SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended SEPTEMBER 30, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _________ to ________
Commission File Number: 0-28056
------------------
COACH USA, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0496471
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE RIVERWAY, SUITE 600
HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 888-0104
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock of the Registrant, par value $.01
per share, outstanding at November 13, 1996 was 13,963,991.
<PAGE>
COACH USA, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item I - Financial Statements
COACH USA, INC. PRO FORMA COMBINED
Introduction to Pro Forma Combined Statements of Income ........ 3
Pro Forma Combined Statements of Income ........................ 4
Notes to Pro Forma Combined Statements of Income ............... 5
COACH USA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets .......................... 6
Condensed Consolidated Statements of Income .................... 7
Condensed Consolidated Statements of Stockholders' Equity ...... 8
Condensed Consolidated Statements of Cash Flows ................ 9
Notes to Condensed Consolidated Financial Statements ........... 10
Item II - Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 15
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K ............................. 19
(a)Exhibits
27 Financial Data Schedule.
(b)Reports on Form 8-K
Signature ................................................................. 20
2
<PAGE>
COACH USA, INC.
PART I, ITEM 1 -- FINANCIAL INFORMATION
GENERAL INFORMATION
PRO FORMA COMBINED FINANCIAL DATA
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 along
with Coach USA prior to the Initial Public Offering 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 accompanying pro forma combined statements of income of the Company for
the nine months ended September 30, 1995 and 1996, respectively, include the
combined operations of the Pooled Companies and the Founding Companies from
January 1, 1995, and the Purchased Companies from the date of their acquisition
on August 29, 1996.
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 the 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 as a result of the offering proceeds have been
reflected in the pro forma information for 1995, nor for the first five months
of 1996.
Operating results for the interim periods are not necessarily indicative of
the results for full years. The results of the Company have historically been
subject to significant seasonal fluctuations. It is suggested that these pro
forma combined financial statements be read in conjunction with the pro forma
combined financial statements of the Company and the Founding Companies and the
notes thereto included in the Company's Registration Statement on Form S-1 (Reg.
No. 333-13483) relating to the Secondary Stock Offering, which was filed with
the Securities and Exchange Commission ("SEC") on November 1, 1996.
3
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA )
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------- --------
1995 1996
-------- --------
REVENUES................................................ $121,385 $139,085
OPERATING EXPENSES...................................... 91,694 103,457
-------- --------
Gross profit.................................... 29,691 35,628
GENERAL AND ADMINISTRATIVE EXPENSES..................... 17,414 19,925
ACQUISITION RELATED COST................................ -- 340
-------- --------
Operating income................................ 12,277 15,363
INTEREST EXPENSE........................................ 4,861 5,981
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY GAIN....... 7,416 9,382
PROVISION FOR INCOME TAXES.............................. 1,502 4,348
-------- --------
INCOME BEFORE EXTRAORDINARY GAIN........................ 5,914 5,034
EXTRAORDINARY GAIN (NET OF TAX)......................... -- 4,205
-------- --------
NET INCOME.............................................. $ 5,914 $ 9,239
======== ========
PRO FORMA ADJUSTMENTS:
Income before extraordinary gain.................... $ 5,914 $ 5,034
Pro forma compensation and interest differential.... 4,793 5,337
Less: Pro forma provision for income taxes......... 3,737 1,941
-------- --------
PRO FORMA INCOME BEFORE EXTRAORDINARY GAIN.............. 6,970 8,430
EXTRAORDINARY GAIN...................................... -- 4,205
-------- --------
PRO FORMA NET INCOME.................................... $ 6,970 $ 12,635
======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING.................. 11,643 13,083
======== ========
PRO FORMA INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
BEFORE EXTRAORDINARY GAIN............................... $ .60 $ .64
EXTRAORDINARY GAIN...................................... -- .33
-------- --------
NET INCOME.............................................. $ .60 $ .97
======== ========
The accompanying notes are an integral part of these pro forma combined
statements of income.
