SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 [ ] No [X]
(Registrant has been subject to such filing requirements since May 10, 1996)
The number of shares of Common Stock of the Registrant, par value $.01 per
share, outstanding at June 21, 1996 was 11,405,411.
COACH USA, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
<TABLE>
<CAPTION>
<S> <C>
PAGE
----
PART I -- FINANCIAL INFORMATION
Item I -- Financial Statements
COACH USA, INC. PRO FORMA
COMBINED
Introduction to Unaudited Pro Forma Combined Financial Statements............ 3
Pro Forma Combined Balance Sheet (unaudited)................................. 7
Notes to Pro Forma Combined Balance Sheet (unaudited)........................ 8
Pro Forma Combined Statement of Income (unaudited)........................... 9
Notes to Pro Forma Combined Statement of Income (unaudited).................. 10
THE COMBINED FOUNDING COMPANIES
Combined Balance Sheets...................................................... 11
Combined Statements of Income................................................ 12
Combined Statements of Stockholders' Equity.................................. 13
Combined Statements of Cash Flows............................................ 14
Notes to Combined Financial Statements....................................... 15
COACH USA, INC.
Balance Sheet................................................................ 29
Statements of Income......................................................... 30
Notes to Financial Statements................................................ 31
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
Combined Balance Sheets...................................................... 33
Combined Statements of Income................................................ 34
Combined Statements of Stockholders' Equity.................................. 35
Combined Statements of Cash Flows............................................ 36
Notes to Combined Financial Statements....................................... 37
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES (OPERATING AS GRAY
LINE OF SAN FRANCISCO)
Consolidated Balance Sheets.................................................. 45
Consolidated Statements of Income............................................ 46
Consolidated Statements of Stockholders' Equity.............................. 47
Consolidated Statements of Cash Flows........................................ 48
Notes to Consolidated Financial Statements................................... 49
LEISURE TIME TOURS
Balance Sheets............................................................... 57
Statements of Income......................................................... 58
Statements of Stockholders' Equity........................................... 59
Statements of Cash Flows..................................................... 60
Notes to Financial Statements................................................ 61
1
PAGE
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COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
Combined Balance Sheets...................................................... 68
Combined Statements of Income................................................ 69
Combined Statements of Stockholders' Equity.................................. 70
Combined Statements of Cash Flows............................................ 71
Notes to Combined Financial Statements....................................... 72
CAPE TRANSIT CORP. (OPERATING AS ADVENTURE TRAILS)
Balance Sheets............................................................... 79
Statements of Income......................................................... 80
Statements of Stockholders' Equity........................................... 81
Statements of Cash Flows..................................................... 82
Notes to Financial Statements................................................ 83
ARROW STAGE LINES, INC.
Balance Sheets............................................................... 90
Statements of Income......................................................... 91
Statements of Stockholders' Equity........................................... 92
Statements of Cash Flows..................................................... 93
Notes to Financial Statements................................................ 94
Item II -- Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 101
PART II -- OTHER INFORMATION
Item 1 -- Legal proceedings............................................................. 114
Item 6 -- Exhibits and Reports on Form 8-K.............................................. 114
Signature............................................................................... 115
</TABLE>
2
COACH USA, INC.
PART I, ITEM 1 -- FINANCIAL INFORMATION
GENERAL INFORMATION
SELECTED COMBINED FOUNDING COMPANIES FINANCIAL DATA
Coach USA, Inc. the "Company" was founded in September 1995 to create a
nationwide motorcoach service provider. On May 17, 1996, Coach USA acquired in
separate transactions (the ("Mergers") simultaneously with the closing of its
initial public offering (the "Offering") six motorcoach businesses (the
"Founding Companies"). The historical financial statements of each of the
Founding Companies and Coach USA have been combined for all periods presented at
historical cost as if these companies had always been members of the same
operating group. However, during the periods presented, the Founding Companies
were not under common control or management and, as such, their results of
operations reflect a variety of tax structures (S Corporations and C
Corporations). Therefore, the data presented may not be comparable to or
indicative of post-combination results to be achieved by the Company.
The following selected combined financial data of the Founding Companies as
of December 31, 1994 and 1995 and for each of the three years in the period
ended December 31, 1995 have been derived from the Combined Founding Companies'
Financial Statements, which have been audited by Arthur Andersen LLP and appear
elsewhere in this filing. The selected combined financial data for the Founding
Companies as of December 31, 1991, 1992 and 1993 and March 31, 1995 and 1996,
and for the years ended December 31, 1991 and 1992 and for the three months
ended March 31, 1995 and 1996, have been derived from unaudited financial
statements which have been prepared on the same basis as the audited financial
statements and, in the opinion of the Company, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such data.
The Selected Combined Founding Companies' Financial Data should be read in
conjunction with the Combined Founding Companies' Financial Statements, the Pro
Forma Combined Financial Statements of the Company, the individual historical
financial statements of each of the Founding Companies, the related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31(1)
------------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ----------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues.................. $ 92,653 $ 96,928 $ 103,072 $ 106,754 $ 113,489 $ 23,015 $ 24,221
Operating expenses.............. 76,358 79,578 85,367 88,297 89,669 20,130 21,164
General and administrative
expenses(3)................... 11,582 11,894 12,490 12,471 14,213 3,287 5,566
Operating income (loss)......... 4,713 5,456 5,215 5,986 9,607 (402) (2,509)
Interest and other expense,
net........................... 2,014 2,281 2,101 2,068 2,534 680 599
Income (loss) before income
taxes......................... 2,699 3,175 3,114 3,918 7,073 (1,082) (3,108)
Provision (benefit) for income
taxes......................... 675 (204) 766 618 929 (388) (386)
Net income (loss)............... 2,024 3,379 2,348 3,300 6,144 (694) (2,722)
PRO FORMA(2):
Pro forma operating income(3)... 6,071 7,133 7,051 8,044 12,814 107 162
Pro forma net income
(loss)(3)(4).................. 2,380 2,847 2,873 3,568 6,049 (340) (282)
Pro forma net income (loss) per
share......................... 0.67 (.04) (.03)
Pro forma weighted average
shares(5)..................... 9,084 9,084 9,084
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital (deficit)....... $ (3,616) $ (2,852) $ (1,965) $ (3,399) $ (5,211) $ (5,864) $ (9,030)
Total assets.................... 66,094 68,614 68,456 74,841 79,363 73,718 78,059
Total debt, including current
portion....................... 36,851 32,569 30,013 31,883 33,114 32,151 33,630
Stockholders' equity............ 16,434 17,435 18,967 21,641 24,713 20,459 22,911
(FOOTNOTES ON FOLLOWING PAGE)
</TABLE>
3
- ------------
(1) The unaudited combined financial statements for the three months ended
March 31, 1995 and 1996 have been prepared by subtracting the results of
operations for the two months and three months ended December 31, 1994 and
1995 from the results of operations for the five months and six months
ended March 31, 1995 and 1996 for Gray Line SF and Arrow, respectively.
Gray Line SF's revenues were $3,579,000 and $3,878,000 and it incurred a
net loss of $(295,000) and $(361,000) in the two months ended December 31,
1994 and 1995, respectively. Arrow's revenues were $2,425,000 and
$2,211,000 and it had a net income (loss) of $7,000 and $(232,000) for the
three months ended December 31, 1994 and 1995, respectively.
(2) See the Pro Forma Combined Financial Statements of the Company for pro
forma financial information relating to 1995 and to March 31, 1996 and the
first quarter ended on such date.
(3) Gives effect to the Compensation Differential. In addition, the three
months ended March 31, 1996 gives effect to a $2,076,000 non-recurring,
non-cash charge recorded by Coach USA. See Note 11 of Notes to the
Combined Founding Companies' Financial Statements and Note 4 to the Coach
USA, Inc. Financial Statements.
(4) Gives effect to certain tax adjustments related to the taxation of certain
Founding Companies as S Corporations prior to the consummation of the
Mergers and the tax impact of the Compensation Differential in each
period. See Note 11 of Notes to Combined Founding Companies' Financial
Statements.
(5) Includes: (i) 2,165,724 shares issued by Coach USA prior to the 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 Offering to pay the cash portion of the consideration for the
Founding Companies; and (iv) 118,142 of the 4,140,000 shares sold in the
Offering to pay excess S Corporation distributions; but excludes 1,174,717
shares of Common Stock subject to options granted in connection with the
Offering at an exercise price equal to $14.00 per share, the initial
public offering price.
4
SELECTED INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents selected financial data for each of the
individual Founding Companies for the three most recent years as well as the
most recent interim period and comparative period of the prior year, as
applicable.
<TABLE>
<CAPTION>
PERIODS ENDED MARCH
YEAR ENDED DECEMBER 31(1) 31(2)
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SUBURBAN:
Revenues........................ $ 32,274 $ 30,427 $ 29,752 $ 6,357 $ 6,383
Operating expenses.............. 28,903 27,526 25,322 5,838 6,195
Gross profit.................... 3,371 2,901 4,430 519 188
General and administrative
expenses...................... 2,417 2,283 2,563 697 678
Interest and other expense,
net........................... 175 147 213 49 94
Net income (loss)............... 520 343 1,231 (169) (448)
Pro forma net income
(loss)(3)..................... 795 658 1,512 (50) (284)
GRAY LINE SF:
Revenues........................ 22,122 24,487 29,235 8,861 9,778
Operating expenses.............. 16,590 18,990 22,627 7,780 8,548
Gross profit.................... 5,532 5,497 6,608 1,081 1,230
General and administrative
expenses...................... 4,129 3,794 4,722 1,936 2,196
Interest and other expense,
net........................... 228 323 430 220 165
Net income (loss)............... 672 924 1,074 (646) (680)
Pro forma net income
(loss)(3)..................... 735 867 1,085 (550) (507)
LEISURE:
Revenues........................ 17,534 17,694 18,992 3,784 4,368
Operating expenses.............. 15,497 14,139 14,577 3,318 3,616
Gross profit.................... 2,037 3,555 4,415 466 752
General and administrative
expenses...................... 2,128 1,934 1,895 452 485
Interest and other expense,
net........................... 313 184 132 (3) 21
Net income (loss)............... (372) 1,298 2,163 15 223
Pro forma net income
(loss)(3)..................... (127) 963 1,577 54 194
COMMUNITY:
Revenues........................ 13,179 14,106 13,807 2,840 2,851
Operating expenses.............. 11,057 12,228 11,680 2,559 2,582
Gross profit.................... 2,122 1,878 2,127 281 269
General and administrative
expenses...................... 1,760 1,999 2,193 428 424
Interest and other expense,
net........................... 258 239 173 75 (34)
Net income (loss)............... 103 (262) (62) (133) (73)
Pro forma net income
(loss)(3)..................... 538 415 718 (37) 23
ADVENTURE:
Revenues........................ 8,494 10,001 11,053 2,342 2,269
Operating expenses.............. 6,665 8,457 8,241 1,996 1,971
Gross profit.................... 1,829 1,544 2,812 346 298
General and administrative
expenses...................... 840 968 1,089 228 250
Interest and other expense,
net........................... 626 641 928 223 183
Net income (loss)............... 328 (58) 719 (95) (122)
Pro forma net income
(loss)(3)..................... 255 12 537 (40) (57)
ARROW:
Revenues........................ 9,469 10,039 10,650 4,835 4,661
Operating expenses.............. 6,655 6,957 7,222 3,783 3,668
Gross profit.................... 2,814 3,082 3,428 1,052 993
General and administrative
expenses...................... 1,216 1,493 1,751 646 697
Interest and other expense,
net........................... 501 534 658 360 435
Net income (loss)............... 1,097 1,055 1,019 46 (139)
Pro forma net income
(loss)(3)..................... 677 653 620 35 (73)
</TABLE>
- ------------
(1) Amounts for Gray Line SF are reported for fiscal years ended October 31,
and amounts for Arrow are reported for fiscal years ended September 30.
