounts representing
interest............................. (416)
-------------
$ 1,817
=============
Management estimates that the fair value of its debt obligations
approximates $23,580,000 compared to the recorded value of $24,497,000 at
October 28, 1995. The estimated fair market value was computed by management
based upon an estimated discount rate.
In connection with the Merger with Coach USA in August 1996, obligations
due to stockholders were retired by Coach in exchange for shares of Coach USA
common stock. The transactions resulted in an extraordinary gain on early
extinguishment of debt of approximately $7.0 million, representing the excess of
the recorded value of the obligations exchanged over the market value of the
Coach USA common stock.
9. INCOME TAXES:
The Company has implemented Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," which provides for a liability
approach to accounting for income taxes.
The provision (benefit) for taxes on income consists of the following:
OCTOBER 29 OCTOBER 28
1994 1995
----------- -----------
(IN THOUSANDS)
Current --
Federal......................... $-- $ (74)
State........................... -- 103
----------- -----------
-- 29
----------- -----------
Deferred --
Federal......................... 82 604
State........................... (32) (32)
----------- -----------
50 572
----------- -----------
$ 50 $ 601
=========== ===========
Deferred taxes result from the effect of transactions which are recognized
in different periods for financial and tax reporting purposes and relate
primarily to future deductions for
F-17
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prior net operating losses and accrued insurance claims payable. Deferred income
taxes are recognized for the tax consequences of temporary differences by
applying enacted statutory tax rates to differences between the financial
reporting and the tax bases of existing assets and liabilities.
The components of deferred income tax liabilities and assets are as
follows:
OCTOBER 29 OCTOBER 28
1994 1995
---------- ----------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 30 $ (22)
Other........................... (281) (285)
---------- ----------
Total deferred income tax
liabilities............. (251) (307)
========== ==========
Deferred income tax assets --
Accrued expenses................ 2,405 2,872
Net operating losses............ 1,644 791
Other assets.................... 2,133 2,074
Other........................... 120 49
---------- ----------
Gross deferred income tax
assets.................. 6,302 5,786
---------- ----------
Net deferred income tax
assets.................. $6,051 $5,479
========== ==========
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
OCTOBER 29 OCTOBER 28
1994 1995
---------- ----------
(IN THOUSANDS)
Tax at statutory rate................ $ 19 $ 524
Add (deduct --
State income taxes.............. 4 46
Nondeductible expenses.......... 65 69
Effect of nontaxable income from
personal assets (land and
buildings) of stockholder.... (38) (38)
---------- ----------
$ 50 $ 601
========== ==========
For purposes of the consolidated federal tax return, the Company has net
operating loss carryforwards available to offset taxable income of the Company
in the future. The net operating loss carryforwards will begin expiring in 2006.
The Company also has alternative minimum tax credit carryforwards totaling
$35,000 which have an indefinite life. In connection with the Merger, the
Company will experience an ownership change resulting in various limitations on
the Company's ability to utilize net operating loss and alternative minimum tax
credit carryforwards. However, the Company expects full utilization of the net
operating loss carryforwards prior to their expiration.
10. COMMITMENTS AND CONTINGENCIES:
SERVICE CONTRACTS
The Company has entered into a long-term service contract with a
governmental entity to provide commuter service throughout the Austin, Texas,
metropolitan area. The contract expires January 8, 1998. Under the terms of the
contract, the Company recognized revenues of
F-18
<PAGE>
YELLOW CAB SERVICE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,742,000 and $2,755,000 for the years ended October 29, 1994 and October 28,
1995, respectively, which are included in service revenues.
LETTERS OF CREDIT
The Company is contingently liable for letters of credit totaling $45,000
issued in connection with the Company's insurance policies. These letters of
credit require commitment fees of 1 percent paid on an annual basis.
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expenses for the years ended October 29, 1994, and October 28,
1995, were $694,000 and $703,000, respectively. The following represents future
minimum rental payments under noncancelable operating leases (in thousands):
Fiscal year --
1996............................ $ 794
1997............................ 794
1998............................ 397
1999............................ 155
2000............................ 110
Thereafter...................... 300
---------
$ 2,550
=========
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided for certain of these
actions in the accompanying consolidated financial statements. In the opinion of
management, uninsured losses, if any, resulting from the ultimate resolution of
these matters will not be material to the Company's financial position or
results of operations.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company had a commercial liability insurance policy that provided
coverage by the insurance company, subject to a $250,000 deductible. As such,
any claim within the first $250,000 per incident would be the financial
obligation of the Company. In connection with the Merger, the Company's
commercial liability insurance was covered under a policy maintained by Coach
USA, subject to a $250,000 deductible.
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policy for claims occurring through October 28, 1995. The accrual
is based on known facts and historical trends, and management believes such
accrual to be adequate.
EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan which allows eligible employees to
defer a portion of their income through contributions to the plan. The Company
may contribute at its discretion. The Company made no contribution to the plan
during the year ended October 29, 1994. The Company contributed $21,000 to the
plan during the year ended October 28, 1995.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gulf Coast Transportation, Inc.:
We have audited the accompanying consolidated balance sheets of Gulf Coast
Transportation, Inc. (a Texas corporation), and subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of income, stockholder's
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Gulf Coast Transportation, Inc., and subsidiaries as of December 31, 1994 and
1995, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
September 6, 1996
F-20
<PAGE>
GULF COAST TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
---------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 171 $ 191 $ 265
Accounts receivable, less
allowance of $10,
$50 and $50.................. 210 770 1,384
Inventories..................... 78 150 343
Prepaid expenses and other
current assets............... 257 585 1,153
---------- ---------- -----------
Total current assets...... 716 1,696 3,145
PROPERTY AND EQUIPMENT, net.......... 12,602 24,092 30,131
OTHER ASSETS......................... 36 34 79
---------- ---------- -----------
Total assets.............. $ 13,354 $ 25,822 $33,355
========== ========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,511 $ 2,817 $ 3,319
Accounts payable and accrued
liabilities.................. 1,618 2,402 2,411
---------- ---------- -----------
Total current
liabilities............. 3,129 5,219 5,730
LONG-TERM OBLIGATIONS, net of current
maturities......................... 9,984 18,977 24,781
DEFERRED INCOME TAXES................ 458 1,134 1,943
---------- ---------- -----------
Total liabilities......... 13,571 25,330 32,454
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par, 1,000
shares authorized,
1,000 shares issued.......... 1 1 1
Additional paid-in capital...... 478 478 543
Retained earnings (deficit)..... (696) 13 357
---------- ---------- -----------
Total stockholder's
equity.................. (217) 492 901
---------- ---------- -----------
Total liabilities and
stockholder's equity.... $ 13,354 $ 25,822 $33,355
========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
GULF COAST TRANSPORTATION, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31 JUNE 30
--------------------- --------------------
1994 1995 1995 1996
--------- ---------- --------- ---------
(UNAUDITED)
REVENUES.......................... $ 6,971 $ 13,597 $ 5,581 $ 9,164
OPERATING EXPENSES................ 5,351 8,972 3,688 6,216
--------- ---------- --------- ---------
Gross profit................. 1,620 4,625 1,893 2,948
GENERAL AND ADMINISTRATIVE
EXPENSES........................ 826 1,961 848 1,843
--------- ---------- --------- ---------
Operating income............. 794 2,664 1,045 1,890
OTHER (INCOME) EXPENSE:
Interest expense............. 933 1,527 632 1,264
Other, net................... (185) (10) (39) 63
--------- ---------- --------- ---------
INCOME BEFORE INCOME TAXES........ 46 1,147 452 563
PROVISION FOR INCOME TAXES........ 75 438 171 219
--------- ---------- --------- ---------
NET INCOME (LOSS)................. $ (29) $ 709 $ 281 $ 344
========= ========== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
GULF COAST TRANSPORTATION, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
----------------- PAID-IN EARNINGS STOCKHOLDER'S
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993......... 1,000 $ 1 $ 478 $ (667) $ (188)
Net (loss)...................... -- -- -- (29) (29)
------- ------ ---------- --------- -------------
BALANCE AT DECEMBER 31, 1994......... 1,000 1 478 (696) (217)
Net income...................... -- -- -- 709 709
------- ------ ---------- --------- -------------
BALANCE AT DECEMBER 31, 1995......... 1,000 1 478 13 492
Net income (unaudited).......... -- -- -- 344 344
Contributions (unaudited)....... -- -- 65 -- 65
------- ------ ---------- --------- -------------
BALANCE AT JUNE 30, 1996
(Unaudited).......................... 1,000 $ 1 $ 543 $ 357 $ 901
======= ====== ========== ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
GULF COAST TRANSPORTATION, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31 JUNE 30
----------------------- ----------------------
1994 1995 1995 1996
---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ (29) $ 709 $ 281 $ 344
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities --
Depreciation................. 805 1,130 476 969
(Gain) loss on sale of
assets.................... 57 (40) (30) (71)
Deferred tax provision....... 88 438 171 605
Changes in operating assets
and liabilities --
Accounts receivable,
net..................... (151) (560) (857) (614)
Inventories............. (10) (72) -- (193)
Prepaid expenses and
other current
assets............... 5 (90) 21 (363)
Accounts payable and
accrued liabilities..... 268 784 672 9
Other................... 41 2 (20) (45)
---------- ----------- ---------- ----------
Net cash provided by
operating
activities........ 1,074 2,301 714 641
---------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (6,834) (10,527) (3,975) (5,292)
Proceeds from sales of property and
equipment....................... 889 351 351 1,336
---------- ----------- ---------- ----------
Net cash used in
investing
activities........ (5,945) (10,176) (3,624) (3,956)
---------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations..................... (1,893) (2,492) (1,283) (1,995)
Proceeds from issuance of long-term
obligations..................... 6,850 10,387 4,064 5,384
---------- ----------- ---------- ----------
Net cash provided by
financing
activities........ 4,957 7,895 2,781 3,389
---------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... 86 20 (129) 74
CASH, beginning of period............ 85 171 171 191
---------- ----------- ---------- ----------
CASH, end of period.................. $ 171 $ 191 $ 42 $ 265
========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest............. $ 896 $ 1,467 $ 596 $ 1,246
Assets acquired under capital
leases.......................... 1,931 2,404 982 2,981
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
GULF COAST TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Gulf Coast Transportation, Inc., and subsidiaries (the Company) provides
motorcoach charter and tour services with primary departure points located in
Southeast Texas.