4
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
The Founding Companies and Pooled Companies have been managed throughout
1995 and through the first five and eight months, respectively, of 1996 as
independent private companies. Therefore, general and administrative expenses
and interest expense for the periods presented reflect compensation and related
benefits that owners received from their respective businesses during these
periods. Additional pro forma adjustments have been presented for the purpose of
reflecting net income as if the merger of the Founding Companies and the
acquisition of the Pooled Companies had occurred January 1, 1995. Certain
stockholders agreed to reductions in salaries, benefits and the conversion of
outstanding debt to equity in connection with the Merger and August
Acquisitions. Certain stockholders also have entered into employment agreements
which provide for a set base salary, participation in future incentive bonus
plans, certain other benefits and two-year covenants not to compete following
termination of such person's employment.
The pro forma data presents compensation at the level that certain
stockholders of the Company agreed to receive from the Companies subsequent to
the Merger and acquisition of the Pooled Companies. In addition, the pro forma
data presents the reduction of interest expense related to the conversion of
stockholders' debt to equity at one of the Pooled Companies and the incremental
provision for income taxes as if all entities had been subject to federal and
state income taxes and for the impact of the compensation differential and
interest reduction discussed above.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The computation of net income per common and common equivalent share for
the nine months ended September 30, 1995 is based upon 11,642,847 shares
outstanding which includes (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 Initial Public Offering, (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 attributed to 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 computation of net income per share for the nine months ended
September 30, 1996 is based upon 13,083,381 weighted average shares outstanding,
respectively, which includes (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 attributed to excess S corporation
distributions, (v) the weighted average portion of the remaining 2,321,144 of
the 4,140,000 shares sold in the Initial Public Offering, (vi) 2,133,541 shares
issued in connection with the acquisition of the Pooled Companies, (vii) 425,039
shares issued in connection with the conversion of indebtedness to equity at one
of the Pooled Companies, and (viii) the dilution attributable to outstanding
options to purchase Common Stock, using the treasury stock method.
Fully diluted net income per common and common equivalent share is
approximately equal to primary earnings per share for all periods presented.
5
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.........................................$ 2,765 $ 3,395
Accounts receivable, less allowance of $775 and $1,401............ 5,137 18,271
Notes receivable, current portion................................. 2,606 3,629
Inventories....................................................... 3,132 7,202
Prepaid expenses and other current assets......................... 3,296 8,081
------- -------
Total current assets.......................................... 16,936 40,578
PROPERTY AND EQUIPMENT, net............................................. 31,652 166,503
NOTES RECEIVABLE, less allowance of $500................................ 1,978 3,022
GOODWILL................................................................ -- 28,663
OTHER ASSETS............................................................ 9,838 8,400
------- --------
Total assets..................................................$60,404 $247,166
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations.......................$ 5,848 $ 7,773
Accounts payable and accrued liabilities.......................... 13,791 42,164
Notes payable to stockholders..................................... 914 --
------- -----
Total current liabilities..................................... 20,553 49,937
LONG-TERM OBLIGATIONS, net of current maturities........................ 26,551 115,728
LONG-TERM CONVERTIBLE DEBT.............................................. 16,467 18,500
DEFERRED INCOME TAXES................................................... 1,453 9,718
------- -------
Total liabilities............................................. 65,024 193,883
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock $.01 par, 30,000,000 shares authorized,
2,133,541 and 13,963,991 shares issued......................... 21 140
Additional paid-in capital........................................ 3,832 51,085
Retained (deficit) earnings....................................... (8,473) 2,058
------- -------
Total stockholders' equity.................................... (4,620) 53,283
------- -------
Total liabilities and stockholders' equity....................$60,404 $247,166