(2) Amounts for Gray Line SF are reported for the five months ended March 31,
1995 and 1996, respectively, and amounts for Arrow are reported for the
six months ended March 31, 1995 and 1996, respectively.
(3) Gives effect to the Compensation Differential, certain tax adjustments
related to the taxation of certain Founding Companies as S Corporations
prior to the consummation of the Mergers and the tax impact of the
Compensation Differential in each period. See Note 11 of Notes to Combined
Founding Companies' Financial Statements.
5
COACH USA, INC.
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
These pro forma combined financial statements should be read in conjunction
with other information contained elsewhere in this filing under the headings
"Selected Combined Founding Companies' Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
historical financial statements of the Combined Founding Companies, Coach USA,
Inc. (Coach USA or the Company) financial statements and the individual Founding
Company financial statements. See "Index to Financial Statements."
The following unaudited pro forma combined financial statements of Coach
USA present the Founding Companies with Coach USA and give effect to the
following pro forma adjustments: (i) the liability for the cash consideration to
be paid to the stockholders of the Founding Companies and the transfer of
selected assets and assumption of selected liabilities of certain stockholders
of certain of the Founding Companies; (ii) the issuance of 5,099,687 shares of
Coach USA Common Stock to the Founding Companies' stockholders in connection
with the Mergers; (iii) the additional cash to be borrowed from a bank; (iv)
adjustment to record the deferred income tax liability attributable to the
temporary differences between financial reporting and income tax basis of assets
and liabilities currently held in S Corporations; (v) the adjustment to
compensation expense for the difference between the historical compensation paid
to the stockholders and the employment contract compensation (Compensation
Differential); and (vi) the incremental provision for income taxes for S
Corporations and the Compensation Differential, as if the transactions were
consummated as of March 31, 1996 for the balance sheet data and as of January 1,
1995 for the income statement data. In addition, the as adjusted unaudited pro
forma combined financial statements of Coach USA include post merger
adjustments: (i) for the sale of 4,140,000 shares of Common Stock; (ii) the
application of the estimated proceeds; and (iii) the elimination of the deferred
offering costs. No pro forma statement of income adjustment is necessary to give
effect to the elimination of the assets dividended to the Founding Companies'
stockholders, as the related rent and interest expense were negotiated such that
the increase in cost offset the reduction in depreciation expense, and therefore
had substantially no effect on net income.
Coach USA, through its wholly-owned subsidiaries acquired, simultaneously
with the closing of the Offering, Suburban, Gray Line SF, Leisure, Community,
Adventure and Arrow. The Mergers have been accounted for in accordance with
generally accepted accounting principles as a combination of the Founding
Companies at historical cost, because the Founding Companies' stockholders
transferred assets to Coach USA in exchange for Common Stock simultaneously with
Coach USA's initial public offering, the nature of future operations of the
Company will be substantially identical to the combined operations of the
Founding Companies, the shareholders of each of the Founding Companies may be
considered promoters, and no former stockholder group of any of the Founding
Companies obtained a majority of the outstanding voting shares of the Company.
Accordingly, historical financial statements of the Founding Companies have been
combined throughout all relevant periods as if the Founding Companies had always
been members of the same operating group. However, since the Founding Companies
were not under common control or management, historical combined results may not
be comparable to, or indicative of, future performance.
The Company has preliminarily analyzed the savings that it expects to be
realized by consolidating certain general and administrative functions,
including reductions in professional fees, insurance and benefit plan expenses.
In addition, the Company anticipates that it will realize significant benefits
from: (i) the reduction in interest payments related to the prepayment of
outstanding Founding Company debt; (ii) its ability to borrow at lower interest
rates than the Founding Companies; (iii) the interest earned on the net proceeds
of the Offering remaining after payment of the expenses of the Offering and the
cash portion of the consideration for the Founding Companies; and (iv) other
general and administrative areas. The Company has not and cannot, at this time,
quantify these savings. It is anticipated that these savings will be partially
offset by the costs of being a public company and the incremental increase in
costs related to the Company's new management. However, these costs, like the
savings that they offset, cannot be quantified accurately. Accordingly, neither
the anticipated savings nor the anticipated costs have been included in the pro
forma financial information of Coach USA.
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
transaction in fact had occurred on those dates or to project the Company's
financial position or results of operations for any future period.
6
COACH USA, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------------------------------------------
COMBINED POST
COACH FOUNDING PRO FORMA MERGER AS
USA COMPANIES ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
------- --------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1 $ 2,796 $ (3,010)(a) $ 787 $ 49,803 (i) $ 4,422
1,000 (h) (22,358)(j)
(23,810)(k)
Accounts receivable, less
allowance..................... -- 4,447 4,447 4,447
Notes receivable from
stockholders.................. -- 638 638 638
Inventories..................... -- 2,492 2,492 2,492
Investments..................... -- 2,750 (1,474)(a) 1,276 1,276
Prepaid expenses and other
current assets................ -- 3,569 (612)(b) 2,957 2,957
------- --------- ----------- --------- ----------- --------
Total current assets....... 1 16,692 (4,096) 12,597 3,635 16,232
PROPERTY AND EQUIPMENT, net.......... 9 60,538 (3,564)(c) 56,983 56,983
OTHER ASSETS......................... 2,732 829 3,561 (2,732)(j) 829
------- --------- ----------- --------- ----------- --------
Total assets............... $ 2,742 $78,059 $ (7,660) $ 73,141 $ 903 $ 74,044
======= ========= =========== ========= =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations................... $ -- $ 8,171 $ (149)(c) $ 8,022 $ (8,022)(j) $ --
Accounts payable and accrued
liabilities................... -- 17,136 17,136 17,136
Amounts due to stockholders..... 2,741 415 3,156 (3,156)(j) --
Pro forma distribution to
Founding Companies'
stockholders.................. -- -- 23,810 (d) 23,810 (23,810)(k) --
------- --------- ----------- --------- ----------- --------
Total current
liabilities.............. 2,741 25,722 23,661 52,124 (34,988) 17,136
------- --------- ----------- --------- ----------- --------
LONG-TERM OBLIGATIONS, net of current
maturities......................... -- 25,459 (511)(c) 25,948 (13,912)(j) 12,036
1,000 (h)
DEFERRED INCOME TAXES................ -- 3,967 1,905 (e) 5,872 5,872
------- --------- ----------- --------- ----------- --------
Total liabilities.......... 2,741 55,148 26,055 83,944 (48,900) 35,044
------- --------- ----------- --------- ----------- --------
COMMITMENTS AND CONTINGENCIES........
STOCKHOLDERS' EQUITY:
Common stock.................... 22 6,696 (6,696)(f) 73 41 (i) 114
51 (g)
Additional paid-in capital...... 2,055 102 (4,484)(a) 802 49,762 (i) 40,962
(612)(b) (424)(m)
(2,904)(c) (9,178)(l)
6,696 (f)
(51)(g)
Retained earnings............... (2,076) 16,537 (23,810)(d) (11,254) 9,178 (l) (2,076)
(1,905)(e)
Treasury stock.................. -- (424) (424) 424 (m) --
------- --------- ----------- --------- ----------- --------
Total stockholders'
equity................... 1 22,911 (33,715) (10,803 ) 49,803 39,000
------- --------- ----------- --------- ----------- --------
Total liabilities and
stockholders' equity..... $ 2,742 $78,059 $ (7,660) $ 73,141 $ 903 $ 74,044
======= ========= =========== ========= =========== ========
</TABLE>
The accompanying notes are an integral part of these
pro forma combined financial statements.
7
COACH USA, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
(a) Records distribution of certain Founding Companies' S Corporation
Accumulated Adjustment Accounts.
(b) Records the distribution of Community's and Arrow's cash surrender
value of life insurance policies in the amounts of $479,000 and
$133,000, respectively, to certain stockholders of the Founding
Companies.
(c) Records the Founding Companies' dividend of certain automobiles,
facilities and equipment and the related obligations to certain
stockholders of the Founding Companies.
(d) Records the liability for the cash consideration to be paid to the
stockholders of the Founding Companies in connection with the
Mergers.
(e) Records the deferred income tax liability attributable to the
temporary differences between financial reporting and income tax
basis of assets and liabilities currently held in S Corporations.
(f) Records the elimination of the Founding Companies' common stock as
additional paid-in capital.
(g) Records the issuance of (i) 5,099,687 shares to the stockholders of
the Founding Companies in connection with the Mergers.
(h) Records the additional cash to be borrowed from a bank.
(i) Records the proceeds from the issuance of 4,140,000 shares of Coach
USA Common Stock, net of estimated offering costs (based on the
offering price of $14 per share). Offering costs primarily consist
of underwriting discounts and commissions, accounting fees, legal
fees, and printing expenses.
(j) Records the elimination of deferred offering costs and the repayment
of certain debt obligations with proceeds from the Offering.
(k) Records the cash portion due to the Founding Companies in connection
with the Mergers.
(l) Records the elimination of the retained earnings of the Founding
Companies.
(m) Records the elimination of the treasury stock of the Founding
Companies.
8
COACH USA, INC.
PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
COMBINED
FOUNDING PRO FORMA
COACH USA COMPANIES ADJUSTMENTS PRO FORMA
--------- --------- ----------- ---------
<S> <C> <C> <C>
REVENUES............................. $ -- $113,489 $ $ 113,489
OPERATING EXPENSES................... -- 89,669 89,669
--------- --------- ----------- ---------
Gross profit............... -- 23,820 23,820
GENERAL AND ADMINISTRATIVE
EXPENSES........................... -- 14,213 (3,207)(a) 11,006
--------- --------- ----------- ---------
Operating income........... -- 9,607 3,207 12,814
OTHER (INCOME) EXPENSE:
Interest expense................ -- 3,210 3,210
Interest income................. -- (332) (332)
Other, net...................... -- (344) (344)
--------- --------- ----------- ---------
INCOME BEFORE INCOME TAXES........... -- 7,073 3,207 10,280
PROVISION FOR INCOME TAXES........... -- 929 3,302 (c) 4,231
--------- --------- ----------- ---------
NET INCOME........................... $ -- $ 6,144 $ (95) $ 6,049
========= ========= =========== =========
PRO FORMA NET EARNINGS PER COMMON
SHARE.............................. $ 0.67
=========
WEIGHTED AVERAGE SHARES
OUTSTANDING........................ 9,084(d)
=========
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------
COMBINED
FOUNDING PRO FORMA
COACH USA COMPANIES ADJUSTMENTS PRO FORMA
--------- --------- ----------- ---------
REVENUES............................. $ -- $ 24,221 $ $ 24,221
OPERATING EXPENSES................... -- 21,164 21,164
--------- --------- ----------- ---------
Gross profit............... -- 3,057 3,057
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,076 3,490 (595)(a) 2,895
(2,076)(b)
--------- --------- ----------- ---------
Operating income........... (2,076) (433) 2,671 162
OTHER (INCOME) EXPENSE:
Interest expense................ -- 786 786
Interest income................. -- (67) (67)
Other, net...................... -- (120) (120)
--------- --------- ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.... (2,076) (1,032) 2,671 (437)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. -- (386) 231(c) (155)
--------- --------- ----------- ---------
NET INCOME (LOSS).................... $ (2,076) $ (646) $ 2,440 $ (282)
========= ========= =========== =========
PRO FORMA NET EARNINGS PER COMMON
SHARE.............................. $ (.03)
=========
WEIGHTED AVERAGE SHARES
OUTSTANDING........................ 9,084(d)
=========
</TABLE>
The accompanying notes are an integral part of these
pro forma combined financial statements.
9
COACH USA, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
(a) Adjusts compensation to the level the owners of the Founding
Companies have agreed to receive subsequent to the Merger.
(b) Adjusts for a non-recurring, non-cash charge of $2,076,000 recorded by
Coach USA.