The Company merged with a subsidiary of Coach USA, Inc. (the Merger) in
August 1996. All outstanding shares of the Company's common stock were exchanged
for cash and shares of Coach USA's common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and results of
operations of Gulf Coast Transportation, Inc., all its subsidiaries, and certain
transportation equipment, land and building owned by a stockholder and utilized
in the operations of the business. All significant intercompany transactions and
balances have been eliminated in consolidation.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of June 30, 1996, and for
the six months ended June 30, 1995 and 1996, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the consolidated
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.
INVENTORIES
Inventories primarily consist of motorcoach replacement parts. Inventory
cost is accounted for on the first-in, first-out basis and is reported at the
lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs, including replacement of engines and certain other significant
costs, are expensed as costs are incurred.
Depreciation on transportation equipment and other assets for financial
reporting purposes is computed on the straight-line basis over the estimated
useful lives of the assets, net of their estimated residual values.
CONCENTRATION OF CREDIT RISK
The Company's credit risks primarily consist of accounts receivable from
casinos located in the state of Louisiana. Management performs ongoing credit
evaluations of its customers and provides allowances as deemed necessary.
F-25
<PAGE>
GULF COAST TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from recreation, excursion, commuter and
transit services when such services are rendered. Costs associated with the
revenues are incurred and recorded as services are rendered.
INCOME TAXES
The Company files a consolidated return for federal income tax purposes.
Income taxes are provided under the liability method considering the tax effects
of transactions reported in the financial statements which are different from
the tax return. The deferred tax assets and liabilities represent the future tax
consequences of those differences, which will either be taxable or deductible
when the underlying assets or liabilities are recovered or settled.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Prepaid insurance.................... $ 42 $ 131
Deferred tax asset, current.......... 204 442
Other................................ 11 12
--------- ---------
$ 257 $ 585
========= =========
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED DECEMBER 31
USEFUL LIVES ----------------------
(YEARS) 1994 1995
------------ ---------- ----------
(IN THOUSANDS)
Transportation equipment............. 3-12 $ 13,682 $ 26,120
Other................................ 3-33 744 839
---------- ----------
14,426 26,959
Less -- Accumulated depreciation..... (1,824) (2,867)
---------- ----------
$ 12,602 $ 24,092
========== ==========
Included in transportation equipment at December 31, 1994 and 1995, are
approximately $5,087,000 and $7,492,000, respectively, of assets held under
capital leases.
F-26
<PAGE>
GULF COAST TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Trade accounts payable............... $ 93 $ 317
Accrued interest payable............. 64 124
Property and other taxes payable..... 100 336
Due to affiliates/stockholder........ 472 642
Other................................ 889 983
--------- ---------
$ 1,618 $ 2,402
========= =========
6. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
Notes payable to banks, interest
ranging from 8.0% to 10.1%, due in
monthly installments of $24,629,
maturing at various dates through
2003; secured by transportation
equipment and personal guarantees
of a stockholder................... $ 375 $ 287
Notes payable to finance companies,
interest ranging from 8.0% to
12.2%, due in monthly installments
of $384,653, maturing at various
dates through 2005; secured by
transportation equipment and
personal guarantees of a
stockholder........................ 7,362 15,960
Obligations under capital leases of
certain transportation equipment,
interest ranging from 7.9% to
11.8%, due in monthly installments
of $146,490, maturing at various
dates through 2002................. 3,758 5,547
---------- ----------
11,495 21,794
Less -- Current maturities........... (1,511) (2,817)
---------- ----------
$ 9,984 $ 18,977
========== ==========
F-27
<PAGE>
GULF COAST TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, future principal payments of long-term obligations
and minimum lease payments under capital lease obligations are as follows:
LONG-TERM CAPITAL LEASE
OBLIGATIONS OBLIGATIONS
----------- -------------
(IN THOUSANDS)
Year ending December 31 --
1996............................ $ 1,987 $ 1,365
1997............................ 2,006 1,251
1998............................ 2,001 1,142
1999............................ 2,307 1,004
2000............................ 2,935 1,911
Thereafter...................... 5,011 1,124
----------- -------------
$16,247 7,797
===========
Less -- Amounts representing
interest........................... (2,250)
-------------
$ 5,547
=============
Management estimates that the fair value of its long-term debt obligations
approximates the historical value of $16,247,000 at December 31, 1995.
7. INCOME TAXES:
The Company has implemented SFAS No. 109, "Accounting for Income Taxes,"
which provides for a liability approach to accounting for income taxes.
The provision for taxes on income consists of the following:
YEAR ENDED
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Current --
Federal......................... $ -- $ 69
State........................... (13) (69)
--------- ---------
(13) --
========= =========
Deferred --
Federal......................... 67 317
State........................... 21 121
--------- ---------
88 438
--------- ---------
$ 75 $ 438
========= =========
Deferred taxes result from the effect of transactions which are recognized
in different periods for financial and tax reporting purposes and relate
primarily to depreciation and accrued insurance claims payable. Deferred income
taxes are recognized for tax consequences of temporary differences by applying
enacted statutory tax rates to differences between the financial reporting and
the tax bases of existing assets and liabilities.
F-28
<PAGE>
GULF COAST TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax liabilities and assets are as
follows:
DECEMBER 31
---------------------
1994 1995
--------- ----------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 949 $ 2,259
Other........................... 8 50
--------- ----------
Total deferred income tax
liabilities............. 957 2,309
--------- ----------
Deferred income tax assets --
Accounts receivable/allowance
for doubtful accounts........ (18) (20)
Accrued liabilities/expenses.... (391) (710)
Net operating losses............ (263) (846)
General Business Credit......... (4) (4)
Other........................... (32) (42)
--------- ----------
Total deferred income tax
assets.................. (708) (1,622)
Plus -- Valuation allowance.......... 5 5
--------- ----------
Net deferred income tax
liabilities............. $ 254 $ 692
========= ==========
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
YEAR ENDED
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Tax at statutory rate................ $ 16 $ 401
Add (deduct) --
State income taxes........ 6 35
Nondeductible expenses.... 2 2
Effect of nontaxable
income from personal
assets of stockholder/S
Corporations........... 51 --
--------- ---------
$ 75 $ 438
========= =========
For purposes of the consolidated federal tax return, the Company has net
operating loss carryforwards available to offset taxable income of the Company
in the future. The net operating loss carryforwards will expire in 2004. In
connection with the Merger, the Company will experience an ownership change
resulting in various limitations on the Company's ability to utilize net
operating loss carryforwards. However, the Company anticipates full utilization
of these net operating loss carryforwards prior to their expiration. The Company
also has general business credit carryforwards which have been fully offset by a
valuation allowance. The general business credit carryforwards will expire in
various periods from 1996 through 2002.
F-29
<PAGE>
GULF COAST TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
LETTERS OF CREDIT
The Company is contingently liable for letters of credit totaling $207,000
issued in connection with the Company's long-term service contracts and
insurance policies. These letters of credit require commitment fees ranging from
1 percent to 2 percent paid on an annual basis and are secured by a guarantee of
a stockholder.
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended December 31, 1994 and 1995, was
$6,000 and $14,000, respectively. The following represents future minimum rental
payments under noncancelable operating leases (in thousands):
Year ending December 31 --
1996............................ $ 6
1997............................ 6
1998............................ 6
1999............................ 6
2000............................ 7
Thereafter...................... 13
---------
$ 44
=========
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided for certain of these
actions in the accompanying consolidated financial statements. In the opinion of
management, uninsured losses, if any, resulting from the ultimate resolution of
these matters will not be material to the Company's financial position or
results of operations.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company has a commercial motorcoach liability insurance policy that
provides coverage by the insurance company, subject to a $5,000 deductible. As
such, any claim within the first $5,000 per incident would be the financial
obligation of the Company.