======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA )
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1995 1996 1995 1996
---- ---- ---- ----
REVENUES........................... $12,362 $52,278 $34,708 $94,147
OPERATING EXPENSES................. 8,375 36,711 23,776 66,532
------- ------- ------- -------
Gross profit............... 3,987 15,567 10,932 27,615
GENERAL AND ADMINISTRATIVE EXPENSES 2,113 6,176 6,610 12,149
ACQUISITION RELATED COST........... -- 340 -- 340
------- ------- ------- -------
Operating income........... 1,874 9,051 4,322 15,126
INTEREST EXPENSE................... 1,043 2,114 2,666 4,761
------- ------- ------- -------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY GAIN.............. 831 6,937 1,656 10,365
PROVISION FOR INCOME TAXES......... 320 3,026 620 4,306
------- ------- ------- -------
INCOME BEFORE EXTRAORDINARY GAIN... 511 3,911 1,036 6,059
EXTRAORDINARY GAIN (NET OF TAX).... -- 4,205 -- 4,205
------- ------- ------- -------
NET INCOME......................... $ 511 $ 8,116 $ 1,036 $10,264
======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING.... 2,134 14,424 2,134 9,447
======= ======= ======= =======
INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
BEFORE EXTRAORDINARY GAIN.......... $ .24 $ .27 $ .49 $ .64
EXTRAORDINARY GAIN ................ -- .29 -- .45
------- ------- ----- -------
NET INCOME ........................ $ .24 $ .56 $ .49 $ 1.09
======= ======= ======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON STOCK PAID-IN (DEFICIT) STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 .................... 2,134 $ 21 $ 3,857 $ (10,007) $ (6,129)
Other ................................ -- (25) -- (25)
Net income ........................... -- -- 1,534 1,534
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995 .................... 2,134 21 3,832 (8,473) (4,620)
Issuance of Common Stock
Initial Public Offering ........ 4,140 41 48,021 -- 48,062
Merger with Predecessor ........ 2,166 22 2,055 (2,053) 24
Acquisition of Founding
Companies ................... 5,099 51 6,323 9,155 15,529
Cash Distribution to Founding
Company Shareholders .............. -- -- (23,810) -- (23,810)
Reorganization ....................... -- -- 4,402 (4,402) --
Deferred tax liability: S Corporation
to C Corporation .................. -- -- -- (2,700) (2,700)
Conversion of debt to equity ......... 425 5 10,197 -- 10,202
Adjustment to conform fiscal year
ends .............................. -- -- -- 267 267
Other ................................ -- -- 65 -- 65
Net income ........................... -- -- -- 10,264 10,264
-------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1996 ................... 13,964 $ 140 $ 51,085 $ 2,058 $ 53,283
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
8
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
--------------------
1995 1996
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................... $ 1,036 $ 10,264
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization .................. 2,933 6,279
(Gain) loss on sale of assets .................. (30) (40)
Extraordinary gain ............................. -- (4,205)
Deferred tax provision ......................... 549 371
Changes in operating assets and liabilities-
Accounts receivable, net .................... (1,288) (3,891)
Inventories ................................. (2,059) (2,793)
Notes receivable ............................ (249) (2,067)
Prepaid expenses and other current assets ... (62) 4,286
Accounts payable and accrued liabilities .... 1,273 (485)
Other ....................................... 442 (155)
-------- --------
Net cash provided by operating activities 2,545 7,564
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ................ (5,276) (16,716)
Proceeds from sales of property and equipment ...... 351 1,336
Cash consideration paid for Purchased Companies,
net of cash acquired ............................. -- (12,343)
Proceeds from the sale of investment-restricted .... -- 1,005
-------- --------
Net cash used in investing activities ... (4,925) (26,718)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations ........ (5,873) (79,301)
Proceeds from issuance of long-term obligations .... 9,024 73,135
Other .............................................. (25) --
Cash consideration paid for Founding Companies,
net of cash acquired ............................. -- (22,112)
Sale of common stock in Initial Public Offering .... -- 48,062
-------- --------
Net cash provided by financing activities 3,126 19,784
-------- --------
NET INCREASE (DECREASE) IN CASH ........................ 746 630
CASH AND CASH EQUIVALENTS, beginning of period ......... 1,257 2,765
-------- --------
CASH AND CASH EQUIVALENTS, end of period ............... $ 2,003 $ 3,395
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest .................. $ 1,998 $ 4,028
Cash paid for income taxes .............. 108 1,108
Assets acquired under capital leases .... 1,594 2,981
Debt issued for Purchased Companies ..... -- 22,500
The accompanying notes are an integral part of these condensed consolidated
financial statements.