(c) Records the incremental provision for federal and state income taxes
relating to the Compensation Differential, income taxes on S
Corporation income and income taxes on the income from personal
assets of a stockholder.
(d) Includes: (i) 2,165,724 shares issued by Coach USA prior to the
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 issued in connection with the Offering to pay the
cash portion of the consideration for the Founding Companies; and (iv)
118,142 of the 4,140,000 shares issued in connection with the Offering
to pay excess Subchapter S distributions but excludes 1,174,717 shares
of Common Stock subject to options granted in connection with the
Offering at an exercise price equal to the initial public offering
price.
10
THE COMBINED FOUNDING COMPANIES
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
DECEMBER 31
---------------------- MARCH 31
1994 1995 1996
---------- ---------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 5,254 $ 4,092 $ 2,796
Accounts receivable, less
allowance of $320, $301 and
$301......................... 5,216 5,243 4,447
Notes receivable from
stockholders................. 880 881 638
Inventories..................... 2,288 2,434 2,492
Investments, including
restricted of $1,696 and
$2,004 and $2,004............ 2,811 3,598 2,750
Prepaid expenses and other
current assets............... 4,264 4,140 3,569
---------- ---------- ------------
Total current assets...... 20,713 20,388 16,692
PROPERTY AND EQUIPMENT, net.......... 52,893 58,089 60,538
OTHER ASSETS......................... 1,235 886 829
---------- ---------- ------------
Total assets.............. $ 74,841 $ 79,363 $ 78,059
========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 6,685 $ 8,001 $ 8,171
Accounts payable and accrued
liabilities.................. 16,724 17,112 17,136
Notes payable to stockholders... 703 486 415
---------- ---------- ------------
Total current
liabilities............. 24,112 25,599 25,722
---------- ---------- ------------
LONG-TERM OBLIGATIONS, net of current
maturities......................... 25,198 25,113 25,459
DEFERRED INCOME TAXES................ 3,890 3,938 3,967
---------- ---------- ------------
Total liabilities......... 53,200 54,650 55,148
---------- ---------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock.................... 6,696 6,696 6,696
Additional paid-in capital...... 102 102 102
Retained earnings............... 15,267 18,339 16,537
Treasury stock, at cost......... (424) (424) (424)
---------- ---------- ------------
Total stockholders'
equity.................. 21,641 24,713 22,911
---------- ---------- ------------
Total liabilities and
stockholders' equity.... $ 74,841 $ 79,363 $ 78,059
========== ========== ============
The accompanying notes are an integral part of these combined financial
statements.
11
THE COMBINED FOUNDING COMPANIES
COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------- ----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 103,072 $ 106,754 $ 113,489 $ 23,015 $ 24,221
OPERATING EXPENSES................... 85,367 88,297 89,669 20,130 21,164
----------- ----------- ----------- ---------- ----------
Gross profit.............. 17,705 18,457 23,820 2,885 3,057
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 12,490 12,471 14,213 3,287 3,490
----------- ----------- ----------- ---------- ----------
Operating income (loss)... 5,215 5,986 9,607 (402) (433)
OTHER (INCOME) EXPENSE:
Interest expense................ 2,641 2,724 3,210 798 786
Interest income................. (227) (206) (332) (40) (67)
Other, net...................... (313) (450) (344) (78) (120)
----------- ----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.... 3,114 3,918 7,073 (1,082) (1,032)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 766 618 929 (388) (386)
----------- ----------- ----------- ---------- ----------
NET INCOME (LOSS).................... $ 2,348 $ 3,300 $ 6,144 $ (694) $ (646)
=========== =========== =========== ========== ==========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 2,348 $ 3,300 $ 6,144 $ (694) $ (646)
Pro forma compensation
differential................. 1,836 2,058 3,207 509 595
Less: Pro forma provision for
income taxes................. 1,311 1,790 3,302 155 231
----------- ----------- ----------- ---------- ----------
PRO FORMA NET INCOME (LOSS).......... $ 2,873 $ 3,568 $ 6,049 $ (340) $ (282)
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
12
THE COMBINED FOUNDING COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN TREASURY RETAINED STOCKHOLDERS'
STOCK CAPITAL STOCK EARNINGS EQUITY
------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992......... $6,696 $ 102 $ (424) $ 11,061 $17,435
Dividends paid.................. -- -- -- (816) (816)
Net income...................... -- -- -- 2,348 2,348
------ ---------- -------- -------- -------------
BALANCE AT DECEMBER 31, 1993......... 6,696 102 (424) 12,593 18,967
Dividends paid.................. -- -- -- (626) (626)
Net income...................... -- -- -- 3,300 3,300
------ ---------- -------- -------- -------------
BALANCE AT DECEMBER 31, 1994......... 6,696 102 (424) 15,267 21,641
Dividends paid.................. -- -- -- (3,072) (3,072)
Net income...................... -- -- -- 6,144 6,144
------ ---------- -------- -------- -------------
BALANCE AT DECEMBER 31, 1995......... 6,696 102 (424) 18,339 24,713
Dividends paid during conforming
period (unaudited)........... -- -- -- (129) (129)
Net loss during conforming
period (unaudited)........... -- -- -- (593) (593)
Dividends paid (unaudited)...... -- -- -- (434) (434)
Net loss (unaudited)............ -- -- -- (646) (646)
------ ---------- -------- -------- -------------
BALANCE AT MARCH 31, 1996
(unaudited)........................ $6,696 $ 102 $ (424) $ 16,537 $22,911
====== ========== ======== ======== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
13
THE COMBINED FOUNDING COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 2,348 $ 3,300 $ 6,144 $ (694) $ (646)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation................. 4,640 4,772 4,992 1,151 1,341
Gain on sale of assets....... (89) (430) (134) -- (77)
Gain on sale of
investments............... (33) (17) (153) (49) (18)
Deferred tax provision....... 502 169 512 (429) (370)
Changes in operating assets
and liabilities --
Accounts receivable,
net..................... (423) (1,270) (27) 65 (597)
Inventories............... (354) (23) (146) 24 (93)
Investments............... (124) (16) (326) (229) 849
Prepaid expenses and other
current assets.......... (1,288) 27 (19) 791 991
Accounts payable and
accrued liabilities..... 1,261 2,381 185 668 766
Other..................... 191 54 13 201 79
---------- ---------- ---------- ---------- ----------
Net cash provided by
operating
activities........ 6,631 8,947 11,041 1,499 2,225
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment.................... (3,419) (6,817) (13,404) (2,772) (3,851)
Proceeds from sales of property
and equipment................ 353 2,243 3,350 125 383
Purchases of
investments -- restricted.... -- (271) (308) -- --
Proceeds from sales of
investments -- restricted.... -- 69 -- -- --
---------- ---------- ---------- ---------- ----------
Net cash used in
investing
activities........ (3,066) (4,776) (10,362) (2,647) (3,468)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (8,302) (9,080) (12,046) (3,917) (2,124)
Proceeds from issuance of
long-term obligations........ 4,487 7,456 13,277 5,092 2,974
Dividends paid.................. (816) (626) (3,072) (200) (434)
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in)
financing
activities........ (4,631) (2,250) (1,841) 975 416
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... (1,066) 1,921 (1,162) (173) (827)
CASH AND CASH EQUIVALENTS, beginning
of year............................ 4,399 3,333 5,254 4,963 3,623
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 3,333 $ 5,254 $ 4,092 $ 4,790 $ 2,796
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 2,546 $ 2,815 $ 2,855 $ 762 $ 798
Cash paid for income taxes...... 330 316 563 8 37
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
14
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
In September 1995, Coach USA, Inc. (Coach USA) was founded to create a
national company providing motorcoach transportation services, including charter
and tour services.
Concurrent with the initial public offering of its common stock (the
Offering), wholly-owned subsidiaries of Coach USA merged with the following six
companies (each, a Founding Company and collectively, the Founding Companies):
Suburban Transit Corp. and related companies (Suburban), Grosvenor Bus Lines,
Inc. and subsidiaries, operating as Gray Line of San Francisco (Gray Line SF),
Leisure Time Tours (Leisure), Community Bus Lines, Inc. and related companies
(Community), Cape Transit Corp., operating as Adventure Trails (Adventure), and
Arrow Stage Lines, Inc. (Arrow). The mergers have been effected by Coach USA
through issuance of its common stock and cash. Each of the Founding Companies is
a motorcoach company, which provides a wide range of commuter, transit,
recreation and excursion transportation services.
The financial statements for Arrow and Gray Line SF are as of September 30
and October 31, respectively. For purposes of presentation in these combined
financial statements, the financial statements of these two companies have been
combined with the December 31 financial statements of the other Founding
Companies.
The Founding Companies have a working capital deficit as of December 31,
1995. The Founding Companies may continue to experience working capital deficits
as they pursue their business strategy of growth and expanding services. The
Founding Companies have historically funded their operations with cash flows
from operations and debt from lenders and stockholders. While there can be no
assurances, management believes that the Founding Companies have adequate
financing alternatives to fund the operations of the Founding Companies through
the first quarter of 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Simultaneously with the closing of the Offering, Coach USA merged with the
Founding Companies (the Mergers). The accompanying combined financial statements
and related notes represent the combined financial position, results of
operations and cash flows of the Founding Companies excluding Coach USA without
giving effect to the Mergers and the Offering. The assets and liabilities of the
Founding Companies are reflected at their historical amounts. The Founding
Companies were not under common control or management during any of the periods
presented.
INTERIM FINANCIAL INFORMATION
The unaudited combined financial statements for the three months ended
March 31, 1995 and 1996 have been prepared by subtracting the results of
operations and cash flows for the two months and three months ended December 31,
1994 and 1995 from the results of operations and cash flows for the five months
and six months ended March 31, 1995 and 1996 for Gray Line SF and Arrow,
respectively. Gray Line SF's revenues were $3,579,000 and $3,878,000 and it
incurred a net loss of $(295,000) and $(361,000) in the two months ended
December 31, 1994 and 1995. Arrow's revenues were $2,425,000 and $2,211,000 and
it incurred a net income (loss) of $7,000 and $(232,000) for the three months
ended December 31, 1994 and 1995.
The interim combined financial statements as of March 31, 1996, and for the
three months ended March 31, 1995 and 1996, are unaudited, and certain
information and footnote disclosures,
15
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 combined 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 Founding Companies consider all highly liquid investments with a
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 reported at the lower
of cost or market.
INVESTMENTS
The Founding Companies have adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires that investments in debt securities and marketable
equity securities be designated as trading, held-to-maturity or
available-for-sale. At December 31, 1994 and 1995, marketable debt securities
and marketable equity securities have been categorized as trading securities,
are stated at fair value and are classified in the balance sheets as current
assets. The realized gains and losses on the sale of investments classified as
trading securities are determined using the specific identification method.
Unrealized losses on trading securities totaling $39,000, $21,600 and $1,000 are
included in net income for the years ended December 31, 1993, 1994 and 1995,
respectively.
Included in investments at December 31, 1994 and 1995, are certificates of
deposit and cash deposits of $1,696,000 and $2,004,000, respectively, which are
restricted as to withdrawal related to accrued insurance claims payable, current
maturities on long-term obligations and collateral on letters of credit.
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 Founding Companies provide their services primarily in the Northeast
and Southwest regions of the United States and the San Francisco, California,
area. The operations in the Northeast region contributed 69%, 68% and 65% of the
Founding Companies' revenues during 1993, 1994 and 1995, respectively.
Management performs ongoing credit evaluations of its customers and provides
allowances as deemed necessary.
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.
16
INCOME TAXES
For the Founding Companies that are C Corporations for income tax purposes,
income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires
recognition of deferred income taxes under the liability method.
Certain of the Founding Companies are S Corporations for income tax
purposes and, accordingly, any income tax liabilities are the responsibility of
the respective stockholders. The historical combined net income of the Founding
Companies includes no provision for federal income taxes of the S Corporations.