The accompanying financial statements include an accrual for management's
estimate of the Company's potential claims costs in satisfying the deductible
provisions of the insurance policy for claims occurring through December 31,
1995. The accrual is based on known facts and historical trends, and management
believes such accrual to be adequate.
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
K-T Contract Services, Inc.
We have audited the accompanying balance sheets of K-T Contract Services,
Inc. (the "Company") as of December 31, 1994 and December 31, 1995 and the
related statements of income, stockholders' equity and of cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1994 and December 31, 1995 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
BURNSIDE & RISHEBARGER PLLC
March 8, 1996
F-31
<PAGE>
K-T CONTRACT SERVICES, INC.
BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
---------- ---------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 440 $ 1,703 $ 349
Short-term investments.......... 500 1,511 500
Accounts receivable............. 1,236 944 1,852
Receivable from related
parties...................... 550 1,559 2,383
Prepaid expenses................ 455 193 1,284
Materials and supplies.......... 48 48 48
---------- ---------- ------------
Total current assets...... 3,229 5,958 6,416
PROPERTY, net........................ 26,071 21,688 21,818
OTHER ASSETS......................... 177 209 155
---------- ---------- ------------
Total assets.............. $ 29,477 $ 27,855 $ 28,389
========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 3,009 $ 1,718 $ 1,870
Accounts payable................ 367 507 797
Accrued liabilities............. 426 683 710
Federal tax payable............. -- 528 311
Amounts due to related
parties...................... 150 59 --
---------- ---------- ------------
Total current
liabilities............. 3,952 3,495 3,688
---------- ---------- ------------
LONG-TERM OBLIGATIONS, net of current
maturities......................... 20,837 18,041 17,752
DEFERRED FEDERAL INCOME TAXES........ 537 643 643
---------- ---------- ------------
Total liabilities......... 25,326 22,179 22,083
---------- ---------- ------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par,
1,000,000 shares authorized,
100,000 shares issued........ 1 1 1
Additional paid-in capital...... 2,299 2,299 2,299
Retained earnings............... 1,851 3,376 4,006
---------- ---------- ------------
Total stockholders'
equity.................. 4,151 5,676 6,306
---------- ---------- ------------
Total liabilities and
stockholders' equity.... $ 29,477 $ 27,855 $ 28,389
========== ========== ============
See notes to financial statements.
F-32
<PAGE>
K-T CONTRACT SERVICES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31 JUNE 30
---------------------- --------------------
1994 1995 1995 1996
---------- ---------- --------- ---------
(UNAUDITED)
REVENUES.......................... $ 15,131 $ 16,976 $ 8,243 $ 8,450
OPERATING EXPENSES................ 9,129 10,799 5,495 5,236
---------- ---------- --------- ---------
Gross profit................. 6,002 6,177 2,748 3,214
GENERAL AND ADMINISTRATIVE
EXPENSES........................ 2,509 1,715 857 1,470
---------- ---------- --------- ---------
Operating income............. 3,493 4,462 1,891 1,744
OTHER (INCOME) EXPENSE:
Interest expense............. 1,692 2,266 1,132 912
Interest income.............. (32) (84) -- (94)
---------- ---------- --------- ---------
INCOME BEFORE FEDERAL INCOME TAXES
AND EXTRAORDINARY ITEM.......... 1,833 2,280 759 926
PROVISION FOR FEDERAL INCOME TAXES 423 730 243 296
---------- ---------- --------- ---------
NET INCOME BEFORE EXTRAORDINARY
ITEM............................ 1,410 1,550 516 630
EXTRAORDINARY ITEM................ -- 25 -- --
---------- ---------- --------- ---------
NET INCOME........................ $ 1,410 $ 1,525 $ 516 $ 630
========== ========== ========= =========
See notes to financial statements.
F-33
<PAGE>
K-T CONTRACT SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993......... 100 $ 1 $2,299 $ 441 $ 2,741
Net income...................... -- -- -- 1,410 1,410
------ ------ ---------- --------- -------------
BALANCE AT DECEMBER 31, 1994......... 100 1 2,299 1,851 4,151
Net income...................... -- -- -- 1,525 1,525
------ ------ ---------- --------- -------------
BALANCE AT DECEMBER 31, 1995......... 100 1 2,299 3,376 5,676
Net income...................... -- -- -- 630 630
------ ------ ---------- --------- -------------
BALANCE AT JUNE 30, 1996
(unaudited)........................ 100 $ 1 $2,299 $ 4,006 $ 6,306
====== ====== ========== ========= =============
</TABLE>
See notes to financial statements.
F-34
<PAGE>
K-T CONTRACT SERVICES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
---------------------- ----------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 1,410 $ 1,525 $ 516 $ 630
Adjustments to reconcile net
income to net cash provided
by operating activities --
Depreciation and
amortization.............. 1,478 1,515 728 647
Deferred federal income
tax....................... 357 106 243 47
Changes in assets and
liabilities --
Accounts receivable....... (125) 331 (429) (908)
Prepaid expenses.......... (211) 172 (253) (1,091)
Federal income tax
payable................. (82) 618 -- 217
Accounts payable and
accrued liabilities..... 483 397 (52) 100
Receivable from related
parties................. (228) -- (883)
Other..................... (1,206) (530) 9 (250)
---------- ---------- ---------- ----------
Net cash provided by
(used in) operating
activities........... 2,104 3,906 762 (1,491)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset purchases........... (96) (278) (208) (849)
Proceeds from the sale of
buses........................ 4,751 2,363 694 112
(Increase) decrease in
short-term investments....... -- (1,011) (1,300) 1,011
---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities........... 4,655 1,074 (814) 274
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (6,866) (3,625) (2,502) (1,276)
Proceeds from issuance of
long-term obligations........ 367 -- 2,250 1,139
Increase in note receivable..... -- (92) -- --
---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities........... (6,499) (3,717) 252 (137)
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 260 1,263 200 (1,354)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 180 440 440 1,703
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 440 $ 1,703 $ 640 $ 349
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-35
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION
K-T Contract Services, Inc. (the "Company") was incorporated in November
1988 and is owned 50% each by Kerrville Bus Company, Inc. and Texas Bus Lines,
Inc. The Company generates its revenues primarily in the Las Vegas, Nevada area
by providing shuttle (see Note 6) and charter services.
ACCOUNTS RECEIVABLE
Accounts receivable that management of the Company considers uncollectible
are written off as a bad debt expense in accordance with the direct write-off
method. Management believes that there are no material uncollectible accounts at
December 31, 1995.
PROPERTY, DEPRECIATION, AND AMORTIZATION
The Company uses the straight-line method over the following estimated
useful lives in computing depreciation and amortization:
ESTIMATED
SERVICE
LIVES
------------
Buses................................... 10 years
Buildings............................... 30 years
Service cars............................ 3 to 5 years
Shop and garage equipment............... 8 years
Furniture and office equipment.......... 5 years
Effective January 1, 1995 the Company reduced the estimated useful lives of
buses from twelve to ten years and increased the salvage value from 0% to 50% of
cost. These revisions were made to more properly reflect true economic lives of
the assets and to better align the Company's depreciated value with the
estimated market value. The effect of this change was to reduce 1995
depreciation expense and increase net income by approximately $955,739.
Expenditures for maintenance and repairs are charged to operating expenses
as incurred; expenditures for renewals and replacements are capitalized. When
property is sold or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss on disposition
is included in income.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109).
Pursuant to SFAS No. 109, deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
OPERATING CERTIFICATES
Costs of obtaining certain intrastate operating certificates have been
capitalized, and are amortized using the straight line method over a 25 year
period.
F-36
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly
liquid investments with a remaining maturity of three months or less at the date
of acquisition to be cash equivalents.
SHORT-TERM INVESTMENTS
As of December 31, 1994, the Company had a $500,000 Certificate of Deposit
earning 4.75% interest that matured in January, 1995. As of December 31, 1995,
the Company has a $500,000 Certificate of Deposit earning 5.10% interest,
maturing in July 1996, and a $1,011,207 Certificate of Deposit earning 4.50%
interest, maturing in May 1996.
MATERIALS AND SUPPLIES
Inventory consists primarily of diesel fuel and bus parts and is carried at
the lower of first-in, first-out cost or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has, where appropriate, estimated the fair value of financial
instruments. These fair value amounts may be significantly affected by the
assumptions used, including the discount rate and estimates of cash flow.
Accordingly, the estimates presented are not necessarily indicative of the
amounts that could be realized in current market exchange. Where these estimates
approximate carrying value, no separate disclosure of fair value is shown.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that 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 expense during the reporting
period. Actual results could differ from those estimates.