9
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
In September 1995, the Company was founded to create a national company
providing motorcoach transportation services, including charter and tour
services, and related passenger ground transportation services.
In May 1996, Coach USA acquired, simultaneously with the closing of the
Initial Public Offering, six established businesses referred to herein as the
"Founding Companies." Consideration for these businesses consisted of a
combination of cash and common stock of Coach USA. Coach USA acquired six
additional businesses on August 29, 1996. 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. The remaining three businesses acquired were accounted for as
purchases.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Coach USA and the Founding Companies from June 1, 1996, the
effective date used to account for the merger of the Founding Companies, and
give retroactive effect to the acquisitions of the Pooled Companies. Coach USA,
the Pooled Companies, and the Founding Companies subsequent to May 31, 1996, and
the Purchased Companies subsequent to August 29, 1996 are collectively referred
to herein as the "Company."
Two of the Pooled Companies previously reported on an October fiscal
year-end. As such, the accounts of these companies for their 1995 fiscal year
have been consolidated with the accounts of the Company as of December 31, 1995.
Operating results of these two companies are presented for the nine months ended
September 30, 1995 and 1996, in order to conform the interim periods to a
calendar year presentation. Unaudited revenues and net income for these two
companies for the two-month period ended December 31, 1995, were approximately
$6,292,000 and $267,000, respectively.
INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited condensed consolidated financial statements have been
prepared pursuant to the rules of the SEC. Certain information and footnote
disclosures, normally included in annual financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information presented not
misleading. 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 interim
consolidated 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.
It is suggested that these condensed consolidated financial statements
be read in conjunction with the audited financial statements and notes thereto
of the combined Founding Companies included in Coach USA's prospectus dated May
14, 1996.
10
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
SEASONALITY
The timing of certain holidays, weather conditions and seasonal vacation
patterns may cause the Company's quarterly results of operations to fluctuate
significantly. The Company expects to realize higher revenues, operating income
and net income during the second and third quarters and lower revenues and net
income during the first and fourth quarters.
RECLASSIFICATIONS
Certain reclassifications have been made in prior periods to conform
with the current presentation. All significant intercompany transactions have
been eliminated in combination/consolidation.
3. INCOME TAXES
Certain of the Founding Companies were S Corporations for income tax
purposes and, accordingly, any income tax liabilities for the periods prior to
the Merger are the responsibility of the respective stockholders. Effective with
the Merger, the S Corporations converted to C Corporations. Accordingly, an
estimated deferred tax liability of $2.7 million has been recorded to provide
for the estimated future income tax liability as a result of the difference
between the book and tax bases of the net assets of these former S Corporations.
For purposes of these condensed consolidated financial statements, federal and
state income taxes have been provided for the post-acquisition periods.
4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The computation of net income per common and common equivalent share for
the three months and nine months ended September 30, 1995 is based upon
2,133,541 shares issued in connection with the acquisition of the Pooled
Companies.
The computation of net income per share for the three months and nine
months ended September 30, 1996 is based upon 14,424,000 and 9,446,813 weighted
average shares outstanding, respectively, which includes (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) the weighted average portion of the 4,140,000 shares sold in the
Initial Public Offering, (iv) 2,133,541 shares issued in connection with the
acquisition of the Pooled Companies, (v) the weighted average portion of the
425,039 shares issued in connection with the conversion of indebtedness to
equity at one of the Pooled Companies, and (vi) the dilution attributable to
outstanding options to purchase Common Stock, using the treasury stock method.
Fully diluted net income per common and common equivalent share is equal
to primary earnings per share for all periods presented.
5. LONG TERM OBLIGATIONS
In May 1996, the Company entered into a $30 million revolving credit
agreement with one bank. This credit facility was primarily utilized to
refinance most of the indebtedness of the Founding Companies not repaid from the
net proceeds of the Initial Public Offering.