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.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of " (SFAS 121) which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Founding
Companies do not expect the adoption of SFAS 121 to have a material effect, if
any, on the combined financial statements. The Founding Companies will adopt
SFAS 121 in 1996.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED DECEMBER 31
USEFUL LIVES ----------------------
(YEARS) 1994 1995
------------ ---------- ----------
(IN THOUSANDS)
Transportation equipment............. 5-12 $ 72,357 $ 76,686
Other................................ 3-31 11,079 11,406
---------- ----------
83,436 88,092
Less -- Accumulated depreciation..... (30,543) (30,003)
---------- ----------
$ 52,893 $ 58,089
========== ==========
Included in transportation equipment at December 31, 1994 and 1995, are
approximately $14,358,000 and $14,231,000, respectively, of assets held under
capital leases.
17
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
Suburban --
Notes payable to a bank, interest
at the bank's floating base rate
(8.5% at December 31, 1995), due
in monthly installments of
$52,900, maturing at various
dates through June 2002; secured
by transportation equipment..... $ 1,911 $ 3,739
Notes payable to a bank, interest
at prime (8.5% at December 31,
1995) plus 0.5%, due in monthly
installments of $34,700,
maturing at various dates
through January 1999; secured by
transportation equipment........ 1,576 1,157
Note payable to a bank, interest at
certificate of deposit rate
(3.0% at December 31, 1995) plus
1%, due in monthly installments
of $10,400 plus interest,
maturing December 1996; secured
by a certificate of deposit..... 240 115
Other.............................. 131 56
Gray Line SF --
Note payable to a financial
institution, interest at prime
(8.8% at October 31, 1995) plus
2%, due in monthly installments
of $30,000, maturing December
1999; secured by transportation
equipment and personal
guarantees of the
stockholders.................... $ -- $ 1,431
Notes payable to various third
parties, interest ranging from
prime plus 1.8%, to 13%, due in
monthly installments of $45,707,
maturing at various dates
through July 1999; secured by
transportation equipment and
personal guarantees of the
stockholders.................... 2,301 1,147
Obligations under capital leases of
certain transportation
equipment, implicit interest
rates ranging from 6% to 10%,
due in monthly installments of
$36,763, maturing at various
dates through 1998.............. 1,058 790
Note payable to a bank, interest at
prime plus 1.8%, maturing April
1996; secured by transportation
equipment and personal
guarantees of the
stockholders.................... -- 300
Notes payable to an affiliate,
interest at prime plus 1%,
interest payable monthly,
principal due October 2000...... 1,552 300
Other.............................. 733 671
Leisure --
Notes payable to a bank, interest
ranging from 8.0% to 8.4%, due
in monthly installments of
$133,000, maturing December 1997
through September 2002; secured
by transportation equipment,
inventories, accounts receivable
and personal guarantee of a
stockholder..................... 3,178 4,251
Other.............................. 120 82
18
DECEMBER 31
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
Community --
Notes payable to financial
institutions, interest ranging
from LIBOR (5.4% at December 31,
1995) plus 1%, to 10.5%, due in
monthly installments of $31,320,
maturing March 1996 through May
2001; secured by certain
transportation equipment and
personal guarantees of the
stockholders.................... 375 1,100
Notes payable to banks, interest
ranging from 7.3% to 9%, due in
monthly installments of $17,250
plus interest, maturing March
1996 through April 2000; secured
by certain transportation
equipment....................... 626 480
Other.............................. 98 108
Adventure --
Notes payable to financial
institutions, interest ranging
from prime (8.5% at December 31,
1995) plus 1.5%, to 11.5%, due
in monthly installments of
$47,600, maturing at various
dates through November 2004;
secured by certain
transportation equipment and the
personal guarantees of the
stockholders.................... $ 3,257 $ 2,758
Obligations under capital leases of
certain transportation
equipment, implicit interest
rates ranging from 7.7% to
13.5%, due in monthly
installments of $82,400,
maturing at various dates
through 2000.................... 2,986 2,708
Note payable to a bank, interest at
prime plus 1.5%, due in monthly
installments of $3,333 plus
interest, maturing December
1998; secured by the assets of
Adventure and personal
guarantees of the
stockholders.................... 400 360
Note payable to an individual,
interest at 7.5%, due in monthly
installments of $6,224, maturing
February 2000; secured by
certain transportation equipment
and the personal guarantees and
partial assignment of life
insurance policies of the
stockholders.................... 319 267
Other.............................. 339 290
19
DECEMBER 31
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
Arrow --
Obligations under capital leases of
certain transportation
equipment, implicit interest
rates ranging from 6.1% to 9.7%,
due in monthly installments of
$93,809, maturing at various
dates through 2002.............. $ 6,379 $ 5,157
Notes payable to banks, interest
ranging from 7.1% to 8.8%, due
in monthly installments of
$84,408 including interest,
maturing at various dates
through July 2002; secured by
certain transportation
equipment....................... 1,832 4,029
Note payable to a bank, interest at
7.5% until May 1998, at which
time interest accrues at 3.2%
above the Federal Reserve Bank
rate on treasury notes, due in
monthly installments of $13,849
including interest; secured by
certain transportation
equipment....................... 870 767
Note payable to a bank, interest at
8.8%, due in monthly
installments of $7,267 including
interest, through May 1999;
secured by real property........ 568 530
Note payable to a leasing
corporation, interest at 8.2%,
due in monthly installments of
$11,756 including interest,
through March 2000; secured by
certain transportation
equipment....................... 626 521
Notes payable to banks, paid in
1995............................ 408 --
---------- ----------
31,883 33,114
Less -- Current maturities........... (6,685) (8,001)
---------- ----------
$ 25,198 $ 25,113
========== ==========
Certain obligations of the Founding Companies contain warranties and
covenants. At December 31, 1995, two of the Founding Companies were not in
compliance with certain of these warranties and covenants relating to
obligations totaling $10,226,000. These Founding Companies requested and
received waivers from the lenders indicating that the scheduled repayment terms
would not be revised as a result of these covenant violations through January 1,
1997.
20
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............................ $ 5,978 $ 2,737
1997............................ 5,222 3,023
1998............................ 4,276 1,775
1999............................ 3,353 950
2000............................ 2,590 1,151
Thereafter...................... 3,040 862
------------ -------------
$ 24,459 10,498
============
Less -- Amounts representing
interest..................... (1,843)
-------------
$ 8,655
=============
Management of each of the Founding Companies estimates that the fair value
of combined debt obligations approximates the historical value of $24,459,000 at
December 31, 1995.
NOTES PAYABLE TO STOCKHOLDERS
Gray Line SF --
Gray Line SF had borrowings from a stockholder totaling $256,000 at
October 31, 1994. The borrowings were unsecured, noninterest-bearing and
payable upon demand.
Community --
Community had borrowings from a stockholder totaling $132,000 and
$171,000 at December 31, 1994 and 1995, respectively. The borrowings are
unsecured, bear interest at 10.5%, and are payable in monthly installments
of approximately $12,000.
Adventure --
Adventure had borrowings from stockholders totaling $315,000 at
December 31, 1994 and 1995. The borrowings are unsecured,
noninterest-bearing and payable upon demand.
5. INCOME TAXES:
The Founding Companies have implemented Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which provides for a
liability approach to accounting for income taxes. Certain of the Founding
Companies are S Corporations for income tax purposes and are not subject to
taxation for federal purposes. These companies' S Corporation status has
terminated with the effective date of the Mergers.
21
The provisions for taxes on income consist of the following:
YEAR ENDED DECEMBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
Current --
Federal......................... $ 104 $ 136 $ 119
State........................... 160 313 298
--------- --------- ---------
264 449 417
Deferred --
Federal......................... 385 254 291
State........................... 117 (85) 221
--------- --------- ---------
502 169 512
--------- --------- ---------
$ 766 $ 618 $ 929
========= ========= =========
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.
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.......... $ 3,991 $ 4,068
Other........................... 144 163
---------- ----------
Total deferred income tax
liabilities............. 4,135 4,231
---------- ----------
Deferred income tax assets --
Accrued expenses................ (1,354) (1,334)
General business credits........ (910) (904)
Net operating losses............ (672) (338)
Other........................... (206) (144)
---------- ----------
Gross deferred income tax
assets.................. (3,142) (2,720)
Less valuation
allowance............... 910 904
---------- ----------
Net deferred income tax
assets.................. (2,232) (1,816)
---------- ----------
$ 1,903 $ 2,415
========== ==========
22
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
--------------------------------
1993 1994 1995
--------- --------- ----------
(IN THOUSANDS)
Tax at statutory rate................ $ 1,090 $ 1,371 $ 2,476
Add (deduct) --
State income taxes........ 181 195 452
Effect of S Corporation
income.................. (538) (829) (1,869)
Other, net................ 33 (119) (130)
--------- --------- ----------
$ 766 $ 618 $ 929
========= ========= ==========
For financial reporting purposes, the Founding Companies have net operating
loss and general business credit carryforwards, which have been partially offset
by a valuation allowance. These tax attributes expire at various periods from
1996 through 2004.
6. COMMITMENTS AND CONTINGENCIES:
SERVICE CONTRACTS
Suburban --
Suburban provides shuttle and charter operations for a university. The
contract is renewable by mutual agreement of the parties every three years.
The existing contract, if not renewed, expires in June 1996. Revenues from
the shuttle and charter operations totaled approximately $3,000,000,
$3,400,000 and $3,500,000 for the years ended December 31, 1993, 1994 and
1995, respectively.
Gray Line SF --
Gray Line SF has entered into three long-term service contracts with
governmental entities to provide transit and commuter service throughout
northern California. The contracts expire at various dates through June
1998. Under the terms of the contracts, Gray Line SF has recognized
revenues of $8,735,000, $10,085,000 and $12,325,000 for the years ended
October 31, 1993, 1994 and 1995, respectively.
LEASES
The Founding Companies lease various facilities and equipment under
noncancelable leases. Rental expense for the years ended December 31, 1993, 1994
and 1995, was $2,007,000, $2,381,000 and $2,364,000, respectively. The following
represents future minimum rental payments under noncancelable operating leases
(in thousands):
Year ending December 31-
1996............................ $ 1,289
1997............................ 1,203
1998............................ 1,176
1999............................ 1,214
2000............................ 1,212
Thereafter...................... 16,904
----------
$ 22,998
==========
23
PURCHASE COMMITMENTS
The Founding Companies have entered into commitments to purchase 50
motorcoaches during 1996 for approximately $14,900,000. The Founding Companies
have already secured financing or have received proposals from various financial
institutions related to these purchases.
CLAIMS AND LAWSUITS
The Founding Companies are 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 their operations. The
Founding Companies maintain various insurance coverages in order to minimize
financial risk associated with the claims. The Founding Companies have provided
for certain of these actions in the accompanying financial statements. In the
opinion of management of the Founding Companies, uninsured losses, if any,
resulting from the ultimate resolution of these matters will not be material to
the Founding Companies' combined financial position or results of operations.
Suburban is the plaintiff in a lawsuit against a bus company, Academy
Express, Inc., formerly known as Inner Circle Qonexions, Inc. ("Inner Circle")
and the Township of East Brunswick, New Jersey. Suburban has challenged the
award to Inner Circle of a contract for access to certain bus terminals in that
Township and the Township's right to restrict access to those terminals.
Suburban has had access to the terminals under a contract with the Township and
has retained its access to the terminals and continues to carry passengers
between the terminals and New York City while this litigation is pending. In its
complaint, Suburban has alleged that it will lose significant revenues if denied
access to the terminals, although Suburban acknowledges that access to the
terminals should be open to all motorcoach operators with the proper authority.