F-37
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
PORTION PORTION PORTION PORTION
------- --------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Notes payable to Bank America, due
in monthly installments of $13,000
including interest at 1.5% over
prime (minimum 9.5%, maximum 14%),
collateralized by a deed of trust
and assignment of rents............ $ 121 $ 298 $ 41 $ 342
Notes payable to Bank America, due in
monthly installments of $2,435 plus
interest at 9.25%, collateralized
by certain buses................... 22 55 25 29
Note payable to The CIT Group, due in
monthly installments of $6,636
including interest at 2.0% at
prime, collateralized by certain
buses.............................. -- -- 30 433
Note payable to Coastal Banc, due in
monthly installments of $1,525 plus
interest at prime, collateralized
by certain buses................... -- -- 18 41
Note payable to Coastal Banc, due in
monthly installments of $3,453 plus
interest at prime, collateralized
by certain buses................... -- -- 42 85
Note payable to Westar Banc, due in
annual installments of $86,126
including interest at 9.0%,
collateralized by land............. -- -- 50 285
Note payable to Francis Judson Smith,
due in one lump sum, including
principle and accrued interest at
8.5% per annum on January 3, 1998,
guaranteed by one shareholder and
two related companies. (See Note
8.)................................ -- -- -- 500
Note payable to Sun Bank, due in
monthly installments of $19,407
including interest at 7.75%,
collateralized by certain buses.... 5 -- -- --
------- --------- ------- ---------
Total........................... $ 148 $ 353 $ 206 $ 1,715
======= ========= ======= =========
</TABLE>
Scheduled principal payments on the notes payable are as follows:
1996................................. $ 206
1997................................. 224
1998................................. 711
1999................................. 174
2000................................. 183
Thereafter........................... 423
---------
Total................................ $ 1,921
=========
CAPITALIZED LEASES
The Company leases certain buses under six different lease agreements under
terms which essentially constitute a purchase of the buses. The lease terms call
for monthly payments on each bus. The present values of the required rentals and
residual value guarantees have been capitalized and the obligations recorded
using the interest rate implicit in the lease. The assets are
F-38
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amortized over their estimated useful lives of five to ten years and interest on
the outstanding lease obligation is charged to expense during each period.
Following is a schedule of future minimum lease payments (including
guaranteed residual value payments) and capitalized lease obligations under
capitalized leases as of December 31, 1995 in thousands:
YEAR ENDED DECEMBER 31 AMOUNT
- ------------------------------------- -------
1996................................. 3,032
1997................................. 3,032
1998................................. 3,032
1999................................. 3,032
2000................................. 2,793
Thereafter........................... 8,953
-------
23,874
Less amounts representing interest at
8.66% to 10.45%...................... (6,036)
-------
Total obligations under capital
leases............................... 17,838
Less current portion................. (1,512)
-------
Long-term obligations under capital
leases............................... $16,326
=======
At December 31, 1995 assets capitalized under lease agreements had a net
book value of $19,370,085.
Based on the borrowing rates currently available to the Company for long
term obligations with similar terms and average maturities, the fair value of
the Company's long term obligations, including current maturities, was
$20,721,233 at December 31, 1995.
OPERATING LEASES
The Company leases certain buses from Kerrville Bus Company, Inc. (a
shareholder) under operating leases. The terms of the leases call for 84 monthly
payments with no purchase option nor guarantee of residual value at the end of
the lease terms.
Following is a schedule of future minimum rental payments required under
operating leases that have initial noncancelable lease terms in excess of one
year (in thousands):
YEAR ENDED DECEMBER 31, AMOUNT
- ------------------------------------- ------
1996................................. $ 180
1997................................. 180
1998................................. 60
------
Total................................ $ 420
======
Operating expenses include $1,633,739 in 1994 and $2,145,105 in 1995 of
interest expense and $1,305,112 in 1994 and $1,303,349 in 1995 of depreciation
expense related to capitalized leases for buses. Operating expenses also include
$280,000 in 1994 and $215,000 1995 of lease expense related to buses under
operating leases.
The Company incurred charter expenses of $163,553 in 1994 and $253,449 in
1995 to related parties, general management expenses of $750,000 in 1994 and
$25,000 in 1995, and consulting fees of $85,849 in 1994 and $420,028 in 1995 to
its shareholders. As of December 31, the Company has a net accounts receivable
trade balance with affiliates of $273,326 in 1994 and $253,449 in 1995 and
advances to a related party with a balance of $276,619 in 1994 and $1,305,922 in
1995 and accounts payable of $150,000 in 1994 and $25,000 in 1995. Furthermore,
F-39
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the following revenue amounts were earned from affiliates: Outside services
revenue--$59,838 in 1994 and $11,186 in 1995, charter revenue--$200,339 in 1994
and $186,318 in 1995, and other services revenue--$55,581 in 1995.
The Company has an uncollateralized note receivable from a related company,
due in monthly installments of $3,656 including interest at 9.0%, due in May
1998.
The Company is a guarantor for notes payable and lease obligations of
affiliated bus companies. These agreements have balances totaling approximately
$11,972,000 at December 31, 1995, and are due in monthly installments totaling
approximately $185,000 with interest rates ranging from 7.92% to 13.25%.
The Company has entered into certain global agreements with lessors. The
agreements with lessors contain requirements concerning financial reporting,
minimum cash flow ratios, capital expenditure limits, limits on indebtedness,
various administrative requirements and certain other restrictive covenants.
3. FEDERAL INCOME TAXES
The provision for federal income taxes are as follows (in thousands):
1994 1995
--------- ---------
Current................................. $ 66 $ 624
Deferred................................ 357 106
--------- ---------
Total.............................. $ 423 $ 730
========= =========
Deferred income taxes and benefits under SFAS No. 109 are provided for
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Temporary differences and the
resulting deferred tax assets and liabilities at December 31 follow:
1994 1995
--------- ---------
Depreciable assets...................... $ (537) $ (651)
Settlement costs........................ -- 8
--------- ---------
Total net deferred tax liability... $ (537) $ (643)
========= =========
The reconciliation of income tax attributable to continuing operations
computed at federal statutory tax rates to income tax expense is:
1994 1995
--------- ---------
Tax at statutory rates.................. $ 623 $ 766
Net effect of certain leasing
transactions.......................... (105) --
Net effect of alternative minimum tax
carryforward.......................... (95) (39)
Non-deductible items.................... -- 3
--------- ---------
Total.............................. $ 423 $ 730
========= =========
4. SUMMARY OF NON-CASH TRANSACTIONS
Interim financing totaling $5,194,753 was incurred during 1994 to purchase
buses. Notes payable of $1,199,955 were incurred to purchase buses during 1995.
Capital lease obligations of $23,026,209 in 1994 and $3,338,030 in 1995 were
incurred to purchase buses under various capital leases.
F-40
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest was $1,587,981 and $2,238,751 for the years ended
December 31, 1994 and 1995, respectively.
Cash paid for income taxes was $89,500 and $350,000 for the years ended
December 31, 1994 and 1995, respectively.
6. CONCENTRATIONS OF RISKS
The Company is subject to the risks associated with the bus business
including realizability of costs, although management is not aware of any
immediate risk of loss from its significant concentration of business that
would, if suddenly eliminated, severely impact operations. The Company's primary
operations are in Las Vegas, Nevada and about 45% in 1994 and 50% of its
revenues in 1995 were derived from providing employee shuttle operations under a
contract with Reynolds Electrical & Engineering Co., Inc. The contract expires
in June 1997.
7. ADVERTISING EXPENSES
The Company charges to expense all advertising expenses as incurred. The
Company's advertising expenses were approximately $53,813 for the year ended
December 31, 1995.
8. SETTLEMENT
At March 7, 1995, the Company, certain related companies, and certain
directors (the "Company et al") were named as defendants in a lawsuit asserted
by a shareholder. On December 31, 1995, the Company et al entered into a
Purchase and Settlement Agreement (the "Agreement") whereby such shareholder
agreed to sell her share of two related companies in exchange for the following
settlement consideration on the closing date (January 3, 1996): first, the
related companies' cash payment of $1,000,000 to such shareholder; second, the
Company's delivery to the shareholder of a promissory note in the face amount of
$500,000 (see Note 2); and third, the Company's and a related company's
agreement to pay the shareholder contingency payments of certain percentages of
revenues over certain amounts, with no maximum limit, or the minimum of $300,000
if revenue levels are not achieved.
As a result of this Agreement, the Company has recorded a liability payable
to such shareholder and a receivable from the related companies in the amount of
$500,000 (see Note 2). The Company and the related company have estimated their
minimum portions of the contingent liability based on estimated revenues and,
therefore, the Company has recorded as its share of such liability and the
related charge to earnings for the contingency payments the amount of $25,000.
9. COMMITMENTS AND CONTINGENCIES
The Company has commitments and contingencies including the future payments
described in Note 8. and in the normal course of business which are not
considered by management to be likely to result in any material adverse effect
on the December 31, 1995 financial position.
Also, the Company's federal income tax return (Form 1120) for the year
ended December 31, 1994 is under examination by the Internal Revenue Service.
While the examination is in a preliminary stage, management believes that the
final outcome will not have a material adverse effect on the Company's financial
statements.
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
California Charter, Inc.
We have audited the accompanying balance sheets of California Charter, Inc.
as of December 31, 1994 and December 31, 1995 and the related statements of
income, changes in stockholders' equity and of cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and
December 31, 1995 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
BURNSIDE & RISHEBARGER PLLC
March 8, 1996
F-42
<PAGE>
CALIFORNIA CHARTER, INC.
BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31
---------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 24 $ 565 $ 538
Accounts receivable............. 1,322 1,402 1,586
Materials and supplies
inventory.................... 37 37 37
Prepaid expenses................ 297 145 301
---------- ---------- -----------
Total current assets...... 1,680 2,149 2,462
PROPERTY, net........................ 8,436 17,630 21,043
OTHER ASSETS......................... 60 35 25
---------- ---------- -----------
Total assets.............. $ 10,176 $ 19,814 $23,530
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 701 $ 3,178 $ 3,333
Accounts payable................ 496 254 2,547
Accrued liabilities............. 322 258 447
Advances from related party..... 276 1,773 1,438
---------- ---------- -----------
Total current
liabilities............. 1,795 5,463 7,765
---------- ---------- -----------
LONG-TERM OBLIGATIONS, net of current
maturities......................... 7,520 13,183 14,260
---------- ---------- -----------
Total liabilities......... 9,315 18,646 22,025
---------- ---------- -----------
STOCKHOLDERS' EQUITY:
Common stock.................... 1 1 1
Retained earnings............... 860 1,167 1,504
---------- ---------- -----------
Total stockholders'
equity.................. 861 1,168 1,505
---------- ---------- -----------
Total liabilities and
stockholders' equity.... $ 10,176 $ 19,814 $23,530
========== ========== ===========
See notes to financial statements.
F-43
<PAGE>
CALIFORNIA CHARTER, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31 JUNE 30
--------------------- --------------------
1994 1995 1995 1996
--------- ---------- --------- ---------
(UNAUDITED)
REVENUES........................... $ 7,701 $ 10,537 $ 4,845 $ 5,225
OPERATING EXPENSES................. 6,111 6,925 3,315 3,024
--------- ---------- --------- ---------
Gross profit.................. 1,590 3,612 1,530 2,201
GENERAL AND ADMINISTRATIVE
EXPENSES......................... 709 1,419 647 1,090
--------- ---------- --------- ---------
Operating income.............. 881 2,193 883 1,111
OTHER (INCOME) EXPENSE:
Interest expense.............. 634 995 496 780
Interest income............... -- (9) -- (6)
--------- ---------- --------- ---------
INCOME BEFORE INCOME TAXES......... 247 1,207 387 337
PROVISION FOR INCOME TAXES......... -- -- -- --
--------- ---------- --------- ---------
NET INCOME BEFORE EXTRAORDINARY
ITEM............................. 247 1,207 387 337
--------- ---------- --------- ---------
EXTRAORDINARY ITEM................. -- 900 -- --
--------- ---------- --------- ---------
NET INCOME......................... $ 247 $ 307 $ 387 $ 337
========= ========== ========= =========
See notes to financial statements.
F-44
<PAGE>
CALIFORNIA CHARTER, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ --------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993......... 100 $ 1 $ 613 $ 614
Net income...................... -- -- 247 247
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1994......... 100 1 860 861
Net income...................... -- -- 307 307
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1995......... 100 1 1,167 1,168
Net income...................... -- -- 337 337
------ ------ --------- -------------
BALANCE AT JUNE 30, 1996
(unaudited)........................ 100 $ 1 $ 1,504 $ 1,505
====== ====== ========= =============
</TABLE>
See notes to financial statements.
F-45
<PAGE>
CALIFORNIA CHARTER, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
-------------------- ----------------------
1994 1995 1995 1996
--------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 247 $ 307 $ 387 $ 337
Adjustments to reconcile net
income to net cash provided
by operating activities --
Depreciation and
amortization............ 679 575 513 523
Changes in assets and
liabilities --
Accounts
receivable........ (315) (80) 104 (184)
Prepaid expenses..... (50) 152 (16) (156)
Accounts payable and
accrued
liabilities....... 414 (306) 173 2,482
Advances from (to)
related party..... (275) 1,124 (177) (335)
Other................ 124 25 38 10
--------- --------- ---------- ----------
Net cash
provided by
operating
activities... 824 1,797 1,022 2,677
--------- --------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset purchases........... (116) (317) (324) (3,936)
Proceeds from sale of assets.... 514 -- -- --
--------- --------- ---------- ----------
Net cash
provided by
(used in)
investing
activities... 398 (317) (324) (3,936)
--------- --------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (1,198) (939) (378) (845)
Proceeds from issuance of
long-term obligations........ -- -- -- 2,077
--------- --------- ---------- ----------
Net cash
provided by
(used in)
financing
activities... (1,198) (939) (378) 1,232
--------- --------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... 24 541 320 (27)
CASH AT BEGINNING OF PERIOD.......... -- 24 24 565
--------- --------- ---------- ----------
CASH AT END OF PERIOD................ $ 24 $ 565 $ 344 $ 538
========= ========= ========== ==========
</TABLE>
See notes to financial statements.
F-46
<PAGE>
CALIFORNIA CHARTER, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION -- California Charter, Inc.
(the Company) was incorporated in the state of Texas in January 1991, and is
owned 50% by the sole shareholder of Kerrville Bus Company, Inc. and 50% by the
sole shareholder of Texas Bus Lines, Inc. (formerly more than one shareholder,
see Note 7). During March 1991, the Company purchased substantially all of the
assets of California Charter, Inc., a California Corporation, for $2,525,000.
The acquisition was accounted for using the purchase method of accounting. The
purchase price was allocated to the various assets based on their fair market
values in accordance with the purchase contract. The Company generates its
revenues primarily in California by providing charter services (see Note 5).
ACCOUNTS RECEIVABLE -- Accounts receivable that management of the Company
considers uncollectible are written off as bad debt expense in accordance with
the direct write-off method. Management believes that there are no material
uncollectible accounts at December 31, 1995.
PROPERTY, DEPRECIATION, AND AMORTIZATION --
The Company uses the straight-line method over the following estimated
useful lives, in the respective years, in computing depreciation and
amortization:
ESTIMATED
SERVICE LIVES
-------------
Buses................................ 10 years
Service Cars......................... 5 years
Shop and garage equipment............ 5 years
Furniture and office equipment....... 5 years
Effective January 1, 1995, the Company reduced the estimated useful lives
of certain buses from twelve to ten years and increased the salvage value from
0% to 50% of cost. These revisions were made to more properly reflect true
economic lives of the assets and to better align the Company's depreciated value
with the estimated market value. The effect of this change was to reduce 1995
depreciation expense and increase net income by approximately $447,699.
Expenditures for maintenance and repairs are charged to operating expenses
as incurred; expenditures for renewals and replacements are capitalized. When
property is sold or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss on disposition
is included in income.
ORGANIZATIONAL EXPENSES -- Organizational expenses are being amortized over
a five year period.
MATERIALS AND SUPPLIES INVENTORY -- Materials and supplies inventory
consists primarily of bus parts and is carried at the lower of average cost or
market. Cost is determined using first-in, first-out method.
FEDERAL INCOME TAXES -- For Federal income tax purposes, the Company has
elected to be treated as an S corporation, which is not subject to Federal
income taxes at the corporate level. Accordingly, no provision for Federal
income taxes has been recorded in the accompanying financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company has, where appropriate,
estimated the fair value of financial instruments. These fair value amounts may
be significantly affected by the assumptions used, including the discount rate
and estimates of cash flow. Accordingly, the
F-47
<PAGE>
CALIFORNIA CHARTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
estimates presented are not necessarily indicative of the amounts that could be
realized in a current market exchange. Where these estimates approximate
carrying value, no separate disclosure of fair value is shown.
ESTIMATES AND ASSUMPTIONS -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. LONG-TERM DEBT OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
PORTION PORTION PORTION PORTION
------- --------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Notes payable to Textron Financial
Corporation, due in monthly
installments of $22,871 including
interest ranging from 9.95% to
10.5%, collateralized by certain
buses, guaranteed by Kerrville Bus
Company, Inc., K-T Contract
Services, Inc. and Texas Bus Lines,
Inc................................ $ 136 $ 1,279 $ 150 $ 1,128
Notes payable to MCI Acceptance
Corporation, due in monthly
installments of $26,014 including
interest at prime plus 2%,
collateralized by the purchases,
guaranteed by K-T Contract Services,
Inc., Texas Bus Lines, Inc.,
Kerrville Bus Lines, Inc. and
individually by the shareholders
of California Charter, Inc......... 171 2,259 122 1,284
Note payable to G E Capital Fleet
Services, due in monthly
installments of $6,778 including
interest at 9.5%, collateralized by
Kerrville Bus Company, Inc., K-T
Contract Services, Inc. and Texas
Bus Lines, Inc..................... -- -- 44 368
Note payable to the CIT Group, due in
monthly installments of $20,364
including interest at 11%,
collateralized by certain buses,
guaranteed by Kerrville Bus Company,
Inc., K-T Contract Services, Inc.,
and Texas Bus Lines, Inc........... -- -- 152 2,124
------- --------- ------- ---------
Total notes payable....... $ 307 $ 3,538 $ 468 $ 4,904
======= ========= ======= =========
</TABLE>
F-48
<PAGE>
CALIFORNIA CHARTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled principal payments on the notes are as follows (in thousands):
1996................................. $ 468
1997................................. 504
1998................................. 856
1999................................. 477
2000................................. 659
Thereafter........................... 2,408
---------
Total................................ $ 5,372
=========
CAPITALIZED LEASES -- The Company leases certain buses under terms which
essentially constitute a purchase of the buses. The lease terms call for monthly
payments on each bus. The present values of the required rentals and residual
value guarantees have been capitalized and the obligations recorded using the
interest rate implicit in the lease. The assets are amortized over their
estimated useful lives (see note 1). Interest on the outstanding lease
obligation is charged to expense during each period.