11
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
In August 1996, the Company amended and restated the $30 million credit
agreement. The credit agreement, as amended, provides for a revolving credit
facility of $115 million through a syndicate of eight banks, and limits the
Company to other borrowings of $15 million (other than fully subordinated debt)
outside the credit facility. The facility is unsecured and matures in August
1999. Interest on outstanding borrowings is charged, at the Company's option, at
the banks' prime rate plus up to 1.0% or the London Interbank Offered Rate
("LIBOR") plus 1.0% to 2.25%, both as determined by the ratio of the Company's
funded debt to cash flow (as defined). Under the terms of the credit agreement,
the Company must maintain certain minimum financial ratios. The credit agreement
prohibits the payment of cash dividends. As of October 30, 1996, the Company had
a total of $121.1 million outstanding under the revolving and other outside
credit facilities and had utilized $3.9 million of the facility for letters of
credit securing certain insurance obligations and performance bonds, resulting
in a borrowing availability of $5.0 million under the revolving credit facility.
The Company is presently negotiating with its bank group to increase the credit
facility.
In connection with the August Acquisitions, Coach USA issued $22.5
million in convertible subordinated notes (convertible into 750,460 shares of
Common Stock) and converted shareholder debt of $17.2 million to equity of $10.2
million and an extraordinary gain of $4.2 million (net of taxes).
6. BUSINESS COMBINATIONS
POOLINGS
During the third quarter of 1996, the Company acquired all of the
outstanding stock of three companies in exchange for 2,133,541 shares of Common
Stock. Two of these companies provide motorcoach transportation services and one
provides taxicab related services. These acquisitions have been accounted for as
poolings-ofinterests and the results of operations of these three companies are
included for all periods presented herein.
PURCHASES
On August 29, 1996, the Company completed three acquisitions accounted
for as purchases. The aggregate consideration paid in these transactions
consisted of $14.5 million in cash and $22.5 million of notes convertible into
750,460 shares of Common Stock. The accompanying balance sheet as of September
30, 1996 includes preliminary allocations of the respective purchase prices and
are subject to final adjustment. The preliminary allocations reflected
liabilities in excess of assets of $27 million, which has been recorded as
Goodwill and is being amortized over 40 years. Set forth below are unaudited pro
forma combined revenue and income data reflecting the pro forma effect of these
acquisitions on the Company's results of operations for the nine months ended
September, 1995 and 1996. The unaudited data presented below consists of the
income statement data as presented in these condensed consolidated financial
statements plus (i) the income statement data of the Founding Companies for the
periods prior to June 1, 1996 and (ii) all Purchased Companies as if the
acquisitions were effective on the first day of the year being reported. The
revenue and net income data is in millions.
12
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1995 1996
------- -------
Revenues................................. $ 148.3 $ 165.1
Income before extraordinary gain......... 7.7 9.3
Income per share before extraordinary gain .65 .71
Pro forma adjustments included in the amounts above primarily related
to: (a) reductions in former owners and certain key employees salary and
benefits; (b) adjustment to depreciation and amortization expense due to the
purchase price allocations; (c) adjustment to the federal and state income tax
provisions based on the combined operations; (d) elimination of historical
interest expense related to certain obligations converted to equity; and (e)
recording interest expense on cash expended and the convertible subordinated
notes issued in the acquisitions of the Purchased Companies.
The pro forma combined results presented above are not necessarily
indicative of actual results which might have occurred had the operations and
management teams of the Company, the Founding Companies, the Pooled Companies
and the Purchased Companies been combined at the beginning of the periods
presented.
7. COMMITMENTS AND CONTINGENCIES
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.
REGULATORY MATTERS
The Surface Transportation Board ("STB") must approve or exempt any
consolidation or merger of two or more regulated interstate motorcoach operators
or the acquisition of one such operator by another. On November 7, 1996 the STB
granted the Company's petition for exemption in connection with the acquisitions
of the Pooled and Purchased Companies. There can be no assurance that the
Company will be able to obtain such approval or exemption with respect to future
acquisitions.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company has a commercial liability insurance policy that provides
coverage by the insurance company, subject to deductibles ranging from $5,000 to
$250,000. Effective May 17, 1996, for the Founding Companies and August 29,
1996, for the Pooled Companies, the Company began to consolidate its insurance
program under a consolidated program which provides for deductibles ranging from
$100,000 to $250,000. As such, any claim within the deductible per incident
would be the financial obligation of the Company.