The suit was filed in United States District Court for the District of New
Jersey in 1994 and proceedings in the case are continuing. Although the court
initially ruled against Suburban on its request for injunctive relief, the court
ordered an evidentiary hearing to explore certain factual issues. The
evidentiary hearing took place in late May and early June 1996. The court is
currently deciding whether to vacate its prior denial of injunctive relief.
Based upon consultation with legal counsel, Suburban's management is unable to
form an opinion as to the ultimate outcome of this matter. If Suburban does not
prevail, management is uncertain whether it will be able to recoup a significant
portion of its lost revenues.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Founding Companies have commercial motorcoach liability insurance
policies that provide coverage by the respective insurance company subject to
deductibles ranging from $10,000 to $100,000. As such, any claim below the
deductible amount per incident would be the financial obligation of the Founding
Companies.
The accrued insurance claims payable represents management's estimate of
the Founding Companies' potential claims costs in satisfying the deductible
provisions of the insurance policies 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.
EMPLOYEE BENEFIT PLANS
Certain of the Founding Companies maintain various 401(k) plans which allow
eligible employees to defer a portion of their income through contributions to
the plans. Under provisions of certain of the plans, several of the Founding
Companies match a percentage of the employee contributions, up to a maximum as
specified in the individual plan. Contributions by
24
the Founding Companies to the various plans were $170,000, $166,000 and $167,000
in 1993, 1994 and 1995, respectively.
COLLECTIVE BARGAINING AGREEMENTS
The Founding Companies are parties to various collective bargaining
agreements with certain of their employees. These agreements require the
Founding Companies to pay specified wages and provide certain benefits to its
union employees. These agreements expire at various periods from 1996 through
1999.
LETTERS OF CREDIT
Certain of the Founding Companies are contingently liable for letters of
credit totaling $2,065,000 issued in connection with long-term service contracts
and insurance policies. These letters of credit require commitment fees ranging
from one to two percent paid on an annual basis and are secured by certificates
of deposit and guarantees by the stockholders.
RELATED-PARTY TRANSACTIONS
Suburban --
Suburban leases certain operating facilities from a stockholder. The
term of the leases is through 2030 and provides for a 10% escalation in
rent expense every five years. Suburban is responsible for all real estate
taxes, insurance and maintenance.
Leisure --
During 1994 and 1995, Leisure had transactions with related parties
consisting primarily of services for purchased transportation and
motorcoach maintenance. During 1994, total revenues and expenses were
approximately $24,000 and $23,000, respectively. During 1995, total
revenues and expenses were approximately $213,000 and $217,000,
respectively. At December 31, 1994 and 1995, the net amount due to
affiliated companies was $27,000 and $30,000, respectively, which is
included in trade accounts payable.
Community --
Community leases facilities from affiliated companies. Rent expense
for the years ended December 31, 1993, 1994 and 1995 was $97,000, $233,000
and $300,000, respectively.
ENVIRONMENTAL CONCERNS
Certain groundwater contamination has occurred at Leisure's facility in
Mahwah, New Jersey as a result of leakage from an underground storage tank. As a
result of discussions with the State of New Jersey Department of Environmental
Protection (the Department), in December 1989, Leisure submitted a Ground Water
Quality Assessment Program (GWQAP) work plan to the Department which outlined a
two-phase approach for the site assessment. Phase I and Phase II reports were
submitted to the Department in August 1990 and November 1990, respectively. In
August 1991, a Phase III report was submitted to the Department, which detailed
Leisure's final stage of the assessment program. In July 1992, Leisure entered
into a memorandum of agreement with the Department as an alternative to the
GWQAP under which Leisure will sample and monitor the groundwater contamination
under the Department's oversight. A sampling and monitoring schedule was
submitted to the Department in September 1992 and was approved by the state of
New Jersey in November 1994. Leisure has undertaken several remedial measures to
improve groundwater quality at its facility. The most recent groundwater
sampling reports indicate that sampling has been performed in accordance with
the Department's Field Sampling Manual and that the remedial measures taken by
Leisure have made an improvement in
25
groundwater quality at the site. Leisure believes that the ultimate resolution
of this matter will not have a material adverse effect on its financial position
or results of operations. In addition, at Leisure's facility in Mahwah, it has
discharged bus wash and toilet waste into the groundwater. The Department has
indicated that if Leisure continues to discharge this bus wash and toilet waste
into the groundwater, the Department would require Leisure to connect to the
public sanitary sewer system. Leisure ceased discharging bus wash and bus toilet
waste to groundwater. Currently, Leisure periodically hauls this waste off site
for disposal. After consulting with an environmental engineer, Leisure accrued
approximately $220,000 which is included in accounts payable and accrued
liabilities at December 31, 1994 and 1995 for the anticipated cost of connecting
to the sewer system.
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Prepaid insurance.................... $ 1,184 $ 1,319
Deferred tax asset -- current........ 1,549 1,406
Cash surrender value of life
insurance.......................... 533 612
Other................................ 998 803
--------- ---------
$ 4,264 $ 4,140
========= =========
NOTES RECEIVABLE FROM STOCKHOLDERS
Suburban and Gray Line SF had receivables from certain stockholders
totaling $880,000 and $881,000 at December 31, 1994 and 1995, respectively. The
loans are unsecured, noninterest-bearing and payable on demand.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
Trade accounts payable............... $ 4,837 $ 3,697
Accrued compensation and benefits.... 2,418 2,747
Accrued insurance claims payable..... 6,224 7,084
Other................................ 3,245 3,584
---------- ----------
$ 16,724 $ 17,112
========== ==========
26
9. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE:
The activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1993......... $ 316 $ 144 $ (136) $ 324
========== ========== ========== =========
Year ended December 31, 1994......... $ 324 $ 215 $ (219) $ 320
========== ========== ========== =========
Year ended December 31, 1995......... $ 320 $ 118 $ (137) $ 301
========== ========== ========== =========
</TABLE>
10. STOCKHOLDERS' EQUITY:
The common stock authorized, issued and outstanding of the Founding
Companies consists of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Suburban --
Common stock, no par, 13,250 shares
authorized,
549 shares issued............... $ 73 $ 73
Gray Line SF --
Common stock, no par, 6,000,000
shares authorized, 4,358,879
shares issued................... 6,529 6,529
Leisure --
Common stock, $100 par, 100 shares
authorized,
16 2/3 shares issued............ 2 2
Community --
Common stock, no par, 7,500 shares
authorized,
3,600 shares issued............. 75 75
Adventure --
Common stock, no par, 2,500 shares
authorized,
300 shares issued............... 16 16
Arrow --
Common stock, $100 par, 990 shares
authorized,
10 shares issued................ 1 1
--------- ---------
$ 6,696 $ 6,696
========= =========
Treasury stock represents shares of Community common stock acquired from a
related party and are carried at cost.
11. PRO FORMA NET INCOME (UNAUDITED):
The Founding Companies have been managed throughout the periods presented
as independent closely-held companies. Therefore, general and administrative
expenses for the periods presented reflect compensation and related benefits
that owners received from their respective businesses during these periods. Pro
forma information has been presented for the purpose of reflecting net income as
if the Mergers had occurred January 1, 1993. Certain stockholders have agreed to
reductions in salaries and benefits in connection with the Mergers and will
enter into five-year employment agreements which provide for a set base salary,
participation in future
27
incentive bonus plans, certain other benefits and two-year covenants not to
compete following termination of such person's employment.
The unaudited pro forma data present compensation at the level the
stockholders of the Founding Companies have agreed to receive from the
respective Founding Company subsequent to the Mergers. In addition, the pro
forma data present 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 discussed above.
12. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1996, Coach USA, through separate wholly-owned subsidiaries,
entered into definitive agreements to acquire the individual Founding Companies.
See "Risk Factors" included elsewhere herein.
In connection with the Mergers, the Founding Companies have dividended
certain assets to their stockholders, consisting of land and buildings, cash
surrender value of life insurance policies and automobiles, with a total
carrying value of approximately $4,180,000. In addition, the Founding Companies
made distributions of cash and investments of approximately $4,484,000 prior to
the Mergers, which represented the S Corporation Accumulated Adjustment Accounts
of certain of the Founding Companies. Had these transactions been recorded at
March 31, 1996, the effect on the accompanying balance sheet would be a decrease
in assets of approximately $8,664,000, liabilities of $660,000 and stockholders'
equity of $8,004,000.
Concurrent with the Mergers, certain of the Founding Companies entered into
agreements with their stockholders to lease land and buildings used in the
operations of the Founding Companies for negotiated amounts and terms.
28
COACH USA, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31 MARCH 31
1995 1996
----------- -----------
(UNAUDITED)
ASSETS
CASH AND CASH EQUIVALENTS............ $ 1 $ 1
DEFERRED OFFERING COSTS.............. 188 2,732
PROPERTY AND EQUIPMENT, net.......... 9 9
----------- -----------
Total assets.............. $ 198 $ 2,742
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE
TO A STOCKHOLDER................... $ 197 $ 2,741
----------- -----------
Total liabilities......... 197 2,741
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par,
30,000,000 shares authorized,
1,473,724 and 2,165,724
shares issued................ 15 22
Additional paid-in capital...... (14) 2,055
Retained earnings (deficit)..... -- (2,076)
----------- -----------
Total stockholders'
equity.................. 1 1
----------- -----------
Total liabilities and
stockholders' equity.... $ 198 $ 2,742
=========== ===========
The accompanying notes are an integral part of these financial statements.
29
COACH USA, INC.
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31
----------------------
1995 1996
---------- ----------
(UNAUDITED)
GENERAL AND ADMINISTRATIVE
EXPENSES........................... $ -- $ 2,076
---------- ----------
Operating loss............ -- (2,076)
---------- ----------
LOSS BEFORE INCOME TAXES............. -- (2,076)
---------- ----------
NET LOSS............................. $ -- $ (2,076)
========== ==========
PRO FORMA DATA (Unaudited):
Historical net loss............. $ -- $ (2,076)
Pro forma non-recurring
charge....................... -- 2,076
---------- ----------
PRO FORMA NET INCOME................. $ -- $ --
========== ==========
The accompanying notes are an integral part of these financial statements.
30
COACH USA, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Coach USA, Inc. (Coach USA or the Company) was founded in September 1995,
to create a nationwide motorcoach service provider. Coach USA acquired local and
regional motorcoach companies, completed an initial public offering (IPO) of its
common stock and, subsequent to the IPO, intends to continue to acquire, through
merger or purchase, similar companies to expand their national and regional
operations.
Coach USA's primary assets at December 31, 1995, are cash and deferred
offering costs. Coach USA has not conducted any operations and all activities to
date have related to the acquisitions and the IPO. Cash of $1,000 was generated
from the initial capitalization of the Company (See Note 2). All other
expenditures to date have been funded by a stockholder on behalf of the Company.
Accordingly, statements of operations, changes in stockholders' equity and cash
flows would not provide meaningful information and have been omitted. There is
no assurance that Coach USA will be able to generate future operating revenues.
Funding for the deferred offering costs was provided by a stockholder.
2. STOCKHOLDER'S EQUITY:
In connection with the organization and initial capitalization of Coach
USA, the Company issued 147.3724 shares of common stock for $1,000. See Note 4.
3. INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 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 and results of
operations with respect to the 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.
4. SUBSEQUENT EVENTS:
In March 1996, Coach USA declared a stock dividend of 9,999 shares of
common stock for each share of common stock then outstanding. In addition, Coach
USA increased the number of authorized shares of common stock to 30,000,000
shares and authorized 500,000 shares of $.01 par value preferred stock. The
effects of the common stock dividend and the increase in the number of common
shares authorized have been retroactively reflected on the balance sheet and in
the accompanying notes. In addition, subsequent to December 31, 1995, the
Company issued 692,000 (which reflects the common stock dividend) shares of
common stock to various members of management at par. The sale of such shares
resulted in a non-recurring non-cash charge of $2,076,000, representing the
difference between the amounts paid for the shares and the estimated fair value
of the shares on the date of sale as if the Founding Companies were combined.