Following is a schedule of future minimum lease payments (including
guaranteed residual value payments) and capitalized lease obligations under
capitalized leases as of December 31, 1995 (in thousands):
YEAR ENDED DECEMBER 31, AMOUNT
----------
1996................................. $ 1,748
1997................................. 1,463
1998................................. 1,463
1999................................. 1,460
2000................................. 1,336
Thereafter........................... 3,956
----------
11,426
Less amounts representing interest at
7.92% to 10.80%.................... 437
----------
Total obligations under capital
leases............................. 10,989
Less current portion................. (2,710)
----------
Long-term obligations under capital
leases............................. $ 8,279
==========
Assets capitalized under lease agreements had net book values of $3,863,425
at December 31, 1994 and $11,713,873 at December 31, 1995.
Based on the borrowing rates currently available to the Company for
long-term obligations with similar terms and average maturities, the fair value
of the Company's long-term obligations including current maturities, was
$16,882,446 at December 31, 1995.
OPERATING LEASES
The Company leases certain buses from Kerrville Bus Company, Inc. (a
related party) under operating leases. The terms of the leases call for monthly
payments for seven years with no purchase option nor guarantee of residual value
at the end of the lease terms.
F-49
<PAGE>
CALIFORNIA CHARTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Following is a schedule of future minimum rental payments required under
operating leases that have initial noncancelable lease terms in excess of one
year (in thousands):
YEAR ENDED DECEMBER 31 AMOUNT
- ------------------------------------- ---------
1996................................. $ 180
1997................................. 180
1998................................. 60
---------
Total........................... $ 420
=========
Operating expenses include $587,124 in 1994 and $215,000 in 1995, of lease
expense related to buses under operating leases and $154,532 in 1994 and
$145,356 in 1995, of lease expense related to facilities.
The Company incurred charter expenses of $200,339 in 1994 and $248,872 in
1995, with related parties. The Company has a net accounts receivable trade
balance with affiliates of $46,993 in 1994 and $33,995 in 1995.
The shareholders performed certain management duties for the Company. To
compensate for such services the Company paid $300,000 in management fees for
the year ended December 31, 1994 and $850,000 for the year ended December 31,
1995.
The Company had accounts payable, primarily trade and settlement payment,
due to K-T Contract Services (a related party) in the amount of $276,460 at
December 31, 1994 and $1,247,027 at December 31, 1995. The Company also had
accounts receivable, primarily trade, due from Texas Bus Lines (a related party)
in the amount of $46,993 at December 31, 1994.
The Company is guarantor for certain notes payable and lease obligations of
affiliated bus companies. These agreements have balances totaling approximately
$24,909,000 at December 31, 1995 and are due in monthly installments totaling
approximately $420,000, with interest rates ranging from prime plus 2% to
13.25%. Certain of the Company's notes payable and lease obligations have been
guaranteed by affiliated bus companies.
The Company has entered into certain global agreements with lessors. The
agreements with lessors contain requirements concerning financial reporting,
minimum cash flow ratios, capital expenditure limits, limits on indebtedness,
various administrative requirements and certain other restrictive covenants. At
December 31, 1995, the Company was not in compliance with certain restrictive
covenants. The Company expects the provisions governing such noncompliance to be
waived by the lessors.
3. SUMMARY OF NON-CASH TRANSACTIONS
Notes payable of $1,675,871 in 1994 and $1,478,331 in 1995 were incurred to
purchase buses. Capital lease obligations of $1,279,655 in 1994 and $8,624,944
in 1995, were incurred to purchase buses under various capital leases.
4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years ended December 31 for interest was $624,342 in
1994 and $936,655 in 1995.
5. CONCENTRATIONS OF RISKS
The Company is subject to the risks associated with the bus business
including realizability of costs, although management is not aware of any
immediate risk of loss from its significant
F-50
<PAGE>
CALIFORNIA CHARTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
concentration of business that would, if suddenly eliminated, severely impact
operations. The Company's primary operations are located in Orange County,
California. The Company is engaged primarily in providing charter bus services
in California. Approximately 37% in 1994 and 20% in 1995 of the Company's
revenues were derived from providing airport shuttle operations between Los
Angeles International Airport and Van Nuys Airport. The contract expires in
October 1996. The Company had an uncollected receivable due on the above
contract of approximately $650,000 at December 31, 1994 and $332,756 at December
31, 1995.
6. ADVERTISING EXPENSES
The Company charges to expense all advertising expenses as incurred. The
Company's advertising expenses were approximately $25,765 in 1995.
7. SETTLEMENT
At March 7, 1995, the Company, certain related companies, and certain
directors (the "Company et al") were named as defendants in a lawsuit asserted
by a shareholder. On December 31, 1995, the Company et al entered into a
Purchase and Settlement Agreement (the "Agreement") whereby such shareholder
agreed to sell her shares of the Company and a related company in exchange for
the following settlement consideration on the closing date (January 3, 1996):
first, the Company's and a related company's cash payment of $1,000,000 to such
shareholder; second, a related company's delivery to such shareholder of a
promissory note in the face amount of $500,000; and third, the Company's and a
related company's agreement to pay such shareholder contingency payments of
certain percentages of revenues over certain amounts, with no maximum limit, or
the minimum of $300,000 if revenue levels are not achieved.
As a result of this Agreement, the Company has recorded a payable to a
related party in the amount of $500,000 for its share (50%) of the cash payment,
which resulted in a $500,000 charge to earnings. The Company recorded a related
party payable and a charge to earnings in the amount of $125,000 for its share
of the promissory note. The Company and the related company have estimated their
minimum portions of the contingent liability based on estimated revenues and,
therefore, the Company has recorded as its share of such liability and the
related charge to earnings for the contingency payments the amount of $275,000.
8. CONTINGENCIES
The Company has commitments and contingencies including the future payments
described in Note 7 and in the normal course of business which are not
considered by management to be likely to result in any material adverse effect
on the December 31, 1995 financial position.
Also, the Company's federal income tax return (Form 1120S) for the year
ended December 31, 1992 is under examination by the Internal Revenue Service.
While the examination is in a preliminary stage, management believes that the
final outcome will not have a material adverse effect on the Company's financial
statements.
F-51
<PAGE>
INDEPENDENT AUDITORS' OPINION
Texas Bus Lines, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Texas Bus
Lines, Inc. and Subsidiary (the "Company") as of December 31, 1995 and related
consolidated statement of income, changes in stockholder's equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the consolidated financial statements provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
presents fairly, in all material respects, the financial position of the Company
as of December 31, 1995, in conformity with generally accepted accounting
principles.
BURNSIDE & RISHEBARGER PLLC
March 22, 1996 (except for pages F-157, F-158, F-159 and footnotes 1, 4, 11 and
12 which are as of August 9, 1996)
F-52
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31 JUNE 30
1995 1996
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 413 $ 387
Accounts receivable, net of
allowance for doubtful
accounts of $23............... 485 341
Receivable from related
parties....................... 160 --
Prepaid expenses................ 81 307
Materials and supplies.......... 112 112
Federal income tax
recoverable................... 20 --
------------ -----------
Total current assets...... 1,271 1,147
PROPERTY, net........................ 6,985 9,051
INVESTMENT IN UNCONSOLIDATED
ENTITY............................. 2,023 3,514
OTHER ASSETS......................... 143 50
------------ -----------
Total assets.............. $ 10,422 $13,762
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- Trade....... 300 301
Notes payable -- Stockholder.... 50 --
Current portion of long-term
obligations................... 1,232 924
Amounts due to related party.... -- 684
Accrued liabilities............. 258 1,003
------------ -----------
Total current
liabilities............. 1,840 2,912
------------ -----------
LONG-TERM OBLIGATIONS................ 4,958 6,653
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock.................... 50 50
Additional paid-in capital...... 1,669 1,669
Retained earnings............... 2,141 2,714
Less treasury stock, at cost.... (236) (236)
------------ -----------
Total stockholders'
equity.................. 3,624 4,197
------------ -----------
Total liabilities and
stockholders' equity.... $ 10,422 $13,762
============ ===========
See notes to consolidated financial statements.