13
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
The accrued insurance claims payable represent management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policies for claims. The accrual is based on known facts and
historical trends, and management believes such accrual to be adequate.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements will
expire at various times through 2000.
COMMITMENTS
The Company has entered into agreements with Exel Motorcoach Partnership
("Exel") whereby Exel will provide introductions to other motorcoach businesses
and other consulting services for a term of three years. The consideration to be
paid to Exel will be approximately $100,000 per year. In addition, Exel will be
paid a commission on any acquisition completed by the Company with motorcoach
businesses introduced to it by Exel, based on a formula ranging from 5% of the
first $1,000,000 of consideration paid for the acquired business to 1% of the
consideration in excess of $4,000,000 paid for such business. Mr. Paul Verrochi,
who became a director of the Company upon consummation of the Initial Public
Offering, is a principal of Exel. In connection with the acquisition of American
Bus Lines, Inc., the Company paid Exel a commission of $213,600 based on the
formula outlined above.
In October 1996, the Company filed a registration statement with the SEC
for the registration and sale of 2,000,000 shares of common stock by the Company
and 1,100,000 shares of common stock by certain shareholders (the "Secondary
Offering").
14
<PAGE>
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
This filing contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are based
on current plans and expectations of the Company and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the
forward-looking statements. Important factors that could cause actual results to
differ include, among others, risks associated with acquisitions, fluctuations
in operating results because of acquisitions and variations in stock prices,
changes in government regulations, competition, and risks of operations and
growth of the newly acquired businesses.
Coach USA was founded in September 1995 to create a nationwide provider
of motorcoach and other ground transportation services. On May 17, 1996, Coach
USA acquired, simultaneously with the closing of the Initial Public Offering,
the six Founding Companies. On August 29, 1996, the Company completed the August
Acquisitions. The acquisition of three of these businesses has been accounted
for under the pooling-of-interests method of accounting and the remaining three
have been accounted for under the purchase method of accounting. As a result,
the pro forma financial statements, including the pro forma results discussed
below, include the historical financial statements of each of the Founding
Companies and the Company (including the Pooled Companies) for all periods
presented at historical cost, as if these companies had always been members of
the same operating group and give effect to (i) 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"); (ii) certain tax adjustments
related to the taxation of certain Founding Companies and Pooled Companies as S
Corporations prior to the consummation of the Mergers and the August
Acquisitions; (iii) a reduction of interest expense related to the conversion of
debt to equity at one of the Pooled Companies; and (iv) the tax impact of the
Compensation Differential and interest reduction in each period. The Purchased
Companies have been included in the financial statements of the Company only
from the date of purchase (August 29, 1996).
The Company has begun to realize savings by consolidating certain
general administrative and purchasing functions and reducing insurance expenses.
In addition, the Company has begun to realize savings from: (i) the reduction in
interest expense related to the payment of a portion of the Founding Companies'
and August Acquisitions' debt; and (ii) its ability to borrow at lower interest
rates than the Founding Companies and the August Acquisitions. These savings are
being partially offset by the costs of being a public company and the
incremental increase in costs related to the Company's new corporate management.
Neither these savings nor the costs associated therewith have been included in
the pro forma financial information discussed below. As a result, historical pro
forma results may not be comparable to, or indicative of, future performance.