Coach USA and separate wholly-owned subsidiaries signed definitive
agreements to acquire by merger six companies (Founding Companies) effective
with the IPO. The companies acquired were Suburban Transit Corp. and related
companies, Grosvenor Bus Lines, Inc. and subsidiaries, (operating as Gray Line
of San Francisco), Leisure Time Tours, Community Bus Lines, Inc. and related
companies, Cape Transit Corp. (operating as Adventure Trails), and Arrow Stage
Lines, Inc. The aggregate consideration paid by Coach USA to acquire the
Founding Companies was
31
approximately $95.2 million (unaudited) (based upon an offering price of $14 per
share (unaudited)) consisting of a combination of cash and common stock.
5. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
Subsequent to December 31, 1995, the Company has incurred additional costs,
including professional fees and travel, associated with the acquisition of the
Founding Companies and the IPO. Accordingly, accrued liabilities and amounts due
to a stockholder were approximately $3,000,000 as of April 22, 1996.
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 Offering, is a principal of Exel.
On May 17, 1996 the Company completed the Offering, which involved the
public sale of 4,140,000 shares of Common Stock at a price of $14.00 per share.
The proceeds from the transaction, net of underwriting discounts and commissions
and after deducting estimated expenses of the Offering, were approximately $49.8
million. Of this amount, $23.8 million was used to pay the cash portion of the
purchase price for the Founding Companies. In addition, approximately $22.3
million of the net proceeds were used to repay indebtedness assumed by the
Company in the Mergers. The approximately $3.7 million of remaining net proceeds
will be used for working capital and for general corporate purposes, which are
expected to include future acquisitions.
The Company has established an interim $30 million credit facility with
NationsBank of Texas, N.A. ("NationsBank"). The credit facility is available
for acquisitions, working capital, to finance equipment replacements and
additions and to refinance indebtedness of the Founding Companies not repaid out
of the net proceeds of the Offering. This credit facility provides for a
revolving credit facility with a term of one year and bears interest at LIBOR
plus 100 basis points, with the interest rate escalating as the Company's level
of funded debt increases relative to its cash flow. NationsBank is also acting
as the agent to establish a syndicate of financial institutions to expand and
extend this facility to a $70 million, three year revolving credit facility. At
March 31, 1996, the combined Founding Companies had total debt of $33.6 million.
Approximately $21.9 million of these obligations were repaid from the net
proceeds of the Offering, with the majority of the remaining balance refinanced
with the credit facility discussed above.
32
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS
DECEMBER 31 ENDED
---------------------- MARCH 31
1994 1995 1996
---------- ---------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 2,226 $ 1,861 $ 1,004
Accounts receivable, less
allowance of $50............. 1,372 952 1,241
Notes receivable from
stockholders................. 655 652 638
Inventories..................... 720 796 810
Investments -- restricted....... 362 365 365
Prepaid expenses and other
current assets............... 919 577 613
---------- ---------- -------------
Total current assets...... 6,254 5,203 4,671
PROPERTY AND EQUIPMENT, net.......... 8,759 10,826 11,669
OTHER ASSETS......................... 83 62 66
---------- ---------- -------------
Total assets.............. $ 15,096 $ 16,091 $16,406
========== ========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 914 $ 1,217 $ 1,198
Accounts payable and accrued
liabilities.................. 4,354 4,067 4,701
---------- ---------- -------------
Total current
liabilities............... 5,268 5,284 5,899
LONG-TERM OBLIGATIONS, net of current
maturities......................... 2,944 3,850 3,990
DEFERRED INCOME TAXES................ 2,084 2,055 2,063
---------- ---------- -------------
Total liabilities......... 10,296 11,189 11,952
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 13,250
shares authorized,
549 shares issued............ 73 73 73
Retained earnings............... 4,727 4,829 4,381
---------- ---------- -------------
Total stockholders'
equity.................. 4,800 4,902 4,454
---------- ---------- -------------
Total liabilities and
stockholders' equity.... $ 15,096 $ 16,091 $16,406
========== ========== =============
The accompanying notes are an integral part of these combined financial
statements.
33
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------- --------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 32,274 $ 30,427 $ 29,752 $ 6,357 $ 6,383
OPERATING EXPENSES................... 28,903 27,526 25,322 5,838 6,195
---------- ---------- ---------- --------- ---------
Gross profit.............. 3,371 2,901 4,430 519 188
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,417 2,283 2,563 697 678
---------- ---------- ---------- --------- ---------
Operating income.......... 954 618 1,867 (178) (490)
OTHER (INCOME) EXPENSE:
Interest expense................ 227 282 432 83 110
Interest income................. (33) (39) (114) (34)
Other, net...................... (19) (96) (105) -- (16)
---------- ---------- ---------- --------- ---------
INCOME BEFORE INCOME TAXES........... 779 471 1,654 (227) (584)
PROVISION FOR INCOME TAXES........... 259 128 423 (58) (136)
---------- ---------- ---------- --------- ---------
NET INCOME........................... $ 520 $ 343 $ 1,231 $ (169) $ (448)
========== ========== ========== ========= =========
PRO FORMA DATA (Unaudited):
Historical net income........... $ 520 $ 343 $ 1,231 (169) (448)
Pro forma compensation
differential................. 569 597 902 143 139
Less: Pro forma provision for
income taxes................. 294 282 621 24 (25)
---------- ---------- ---------- --------- ---------
PRO FORMA NET INCOME................. $ 795 $ 658 $ 1,512 $ (50) $ (284)
========== ========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
34
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992......... 549 $ 73 $ 4,624 $ 4,697
Dividends paid.................. -- -- (455) (455)
Net income...................... -- -- 520 520
------ ------ -------- -------------
BALANCE AT DECEMBER 31, 1993......... 549 73 4,689 4,762
Dividends paid.................. -- -- (305) (305)
Net income...................... -- -- 343 343
------ ------ -------- -------------
BALANCE AT DECEMBER 31, 1994......... 549 73 4,727 4,800
Dividends paid.................. -- -- (1,129) (1,129)
Net income...................... -- -- 1,231 1,231
------ ------ -------- -------------
BALANCE AT DECEMBER 31, 1995......... 549 73 4,829 4,902
------ ------ -------- -------------
Net loss (unaudited)............ -- -- (448) (448)
BALANCE AT MARCH 31, 1996
(unaudited)........................ 549 $ 73 $ 4,381 $ 4,454
====== ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
35
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 520 $ 343 $ 1,231 $ (169) $ (448)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation.............. 848 893 878 219 245
Gain on sale of assets.... -- (96) (105)
Deferred tax provision.... 157 -- 303 (64) (128)
Changes in operating
assets and
liabilities --
Accounts receivable,
net..................... (13) (387) 420 197 (289)
Inventories............. (75) (77) (76) 15 (14)
Prepaid expenses and
other current
assets............... (410) 301 36 139 100
Accounts payable and
accrued liabilities.. 354 349 (291) 367 634
Other................... 21 20 2 (36) 10
---------- ---------- ---------- ---------- ----------
Net cash provided
by operating
activities..... 1,402 1,346 2,398 668 110
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment.................... (1,074) (1,748) (3,199) (1,726) (1,088)
Proceeds from sales of property
and equipment................ -- 875 359 -- --
Purchases of
investments -- restricted.... -- (252) (3) -- --
---------- ---------- ---------- ---------- ----------
Net cash used in
investing
activities..... (1,074) (1,125) (2,843) (1,726) (1,088)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (1,196) (1,819) (3,037) (2,890) (841)
Proceeds from issuance of
long-term obligations........ 1,390 1,670 4,246 3,418 962
Dividends paid.................. (455) (305) (1,129) -- --
---------- ---------- ---------- ---------- ----------
Net cash provided
by (used in)
financing
activities..... (261) (454) 80 528 121
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... 67 (233) (365) (530) (857)
CASH AND CASH EQUIVALENTS, beginning
of year............................ 2,392 2,459 2,226 2,226 1,861
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 2,459 $ 2,226 $ 1,861 $ 1,696 $ 1,004
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 201 $ 307 $ 232 $ 81 $ 108
Cash paid for income taxes...... 58 160 114 -- --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
36
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Suburban Transit Corp. and its six affiliated companies (collectively, the
Company) operate city transit services, provide local commuter service and
provide motorcoach transportation services in the New York/New Jersey
metropolitan area. The Company also provides charter and group tour services.
The Company and its stockholders entered into a definitive agreement with
Coach USA, Inc. (Coach USA), pursuant to which the Company merged with a
subsidiary of Coach USA (the Merger). All outstanding shares of the Company's
common stock were exchanged for cash and shares of Coach USA's common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of Coach USA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and results of
operations of Suburban Transit Corp. and affiliated companies which are under
common control and management of three related stockholders. All significant
intercompany transactions and balances have been eliminated.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of March 31, 1996, and for the
three months ended March 31, 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 combined
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 a 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 reported at the lower
of cost or market.
INVESTMENTS
Included in investments at December 31, 1994 and 1995, are certificates of
deposit of $250,000 which are used as collateral for loans and cash deposits of
$112,000 and $115,000, respectively, which are restricted as to withdrawal
related to the Company's accrued insurance claims 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.
37
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
the state of New Jersey and other governmental entities. Management performs
ongoing credit evaluations of its customers and provides allowances as deemed
necessary.
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
Two of the affiliated companies are S Corporations and the remaining
companies are C Corporations for federal income tax purposes. Federal income
taxes for the C Corporations 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.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of " (SFAS 121) which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have a material effect, if any, on the
combined financial statements. The Company will adopt SFAS 121 in 1996.
38
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED DECEMBER 31
USEFUL LIVES ----------------------
(YEARS) 1994 1995
------------- ---------- ----------
(IN THOUSANDS)
Transportation equipment............. 5-12 $ 15,683 $ 17,354
Other................................ 5-10 1,007 1,061
---------- ----------
16,690 18,415
Less -- Accumulated depreciation..... (7,931) (7,589)
---------- ----------
$ 8,759 $ 10,826
========== ==========
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
Notes payable to a bank, interest at
the bank's floating base rate (8.5%
at December 31, 1995), due in
monthly installments of $52,900,
maturing at various dates through
June 2002; secured by
transportation equipment........... $ 1,911 $ 3,739
Notes payable to a bank, interest at
prime (8.5% at December 31, 1995)
plus 0.5%, due in monthly
installments of $34,700, maturing
at various dates through January
1999; secured by transportation
equipment.......................... 1,576 1,157
Note payable to a bank, interest at
certificate of deposit rate (3.0%
at December 31, 1995) plus 1%, due
in monthly installments of $10,400
plus interest, maturing December
1996; secured by a certificate of
deposit............................ 240 115
Other................................ 131 56
---------- ----------
3,858 5,067
Less -- Current maturities........... (914) (1,217)
---------- ----------
$ 2,944 $ 3,850
========== ==========
At December 31, 1995, future principal payments of long-term obligations
are as follows (in thousands):
Year ending December 31 --
1996............................ $ 1,217
1997............................ 993
1998............................ 863
1999............................ 735
2000............................ 694
Thereafter...................... 565
---------
$ 5,067
=========
39
Management estimates that the fair value of its debt obligations
approximates the historical value of $5,067,000 at December 31, 1995.
5. INCOME TAXES:
The Company has implemented Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," which provides for a liability approach to
accounting for income taxes. The S Corporations in the affiliated group are not
subject to taxation for federal purposes. Under S Corporation status, the
stockholders report their share of the Company's taxable earnings or losses on
their personal income tax returns. These companies' S Corporation status will
terminate with the effective date of the Merger. These companies are subject to
taxation in certain states based upon the jurisdiction in which revenues are
earned.