F-53
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
SIX MONTHS ENDED
YEAR ENDED JUNE 30
DECEMBER 31 --------------------
1995 1995 1996
----------- --------- ---------
(UNAUDITED)
REVENUES............................. $ 8,589 $ 4,168 $ 5,150
OPERATING EXPENSES................... 5,161 2,612 3,038
----------- --------- ---------
Gross profit.................... 3,428 1,556 2,112
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,985 992 1,193
----------- --------- ---------
Operating income................ 1,443 564 919
OTHER (INCOME) EXPENSE:
Interest expense................ 522 260 300
Earnings from investment in
unconsolidated entity........ (762) (258) (315)
----------- --------- ---------
INCOME BEFORE FEDERAL INCOME TAXES
AND EXTRAORDINARY ITEM............. 1,683 562 934
PROVISION FOR FEDERAL INCOME TAXES... 281 95 361
----------- --------- ---------
NET INCOME BEFORE EXTRAORDINARY
ITEM............................... $ 1,402 $ 467 $ 573
EXTRAORDINARY ITEM NET OF TAX........ 421 -- --
----------- --------- ---------
NET INCOME........................... $ 981 $ 467 $ 573
=========== ========= =========
See notes to consolidated financial statements.
F-54
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL LESS
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1995 --
As previously reported................ $ 50 $1,219 $ 1,218 $ -- $ 2,487
Prior period adjustment (net of $29,600
tax).................................. -- -- (57) -- (57)
------- ---------- --------- --------- ---------
BALANCE JANUARY 1, 1995 --
As restated........................... 50 1,219 1,161 -- 2,430
Net income.............................. -- -- 981 -- 981
Conversion of former stockholder's
payable............................... -- 449 -- -- 449
Treasury stock purchased -- 2,500
shares................................ -- -- -- 236 236
------- ---------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995............ 50 1,668 2,142 236 3,624
------- ---------- --------- --------- ---------
Net income.............................. -- -- 573 -- 573
------- ---------- --------- --------- ---------
Balance at June 30, 1996 (unaudited).... $ 50 $1,668 $ 2,715 $ 236 $ 4,197
======= ========== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-55
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
YEAR ENDED JUNE 30
DECEMBER 31 ----------------------
1995 1995 1996
------------ ---------- ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 981 $ 467 $ 573
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation.................... 916 357 473
Earnings from investment in
unconsolidated entity........ (762) (258) (315)
Deferred federal income tax..... 20 -- --
Changes in assets and
liabilities --
Accounts receivable........ (324) (20) 144
Prepaid expenses........... 50 (125) (226)
Accounts payable and
accrued liabilities..... 82 640 746
Other...................... 240 -- (661)
------------ ---------- ----------
Net cash provided by
operating
activities........ 1,203 1,061 734
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset purchases.............. (765) -- (2,500)
Proceeds from the sale of buses.... 364 -- 353
------------ ---------- ----------
Net cash used in
investing
activities........ (401) -- (2,147)
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations..................... (1,405) (805) (379)
Proceeds from issuance of debt..... 702 -- 1,766
Loan from stockholder.............. 50 -- --
------------ ---------- ----------
Net cash provided by
(used in)
financing
activities........ (653) (805) 1,387
------------ ---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... 149 256 (26)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 264 264 413
------------ ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 413 $ 520 $ 387
============ ========== ==========
See notes to consolidated financial statements.
F-56
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION
Texas Bus Lines, Inc. and Subsidiary (the "Company") generates its
revenues primarily in the Houston, Texas area by providing shuttle (see Note 7)
and charter services.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Texas Bus Lines, Inc. and its 100% owned subsidiary, Nevada Corporation, Inc.
(the "Company"). Intercompany accounts and transactions have been eliminated
in consolidation.
WORKING CAPITAL
The Company had a working capital deficit as of December 31, 1995. The
Company may continue to experience working capital deficits as they pursue their
current expansion of operations. The Company currently funds its activities with
cash flows from operations and debt from lenders. While there can be no
assurances, management believes that the Company has adequate financing
alternatives to fund operations through 1996.
UNCONSOLIDATED SUBSIDIARY
Generally accepted accounting principles require consolidation of a
subsidiary if it is controlled by its parent company. Since neither of the 50%
owners of K-T Contract Services, Inc. are deemed by management of either company
to control that subsidiary, it is accounted for on the equity method of
accounting. The equity method followed allows the parent company to record its
investment at cost adjusted for its share of profits and dividends. All
intercompany transactions are eliminated.
ACCOUNTS RECEIVABLE, BAD DEBTS, AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company has made a provision for bad debts based on management's
determination of uncollectible receivables including evaluation of factors such
as collateral, customers' credit worthiness, and anticipated economic
conditions.
PROPERTY, DEPRECIATION, AND AMORTIZATION
The Company uses the straight-line method and the following estimated
service lives in computing depreciation and amortization:
ESTIMATED
SERVICE LINES
-------------
Buses capitalized under lease
agreements......................... 10 years
Buses................................ 10 years
Furniture and fixtures............... 5 years
Leasehold improvements............... 30 years
Other equipment...................... 3 to 8 years
Effective January 1, 1995 the Company reduced the estimated useful lives of
buses from twelve to ten years and increased the salvage value from 0% to 50% of
cost. These revisions were made to more properly reflect true economic lives of
the assets and to better align the Company's depreciated value with the
estimated market value. The effect of this change was to reduce 1995
depreciation expense and increase net income by approximately $89,485.
F-57
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures for maintenance and repairs are charged to operating expenses
as incurred; expenditures for renewals and replacements are capitalized. When
property is sold or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss on disposition
is included in income.
REVENUE RECOGNITION
Revenues are recognized from recreation, excursion, commuter and transit
services when such services are rendered. Costs associated with the revenues are
incurred and recorded as services are rendered.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS No. 109). Pursuant to SFAS No. 109, deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
INTANGIBLE ASSETS
Costs of obtaining certain intrastate operating certificates have been
capitalized, and are amortized using the straight-line method over a 25 year
period.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly
liquid investments with a remaining maturity of three months or less at the date
of acquisition to be cash equivalents.
MATERIALS AND SUPPLIES
Inventory consists primarily of diesel fuel and bus parts and is carried at
the lower of first-in, first-out cost or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management of the Company has, where appropriate, estimated the fair value
of financial instruments. These fair value amounts may be significantly affected
by the assumption used, including the discount rate and estimates of cash flow.
Accordingly, the estimates presented are not necessarily indicative of the
amounts that could be realized in current market exchange. Where Management's
estimates approximate carrying value, no separate disclosure of fair value is
shown.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that 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 expense during the reporting
period. Actual results could differ from those estimates.
F-58
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENT IN UNCONSOLIDATED ENTITY
Investment in unconsolidated entity consists of the Company's cost and
equity of K-T Contract Services, Inc. which represents a 50% ownership at
December 31, 1995 is as follows (in thousands):
Balance, January 1, 1995............. $ 2,290
Equity in earnings................... 762
Intercompany eliminations............ (1,029)
----------
Balance, December 31, 1995........... $ 2,023
==========
Summary financial information of the unconsolidated entity is as follows
for the year ended December 31, 1995:
Assets:
Current Assets $ 5,958
Property -- Net...................... 21,688
Other assets......................... 209
----------
Total........................... $ 27,855
==========
Liabilities and Equity:
Current liabilities.................. $ 3,495
Non-current portion of long-term
obligations........................ 18,041
Deferred federal income taxes........ 643
Equity............................... 5,676
----------
Total........................... $ 27,855
==========
Revenues............................. $ 16,976
Expenses............................. 12,514
----------
Operating income..................... 4,462
Other expense........................ 2,182
----------
Income before federal income taxes
and extraordinary item............. 2,280
Provision for federal income taxes... 730
----------
Net income before extraordinary
item............................... 1,550
Extraordinary item................... 25
----------
Net income........................... $ 1,525
==========
F-59
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT
CURRENT LONG-TERM
PORTION PORTION
-------- ---------
(IN THOUSANDS)
Note payable to G E Capital Fleet
Services, due in monthly
installments of $13,095 including
interest at 9.0%, due June 2000,
collateralized by certain buses....... $ 94 $ 637
Note payable to Post Oak Bank, due in
monthly installments of $9,375 plus
interest at 10.0%, due June 1998,
collateralized by certain buses....... 113 149
Note payable to Post Oak Bank, due in
monthly installments of $4,980 plus
interest at 10.0%, due May 1998,
collateralized by certain buses....... 60 80
Note payable to G E Capital Fleet
Services, due in monthly installments
of $7,714 including interest at 9.5%,
due January 1997, collateralized by
certain buses......................... 87 --
Note payable to Post Oak Bank, due in
monthly installments of $1,612
including interest at 10.5%, due
January 2000, collateralized by
certain buses......................... 19 42
Note payable to G E Capital Fleet
Services, due in monthly installments
of $8,182 including interest at 8.75%,
due August 1997, collateralized by
certain buses......................... 34 21
Note payable to Post Oak Bank, due in
monthly installments of $5,417 plus
interest at prime, due August 1996,
collateralized by certain buses....... 49
Note payable to Post Oak Bank, due in
monthly installments of $977 plus
interest at 11.0%, due March 1999,
collateralized by certain buses....... 12 25
Note payable to Coastal Banc, due in
monthly installments of $3,018
including interest at 10.75%, due
January 1997, collateralized by
certain buses......................... 34 3
Note payable to G E Capital Fleet
Services, due in monthly installments
of $5,496 including interest at 9.0%
due December 1996, collateralized by
certain buses......................... 32 --
Note payable to G E Capital Fleet
Services, due in monthly installments
of $3,297 including interest at 9.0%,
due November 1996, collateralized by
certain buses......................... 31 --
Note payable to Post Oak Bank, due in
monthly installments of $2,083 plus
interest at 9.25%, due August 1997,
collateralized by certain buses....... 25 6
Note payable to G E Capital Fleet
Services, due in monthly installments
of $4,262 including interest at 8.75%,
due August 1996, collateralized by
certain buses......................... 29 --
Note payable to G E Capital Fleet
Services, due in monthly installments
of $3,297 including interest at 9.0%,
due August 1996, collateralized by
certain buses......................... 22 --
(TABLE CONTINUED ON FOLLOWING PAGE)
F-60
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CURRENT LONG-TERM
PORTION PORTION
-------- ---------
(IN THOUSANDS)
Note payable to G E Capital Fleet
Services, due in monthly installments
of $3,297 including interest at 9.0%,
due October 1996, collateralized by
certain buses......................... 18 --
Note payable to G E Capital Fleet
Services, due in monthly installments
of $1,607 including interest at 9.0%,
due December 1996, collateralized by a
certain bus........................... 17 --
Note payable to G E Capital Fleet
Services, due in monthly installments
of $1,099 including interest at 9.0%,
due November 1996, collateralized by a
certain bus........................... 10 --
Note payable to Coastal Banc, due in
monthly installments of $529 including
interest at 9.0%, due September 1996,
collateralized by an automobile....... 5 --
-------- ---------
Total.............................. $ 691 $ 963
======== =========
Scheduled principal payments on the notes are as follows (in thousands):
1996.................................... $ 691
1997.................................... 332
1998.................................... 196
1999.................................... 136
2000.................................... 299
---------
Total.............................. $ 1,654
=========
CAPITALIZED LEASES
The Company leases certain buses under three different lease agreements
under terms which essentially constitute a purchase of the buses. The lease
terms call for monthly payments on each bus. The present values of the required
rentals and residual value guarantees have been capitalized and the obligations
recorded using the interest rate implicit in the lease. The assets are amortized
over their estimated service lives of five to ten years and interest on the
outstanding lease obligation is charged to expense during each period.