The Company's motorcoach revenues are derived from fares charged to
individual passengers and fees charged under contracts to provide motorcoach
services. Taxicab operation revenues are derived from fees and other services
charged to independent taxicab operators. Operating expenses consist primarily
of salaries and benefits for motorcoach drivers and mechanics, depreciation,
maintenance, fuel, oil, insurance and commissions to agents. General and
administrative expenses consist primarily of compensation and related benefits
to the owners and certain key employees of the Company, administrative salaries
and benefits, marketing, communications and professional fees.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS -- PRO FORMA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues......................................... $ 46,383 $ 52,278 $121,385 $139,085
Operating Expenses ............................... 33,554 36,711 91,694 103,457
-------- -------- -------- --------
Gross Profit ................................. 12,829 15,567 29,691 35,628
General and Administrative Expenses .............. 4,568 5,691 13,595 15,820
Interest and Other ............................... 1,378 1,897 3,887 5,089
-------- -------- -------- --------
Income Before Income Taxes and Extraordinary Gain 6,883 7,979 12,209 14,719
Provision for Income Taxes ....................... 2,873 3,341 5,239 6,289
-------- -------- -------- --------
Pro Forma Income Before Extraordinary Gain....... $ 4,010 $ 4,638 $ 6,970 $ 8,430
======== ======== ======== ========
</TABLE>
The pro forma combined results discussed below occurred when the
combined Founding Companies were under common control and management from June
1, 1996, and the Pooled and Purchased Companies were under common control from
September 1, 1996. All other periods reflected were not under common control or
management and may not be comparable to, or indicative of, future performance.
COMBINED RESULTS FOR THREE AND NINE MONTHS ENDED SEPTEMBER 1995 COMPARED TO 1996
Revenues increased by 12.7% and 14.6% to $52.3 million and $139.1
million, respectively, for the three and nine months ended September 30, 1996.
The increase in three and nine month revenues was largely due to the revenues of
the Purchased Companies of $3.8 million, and an increase in taxicab related
service revenues of $1.9 million in the three months and $6.2 million in the
nine months, primarily attributable to the acquisition of Yellow Cab Austin in
July, 1995. Special destination line runs to casinos have increased $6.1 million
in the nine months ended September 30, 1996 as compared to the same period in
1995.
Operating expenses increased 9.2% and 12.9% to $36.7 million and $103.5
million, respectively, for the three and nine months ended September 30, 1996.
The increase in nine month operating expenses was largely due to a combined
increase of $2.1 million at all of the locations attributable to higher fuel
costs and consumption. The remaining increase in costs was largely due to
increased operations at all locations.
General and Administrative expenses, after elimination of the
Compensation Differential, increased 26.7% and 16.2%, respectively, as compared
to the three months and nine months ended September 30, 1995. The increase in
general and administrative expenses in the three and nine month periods ended
September 30, 1996 was largely due to an increase of $0.5 million and $0.7
million, respectively, related to the establishment of the corporate management
group required to execute the Company's acquisition program and to manage the
consolidated group of companies and the overall increase in operations and $0.3
million of costs associated with the acquisition of the Pooled Companies.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Interest expense increased $0.5 million and $1.2 million as compared to
the three months and nine months ended September 30, 1995, respectively, due to
the higher level of debt related to additional equipment, partially offset by
the repayment of debt through the use of proceeds of the Offering and due to
lower rates from the Company's new credit facility.
Pro forma net income, which has been adjusted for the Compensation
Differential and the pro forma provision for taxes, increased during the three
months ended September 30, 1996 as compared to the three months ended September
30, 1995 primarily due to continued revenue growth and the effects of increased
purchasing power on lowering certain costs.
EFFECTS OF COMBINATION
Effective in the second quarter of 1996, the Company began incurring
expenses, including salaries for members of senior management and administrative
staff, travel and office expenses, related to the establishment of its corporate
and administrative infrastructure. Management believes that these additional
costs will be offset by operational efficiencies achieved through integration of
the operations of these companies specifically in insurance and financing and
benefits to be derived as a result of the Company's acquisition program.
LIQUIDITY AND CAPITAL RESOURCES -- PRO FORMA COMBINED
Net cash provided by operating activities was $7.6 million for the nine
months ended September 30, 1996. Capital expenditures during the period totaled
$16.8 million. The majority of the capital expenditures were for the purchase of
motorcoach equipment for fleet additions.
On May 17, 1996, the Company completed the Initial Public Offering of
4,140,000 shares of Common Stock, resulting in net proceeds of approximately
$48.1 million. The net proceeds were used to pay the cash portion of the
purchase price for the Founding Companies and to repay certain indebtedness
assumed by the Company in the Mergers.