The provision for taxes on income consists of the following:
YEAR ENDED DECEMBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
Current --
Federal......................... $ 84 $ 118 $ 103
State........................... 18 10 17
--------- --------- ---------
102 128 120
--------- --------- ---------
Deferred --
Federal......................... 25 (33) 172
State........................... 132 33 131
--------- --------- ---------
157 -- 303
--------- --------- ---------
$ 259 $ 128 $ 423
========= ========= =========
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.
40
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.......... $ 2,084 $ 2,055
Other........................... 95 124
---------- ----------
Total deferred income tax
liabilities............. 2,179 2,179
---------- ----------
Deferred income tax assets --
Accrued expenses................ (605) (318)
General business credits........ (859) (859)
Other........................... (54) (38)
---------- ----------
Gross deferred income tax
assets.................. (1,518) (1,215)
Less valuation
allowance............... 859 859
---------- ----------
Net deferred income tax
assets.................. (659) (356)
---------- ----------
$ 1,520 $ 1,823
========== ==========
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
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
Tax at statutory rate................ $ 273 $ 165 $ 579
Add (deduct) --
State income taxes........ 98 28 96
Effect of S Corporation
income.................. (108) (39) (252)
Other, net................ (4) (26) --
--------- --------- ---------
$ 259 $ 128 $ 423
========= ========= =========
For financial reporting purposes, the Company has general business credit
carryforwards which have been fully offset by a valuation allowance. The general
business credit carryforwards will expire at various periods from 1996 through
2000.
6. COMMITMENTS AND CONTINGENCIES:
SERVICE CONTRACTS
The Company provides shuttle and charter operations for a university. The
contract is renewable by mutual agreement of the parties every three years. The
existing contract, if not renewed, expires in June 1996. Revenues from the
shuttle and charter operations totaled approximately $3,000,000, $3,400,000 and
$3,500,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
PURCHASE COMMITMENTS
The Company has entered into a commitment to purchase 10 motorcoaches
during 1996 for approximately $3,000,000. The Company is currently evaluating
various financing alternatives associated with the purchase of these
motorcoaches.
41
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended December 31, 1993, 1994 and 1995, was
$830,000, $1,076,000 and $856,000, respectively. Included in these amounts are
rent expenses of $342,000 for operating facilities owned by a stockholder. The
term of the leases is through 2030 and provides for a 10% escalation in rent
expense every five years. The Company is responsible for all real estate taxes,
insurance and maintenance. The following represents future minimum rental
payments under noncancelable operating leases (in thousands):
Year ending December 31 --
1996............................ $ 342
1997............................ 342
1998............................ 348
1999............................ 376
2000............................ 376
Thereafter...................... 15,142
----------
$ 16,926
==========
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 combined 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.
The Company is the plaintiff in a lawsuit against a bus company, Academy
Express, Inc., formerly known as Inner Circle Qonexions, Inc. ("Inner Circle")
and the Township of East Brunswick, New Jersey. The Company has challenged the
award to Inner Circle of a contract for access to certain bus terminals in that
Township and the Township's right to restrict access to those terminals. The
Company has had access to the terminals under a contract with the Township and
has retained its access to the terminals and continues to carry passengers
between the terminals and New York City while this litigation is pending. In its
complaint, the Company has alleged that it will lose significant revenues if
denied access to the terminals, although the Company acknowledges that access to
the terminals should be open to all motorcoach operators with the proper
authority. The suit was filed in United States District Court for the District
of New Jersey in 1994 and proceedings in the case are continuing. Although the
court initially ruled against the Company on its request for injunctive relief,
the court ordered an evidentiary hearing to explore certain factual issues. The
evidentiary hearing took place in late May and early June 1996. The Court is
currently deciding whether to vacate its prior denial of injunctive relief.
Based upon consultation with legal counsel, management is unable to form an
opinion as to the ultimate outcome of this matter. If the Company does not
prevail, management is uncertain whether it will be able to recoup a significant
portion of its lost revenues.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company has a commercial motorcoach liability insurance policy that
provides coverage by the insurance company, subject to a $100,000 deductible. As
such, any claim within the first $100,000 per incident would be the financial
obligation of the Company. The Company is
42
contingently liable for a letter of credit of $115,000 issued in connection with
the Company's insurance policies.
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 December 31, 1995. The accrual
is based on known facts and historical trends, and management believes such
accrual to be adequate.
EMPLOYEE BENEFIT PLANS
The Company maintains various 401(k) plans which allow eligible employees
to defer a portion of their income through contributions to the plans. Company
contributions to the plans were $134,000, $126,000 and $120,000 in 1993, 1994
and 1995, respectively.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to collective bargaining agreements with certain of
its employees. These agreements require the Company to pay specified wages and
provide certain benefits to its union employees. These agreements expire in
1998.
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Prepaid insurance......... $ 239 $ 139
Deferred tax
asset -- current.......... 610 304
Other..................... 70 134
--------- ---------
$ 919 $ 577
========= =========
NOTES RECEIVABLE FROM STOCKHOLDERS
The Company had receivables from certain stockholders totaling $655,000 and
$652,000 at December 31, 1994 and 1995, respectively. The loans are unsecured,
noninterest-bearing and payable on demand.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Trade accounts payable.... $ 1,203 $ 922
Accrued compensation and
benefits.................. 940 587
Accrued insurance claims
payable................... 1,069 1,314
Other..................... 1,142 1,244
--------- ---------
$ 4,354 $ 4,067
========= =========
43
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on January 1,
1993.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. One
owner agreed to reductions in salary and benefits in connection with the Merger
and has entered into a five-year employment agreement which provides for a set
base salary, participation in future incentive bonus plans, certain other
benefits and a two-year covenant not to compete following termination of such
person's employment.
The unaudited pro forma data presents compensation at the level the
stockholder of the Company has agreed to receive from the Company subsequent to
the Merger. In addition, the pro forma data present the incremental provision
for income taxes as if the Company had been subject to federal income taxes and
for the income tax impact of the compensation differential discussed above.
10. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1996, the Company and its stockholders entered into a definitive
agreement with Coach USA providing for the Merger of the Company with a
subsidiary of Coach USA.
In connection with the Merger, the Company dividended certain assets to the
stockholders consisting of land and buildings, with a total carrying value of
approximately $57,000. Had these transactions been recorded at March 31, 1996,
the effect on the accompanying balance sheet would be a decrease in assets of
approximately $57,000 and stockholders' equity of $57,000.
Concurrent with the Merger, the Company entered into agreements with the
stockholders to lease land and buildings used in the Company's operations for a
negotiated amount and term.
44
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 31
---------------------- MARCH 31
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 261 $ 401 $ 172
Accounts receivable, less
allowance of $150............ 2,055 2,367 1,641
Notes receivable from
stockholder.................. 225 229 --
Inventories..................... 422 474 459
Investments -- restricted....... 506 759 759
Prepaid expenses and other
current assets............... 1,187 1,001 997
---------- ---------- ----------
Total current assets...... 4,656 5,231 4,028
PROPERTY AND EQUIPMENT, net.......... 8,282 7,668 7,416
OTHER ASSETS......................... 557 365 302
---------- ---------- ----------
Total assets.............. $ 13,495 $ 13,264 $ 11,746
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,140 $ 1,358 $ 1,386
Accounts payable and accrued
liabilities.................. 2,355 2,260 1,716
Note payable to stockholder..... 256 -- --
---------- ---------- ----------
Total current
liabilities............... 3,751 3,618 3,102
LONG-TERM OBLIGATIONS, net of current
maturities......................... 4,504 3,281 2,926
DEFERRED INCOME TAXES................ 1,132 1,183 1,216
---------- ---------- ----------
Total liabilities......... 9,387 8,082 7,244
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 6,000,000
shares authorized, 4,358,879
shares issued................ 6,529 6,529 6,529
Retained deficit................ (2,421) (1,347) (2,027)
---------- ---------- ----------
Total stockholders'
equity.................. 4,108 5,182 4,502
---------- ---------- ----------
Total liabilities and
stockholders' equity.... $ 13,495 $ 13,264 $ 11,746
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
45
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED OCTOBER 31 MARCH 31
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 22,122 $ 24,487 $ 29,235 $ 8,861 $ 9,778
OPERATING EXPENSES................... 16,590 18,990 22,627 7,780 8,548
---------- ---------- ---------- ---------- ----------
Gross profit.............. 5,532 5,497 6,608 1,081 1,230
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 4,129 3,794 4,722 1,936 2,196
---------- ---------- ---------- ---------- ----------
Operating income (loss)... 1,403 1,703 1,886 (855) (966)
OTHER (INCOME) EXPENSE:
Interest expense................ 404 441 583 245 174
Interest income................. (43) (39) (24) (4) (9)
Other, net...................... (133) (79) (129) (21) --
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.... 1,175 1,380 1,456 (1,075) (1,131)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 503 456 382 (429) (451)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).................... $ 672 $ 924 $ 1,074 $ (646) $ (680)
========== ========== ========== ========== ==========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 672 $ 924 $ 1,074 $ (646) $ (680)
Pro forma compensation
differential................. 107 119 373 147 277
Less: Pro forma provision
(benefit) for income taxes... 44 176 362 51 104
---------- ---------- ---------- ---------- ----------
PRO FORMA NET INCOME (LOSS).......... $ 735 $ 867 $ 1,085 $ (550) $ (507)
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
46
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
------------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE AT OCTOBER 31, 1992.......... 4,358,879 $6,529 $ (4,017) $ 2,512
Net income...................... -- -- 672 672
------------ ------ -------- -------------
BALANCE AT OCTOBER 31, 1993.......... 4,358,879 6,529 (3,345) 3,184
Net income...................... -- -- 924 924
------------ ------ -------- -------------
BALANCE AT OCTOBER 31, 1994.......... 4,358,879 6,529 (2,421) 4,108
Net income...................... -- -- 1,074 1,074
------------ ------ -------- -------------
BALANCE AT OCTOBER 31, 1995.......... 4,358,879 6,529 (1,347) 5,182
Net loss (unaudited)............ -- -- (680) (680)
------------ ------ -------- -------------
BALANCE AT MARCH 31, 1996
(unaudited)........................ 4,358,879 $6,529 $ (2,027) $ 4,502
============ ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
47
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED OCTOBER 31 ENDED MARCH 31
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 672 $ 924 $ 1,074 $ (646) $ (680)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation.......................................... 833 806 878 349 386
Gain on sale of assets................................ (3) (65) (80) -- --
Deferred tax provision (benefit)...................... 362 346 295 (390) (418)
Changes in operating assets and liabilities --
Accounts receivable, net............................ (401) (486) (312) 625 726
Inventories......................................... (28) 123 (52) 24 15
Prepaid expenses and other current assets........... 90 (421) 225 749 684
Accounts payable and accrued liabilities............ (151) 480 (351) (563) (544)
Other............................................... 64 19 (95) 26 63
--------- --------- --------- --------- ---------
Net cash provided by operating activities..... 1,438 1,726 1,582 174 232
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment......................... (377) (1,617) (355) (161) (134)
Proceeds from sales of property and
equipment................................................ -- 87 171 -- --
Purchases of investments -- restricted...................... -- -- (253) -- --
Proceeds from sales of investments -- restricted............ -- 69 -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing activities......... (377) (1,461) (437) (161) (134)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.............................................. (1,310) (1,131) (3,812) (3,029) (327)
Proceeds from issuance of long-term
obligations.............................................. 137 862 2,807 2,807 --
--------- --------- --------- --------- ---------
Net cash used in financing activities......... (1,173) (269) (1,005) (222) (327)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH.................................. (112) (4) 140 (209) (229)
CASH AND CASH EQUIVALENTS, beginning of year..................... 377 265 261 261 401
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year........................... $ 265 $ 261 $ 401 $ 52 $ 172
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 379 $ 413 $ 524 $ 200 $ 196
Cash paid for income taxes.................................. 142 124 71 8 23
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
48
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Grosvenor Bus Lines, Inc., and subsidiaries (the Company), operating as
Gray Line of San Francisco, provides motorcoach sight-seeing services in the San
Francisco, California, Bay Area. The Company also provides charter and public
transit services.