F-61
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a schedule of future minimum lease payments (including
guaranteed residual value payments) and capitalized lease obligations under
capitalized leases as of December 31, 1995 (in thousands):
AMOUNT
------
Year Ended December 31,
1996................................. $ 874
1997................................. 814
1998................................. 687
1999................................. 687
2000................................. 687
Thereafter........................... 2,507
------
6,256
Less amounts representing interest at
8.00% to 12.00%.................... 1,720
------
Total obligations under capital
leases............................. 4,536
Less current portion................. 541
------
Long-term obligations under capital
leases............................. $3,995
======
At December 31, 1995 assets capitalized under lease agreements had a net
book value of $5,277,459.
Based on the borrowing rates currently available to the Company for
long-term obligations with similar terms and average maturities, the fair value
of the Company's long-term obligations, including current maturities, was
$6,195,643 at December 31, 1995.
Operating expenses for 1995 include $280,773 of interest expense and
$305,722 of depreciation expense related to capitalized leases for buses.
Operating expenses also include $234,830 of lease expense related to buses under
operating leases that were leased from related parties and expired during 1995.
The Company has an operating lease agreement with a related party for land.
The lease is renewable annually and the rental expense of $117,600 for 1995 is
included in operating expenses.
During the year, the Company incurred charter expenses of $23,323 to
related parties. As of December 31, 1995 the Company has a net accounts
receivable trade balance with affiliates of $159,713. The Company had accounts
payable, primarily trade and settlement payment, due to K-T Contract Services,
Inc. (a related party) in the amount of $907,238 at December 31, 1995 which was
eliminated (see Note 2). The Company also had lease revenues of $121,814 from
K-T Contract Services, Inc. (a related party) which were eliminated (see Note
2). Furthermore, the following revenue amounts were earned from affiliates
during 1995: Outside services revenue -- $130,748 and charter revenue --
$66,153.
The Company has entered into certain global agreements with lessors. The
agreements with lessors contain requirements concerning financial reporting,
minimum cash flow ratios, capital expenditure limits, limits on indebtedness,
various administrative requirements and certain other restrictive covenants.
The Company has an uncollateralized note payable to the stockholder,
bearing interest at 9%, due upon demand.
F-62
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a non-interest bearing, uncollateralized note receivable
from the stockholder, due upon demand.
4. FEDERAL INCOME TAXES
The provision for federal income taxes are as follows for 1995 (in
thousands):
Current.............................. $ 73
Deferred............................. 208
---------
Total................................ $ 281
=========
Deferred income taxes and benefits under SFAS No. 109 are provided between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Temporary differences and the resulting deferred tax
assets (liabilities) at December 31, 1995 follow (in thousands):
Depreciable assets................... $ (214)
Settlement costs (see Note 9)........ 217
General business credit
carryforward....................... 290
Valuation allowance.................. (293)
---------
Total net deferred asset
(liability)........................ $ --
=========
The reconciliation of income tax attributable to continuing operations
computed at federal statutory tax rates to income tax expense is (in thousands):
Tax at statutory rates............... $ 572
Net effect of earnings of
unconsolidated entity.............. (301)
Net effect of extraordinary item (See
note 9)............................ 217
Net effect of write-off of debt...... (79)
Net effect of general business
credit............................. (69)
Net effect of alternative minimum tax
carryforward....................... (44)
Net effect of net operating loss
carryforward....................... (18)
Non-deductible items................. 6
Other................................ (3)
---------
Total................................ $ 281
=========
5. SUMMARY OF NON-CASH TRANSACTIONS
Notes payable of $702,316 were incurred to purchase buses. Capital lease
obligations totaling $3,247,382 were incurred to purchase buses under various
capital leases.
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest was $443,106.
Cash paid during the year for income taxes was $114,799.
F-63
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CONCENTRATIONS OF RISK
The Company is subject to the risks associated with the bus business
including realizability of costs, although management is not aware of any
immediate risk of loss from its significant concentration of business that
would, if suddenly eliminated, severely impact operations. The Company's primary
operations are in Houston, Texas and about one-half of its revenues are derived
from providing airport shuttle operations for Houston's Hobby Airport. The
contract expires in 1999 and has two one year options for renewal.
The Company's unconsolidated subsidiary is subject to the risks associated
with the bus business including realizability of costs, although management is
not aware of any immediate risk of loss from its significant concentration of
business that would, if suddenly eliminated, severely impact operations. The
Company's primary operations are in Las Vegas, Nevada and about one-half of its
revenues are derived from providing employee shuttle operations under a contract
with Reynolds Electrical & Engineering Co., Inc. The contract expires in June
1997.
8. ADVERTISING EXPENSES
The Company charges to expense all advertising expenses as incurred. The
Company's advertising expenses were approximately $49,535 in 1995.
9. SETTLEMENT
At March 7, 1995, the Company, certain related companies (see Note 2), and
certain directors (the "Company et al") were named as defendants in a lawsuit
asserted by a shareholder. On December 31, 1995, the Company et al entered into
a Purchase and Settlement Agreement (the "Agreement") whereby such shareholder
agreed to sell her shares of the Company and a related company in exchange for
the following settlement consideration on the closing date (January 3, 1996):
first, the Company's and a related company's cash payment of $1,000,000 to such
shareholder; second, a related Company's delivery to such shareholder of a
promissory note in the face amount of $500,000; and third, two related companies
agreement to pay such shareholder contingency payments of certain percentages of
revenues over certain amounts, with no maximum limit, or the minimum of $300,000
if revenue levels are not achieved.
As a result of this Agreement, the Company has recorded a payable to a
related party in the amount of $500,000 for its share (50%) of the cash payment,
which resulted in a $263,638 charge to earnings and the acquisition of treasury
stock in the amount of $236,362. The Company recorded a related party payable
and a charge to earnings in the amount of $375,000 for its share of the
promissory note. The Company has also been relieved of any future payments on a
note payable that existed prior to these settlements due to such shareholder and
has credited additional paid in capital in the amount of $449,447.
10. CONTINGENCIES
The Company has commitments and contingencies including the items described
in Note 4 and the future payments described in Note 9 and in the normal course
of business which are not considered by management to be likely to result in a
material adverse effect on the December 31, 1995 financial position.
11. RESTATEMENT OF BEGINNING RETAINED EARNINGS
The Company has restated its beginning retained earnings to correct errors
in the prior financial statements.
F-64
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS
In July 1996, the Company's sole shareholder entered into a letter of
intent reaching an agreement in principle to sell all of the outstanding stock
of the Company. Another letter of intent was entered into by the Company to sell
the Company's 50% investment in K-T Contract Services, Inc. No definitive
agreements have been made.
Both letters of intent are contingent upon conditions including regulatory
filings and approvals and certain other matters, and could affect the
allocations discussed in Note 9.
F-65