In August 1996, the Company amended and restated its $30 million credit
agreement. The credit agreement, as amended, provides for a revolving credit
facility of $115 million through a syndicate of eight banks, and limits the
Company to other borrowings of $15 million (other than fully subordinated debt)
outside the credit facility. The facility is unsecured and matures in August
1999. Interest on outstanding borrowings is charged, at the Company's option, at
the banks' prime rate plus up to 1.0% or the London Interbank Offered Rate
("LIBOR") plus 1.0% to 2.25%, both as determined by the ratio of the Company's
funded debt to cash flow (as defined). Under the terms of the credit agreement,
the Company must maintain certain minimum financial ratios. The credit agreement
prohibits the payment of cash dividends. As of October 30, 1996, the Company had
a total of $121.1 million outstanding under the revolving and other outside
credit facilities and had utilized $3.9 million of the facility for letters of
credit securing certain insurance obligations and performance bonds, resulting
in a borrowing availability of $5.0 million under the revolving credit facility.
The Company is presently negotiating with its bank group to increase the credit
facility. In October 1996, the Company filed a registration statement with the
SEC for the registration and sale of 2,000,000 shares of Common Stock by the
Company and 1,100,000 shares of Common Stock by certain shareholders.
In exchange for all outstanding shares of stock of the Pooled Companies
together with certain real estate owned and conversion of certain debt by the
principals of such companies, the Company issued 2,558,580 shares of Common
Stock. In exchange for all outstanding shares of stock of the Purchased
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Companies, the Company paid $37 million, comprised of $22.5 million in 5%
convertible subordinated notes (convertible into 750,460 shares of Common Stock)
and $14.5 million in cash. Total debt assumed by the Company in connection with
the August Acquisitions was $83.3 million.
Management believes that the Company's revolving credit facility, its
cash flows from operations, the net proceeds from the sale of Common Stock
pursuant to the Secondary Offering and shares of Common Stock available under
its shelf registration statement will provide sufficient liquidity or
acquisition currency to execute the Company's acquisition and internal growth
plans for the next 12 months. Should the Company accelerate its acquisition
program, the Company may need to seek additional financing through the public or
private sale of equity or debt securities. There can be no assurance that the
Company could secure such financing if and when it is needed or on terms the
Company deems acceptable.
18
<PAGE>
COACH USA, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
A report on Form 8-K was filed with the SEC on September 13, 1996
in connection with the acquisition by the Company of six
businesses on August 29, 1996. A report on Form 8-K/A was also
filed with the SEC on November 12, 1996 in connection with these
acquisitions.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Coach USA, Inc., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COACH USA, INC.
Dated: November 13, 1996 By: /s/ LAWRENCE K. KING
Name: Lawrence K. King
Title: Senior Vice President and
Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FOUNDING COMPANIES COMBINED BALANCE SHEETS AND COMBINED
STATEMENTS OF INCOME, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,395,000
<SECURITIES> 0
<RECEIVABLES> 19,672,000
<ALLOWANCES> 1,401,000
<INVENTORY> 7,202,000
<CURRENT-ASSETS> 40,578,000
<PP&E> 231,993,000
<DEPRECIATION> 65,490,000
<TOTAL-ASSETS> 247,166,000
<CURRENT-LIABILITIES> 49,937,000
<BONDS> 0
0
0
<COMMON> 140,000
<OTHER-SE> 53,143,000
<TOTAL-LIABILITY-AND-EQUITY> 247,166,000
<SALES> 94,147,000
<TOTAL-REVENUES> 94,147,000
<CGS> 66,532,000
<TOTAL-COSTS> 79,021,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,761,000
<INCOME-PRETAX> 10,365,000
<INCOME-TAX> 4,306,000
<INCOME-CONTINUING> 6,059,000
<DISCONTINUED> 0
<EXTRAORDINARY> 4,205,000
<CHANGES> 0
<NET-INCOME> 10,264,000
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