The Company and its stockholders entered into a definitive agreement with
Coach USA, Inc. (Coach USA), pursuant to which the Company merged with a
subsidiary of Coach USA (the Merger). All outstanding shares of the Company's
common stock were exchanged for cash and shares of Coach USA's common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of Coach USA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and results of
operations of Grosvenor Bus Lines, Inc., all its subsidiaries, and certain
transportation equipment 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 March 31, 1996, and for
the five months ended March 31, 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 a 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 reported at the lower
of cost or market.
INVESTMENTS
Included in investments at December 31, 1994 and 1995, are certificates of
deposit of $506,000 and $759,000 which are used as collateral for letters of
credit.
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.
49
CONCENTRATION OF CREDIT RISK
The Company's credit risks primarily consist of accounts receivable from
various tour operators in the travel service industry and governmental entities.
Management performs ongoing credit evaluations of its customers and provides
allowances as deemed necessary.
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.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of " (SFAS 121) which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have a material effect, if any, on the
consolidated financial statements. The Company will adopt SFAS 121 in 1996.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED OCTOBER 31
USEFUL LIVES ----------------------
(YEARS) 1994 1995
------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Transportation equipment.................................. 5-12 $ 10,003 $ 9,940
Other..................................................... 5-10 3,094 3,193
---------- ----------
13,097 13,133
Less -- Accumulated depreciation.......................... (4,815) (5,465)
---------- ----------
$ 8,282 $ 7,668
========== ==========
</TABLE>
Included in transportation equipment at October 31, 1994 and 1995, are
approximately $1,151,000 and $1,180,000, respectively, of assets held under
capital leases.
50
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
OCTOBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Note payable to a financial
institution, interest at prime
(8.8% at October 31, 1995) plus 2%,
due in monthly installments of
$30,000, maturing December 1999;
secured by transportation equipment
and personal guarantees of the
stockholders....................... $ -- $ 1,431
Notes payable to various third
parties, interest ranging from
prime plus 1.8%, to 13%, due in
monthly installments of $45,707,
maturing at various dates through
July 1999; secured by
transportation equipment and
personal guarantees of the
stockholders....................... 2,301 1,147
Obligations under capital leases of
certain transportation equipment,
implicit interest rates ranging
from 6% to 10%, due in monthly
installments of $36,763, maturing
at various dates through 1998...... 1,058 790
Note payable to a bank, interest at
prime plus 1.8%, maturing April
1996; secured by transportation
equipment and personal guarantees
of the stockholders................ -- 300
Notes payable to an affiliate,
interest at prime plus 1%, interest
payable monthly, principal due
October 2000....................... 1,552 300
Other................................ 733 671
--------- ---------
5,644 4,639
Less -- Current maturities........... (1,140) (1,358)
--------- ---------
$ 4,504 $ 3,281
========= =========
At October 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 October 31 --
1996......................... $ 1,089 $ 381
1997......................... 791 453
1998......................... 1,189 169
1999......................... 465 --
2000......................... 313 --
Thereafter................... 2 --
----------- -------------
$ 3,849 1,003
===========
Less -- Amounts representing
interest........................ (213)
-------------
$ 790
=============
Management estimates that the fair value of its debt obligations
approximates the historical value of $3,849,000 at October 31, 1995.
51
NOTE PAYABLE TO STOCKHOLDER
The Company had borrowings from a stockholder totaling $256,000 at October
31, 1994. The borrowings were unsecured, noninterest-bearing and payable upon
demand.
5. INCOME TAXES:
The Company has implemented Statement of Financial Accounting Standards 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 OCTOBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
Current --
Federal......................... $ 20 $ 13 $ 15
State........................... 121 97 72
--------- --------- ---------
141 110 87
--------- --------- ---------
Deferred --
Federal......................... 368 338 291
State........................... (6) 8 4
--------- --------- ---------
362 346 295
--------- --------- ---------
$ 503 $ 456 $ 382
========= ========= =========
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.
52
The components of deferred income tax liabilities and assets are as
follows:
OCTOBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 1,132 $ 1,183
--------- ---------
Total deferred income tax
liabilities............. 1,132 1,183
--------- ---------
Deferred income tax assets --
Accrued expenses................ (74) (179)
General business credits........ (51) (45)
Net operating losses............ (672) (338)
Other........................... (109) (94)
--------- ---------
Gross deferred income tax
assets.................. (906) (656)
Less valuation
allowance............... 51 45
--------- ---------
Net deferred income tax
assets.................. (855) (611)
--------- ---------
$ 277 $ 572
========= =========
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 OCTOBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
Tax at statutory rate................ $ 411 $ 483 $ 510
Add (deduct) --
State income taxes........ 74 69 58
Nondeductible expenses.... 18 13 13
Effect of nontaxable
income from personal
assets (transportation
equipment) of
stockholder............. -- (109) (199)
--------- --------- ---------
$ 503 $ 456 $ 382
========= ========= =========
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. The
Company also has general business credit carryforwards which have been fully
offset by a valuation allowance. The general business credit carryforwards will
expire at various periods from 1996 through 2002.
53
6. COMMITMENTS AND CONTINGENCIES:
SERVICE CONTRACTS
The Company has entered into three long-term service contracts with
governmental entities to provide transit and commuter service throughout
northern California. The contracts expire at various dates through June 1998.
Under the terms of the contracts, the Company recognized revenues of $8,735,000,
$10,085,000 and $12,325,000 for the years ended October 31, 1993, 1994 and 1995,
respectively.
LETTERS OF CREDIT
The Company is contingently liable for letters of credit totaling
$1,150,000 issued in connection with the Company's long-term service contracts
and insurance policies. These letters of credit require commitment fees ranging
from one to two percent paid on an annual basis and are secured by certificates
of deposit and a guarantee by a stockholder.
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended October 31, 1993, 1994 and 1995, was
$862,000, $868,000 and $1,019,000, respectively. The following represents future
minimum rental payments under noncancelable operating leases (in thousands):
Year ending October 31 --
1996............................ $ 629
1997............................ 574
1998............................ 560
1999............................ 568
2000............................ 572
Thereafter...................... 1,419
---------
$ 4,322
=========
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 $10,000 deductible. As
such, any claim within the first $10,000 per incident would be the financial
obligation of the Company.
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 31, 1995. The accrual
is based on known facts and historical trends, and management believes such
accrual to be adequate.
54
EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan which allows eligible employees to
defer a portion of their income through contributions to the plan. Under the
provisions of the plan, employees may contribute up to a maximum of four percent
of employee compensation, and the Company matches 50 percent of amounts
contributed by employees. Company contributions to the plan were $23,000,
$26,000 and $27,000 in 1993, 1994, and 1995, respectively.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to 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 expire in
1998.
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
OCTOBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Prepaid insurance.................... $ 196 $ 216
Deferred tax asset -- current........ 476 515
Other................................ 515 270
--------- ---------
$ 1,187 $ 1,001
========= =========
NOTES RECEIVABLE FROM STOCKHOLDER
The Company had receivables from a stockholder totaling $225,000 and
$229,000 at October 31, 1994 and 1995, respectively. The loans are unsecured,
noninterest-bearing and payable on demand.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
OCTOBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Trade accounts payable............... $ 1,175 $ 828
Accrued compensation and benefits.... 680 769
Accrued insurance claims payable..... 136 170
Other................................ 364 493
--------- ---------
$ 2,355 $ 2,260
========= =========
55
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on November
1, 1992.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. One
owner agreed to reductions in salary and benefits in connection with the Merger
and entered into a five-year employment agreement which provides for a set base
salary, participation in future incentive bonus plans, certain other benefits
and a two-year covenant not to compete following termination of such person's
employment.
The unaudited pro forma data present compensation at the level the
stockholder of the Company has agreed to receive from the Company subsequent to
the Merger. In addition, the pro forma data present the incremental provision
for income taxes as if the Company had been subject to federal income taxes and
for the income tax impact of the compensation differential discussed above.
10. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In March 1996, the Company and its stockholders entered into a definitive
agreement with Coach USA providing for the Merger of the Company with a
subsidiary of Coach USA.
56
LEISURE TIME TOURS
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
---------------------- MARCH 31
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 2,222 $ 1,315 $ 1,395
Accounts receivable, less
allowance of $62, $37 and
$37.......................... 462 579 595
Inventories..................... 237 234 234
Investments, including
restricted of $300 and
$300......................... 606 885 794
Prepaid expenses and other
current assets............... 973 1,055 835
---------- ---------- -----------
Total current assets...... 4,500 4,068 3,853
PROPERTY AND EQUIPMENT, net.......... 11,182 13,479 13,570
OTHER ASSETS......................... 42 90 105
---------- ---------- -----------
Total assets.............. $ 15,724 $ 17,637 $17,528
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,009 $ 1,334 $ 1,356
Accounts payable and accrued
liabilities.................. 5,095 5,271 5,524
---------- ---------- -----------
Total current
liabilities............... 6,104 6,605 6,880
LONG-TERM OBLIGATIONS, net of current
maturities......................... 2,289 2,999 2,654
DEFERRED INCOME TAXES................ 554 558 546
---------- ---------- -----------
Total liabilities......... 8,947 10,162 10,080
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $100 par, 100
shares authorized, 16 2/3
shares issued................ 2 2 2
Retained earnings............... 6,775 7,473 7,446
---------- ---------- -----------
Total stockholders'
equity.................. 6,777 7,475 7,448
---------- ---------- -----------
Total liabilities and
stockholders' equity.... $ 15,724 $ 17,637 $17,528
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
57
LEISURE TIME TOURS
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------- --------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 17,534 $ 17,694 $ 18,992 $ 3,784 $ 4,368
OPERATING EXPENSES................... 15,497 14,139 14,577 3,318 3,616
---------- ---------- ---------- --------- ---------
Gross profit.............. 2,037 3,555 4,415 466 752
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,128 1,934 1,895 452 485
---------- ---------- ---------- --------- ---------
Operating income (loss)... (91) 1,621 2,520 14 267
OTHER (INCOME) EXPENSE:
Interest expense................ 380 317 339 70 86
Interest income................. (41) (71) (104) (2) (45)
Other, net...................... (26) (62) (103) (71) (20)
---------- ---------- ---------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.... (404) 1,437 2,388 17 246
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. (32) 139 225 2 23
---------- ---------- ---------- --------- ---------
NET INCOME (LOSS).................... $ (372) $ 1,298 $ 2,163 $ 15 $ 223
========== ========== ========== ========= =========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ (372) $ 1,298 $ 2,163 $ 15 $ 223
Pro forma compensation
differential................. 203 211 309 76 86
Pro forma provision (benefit)
for income taxes............. (42) 546 895 37 115
---------- ---------- ---------- --------- ---------
PRO FORMA NET INCOME (LOSS).......... $ (127) $ 963 $ 1,577 $ 54 $ 194
========== ========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
LEISURE TIME TOURS
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ --------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992......... 16 2/3 $ 2 $ 6,270 $ 6,272
Dividends paid.................. -- -- (246) (246)
Net loss........................ -- -- (372) (372)
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1993......... 16 2/3 2 5,652 5,654
Dividends paid.................. -- -- (175) (175)
Net income...................... -- -- 1,298 1,298
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1994......... 16 2/3 2 6,775 6,777
Dividends paid.................. -- -- (1,465) (1,465)
Net income...................... -- -- 2,163 2,163
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1995......... 16 2/3 2 7,473 7,475
------ ------ --------- -------------
Dividends paid (unaudited)...... -- -- (250) (250)
Net income (unaudited).......... -- -- 223 223
------ ------ --------- -------------
BALANCE AT MARCH 31, 1996
(unaudited)........................ 16 2/3 $ 2 $ 7,446 $ 7,448
====== ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
59
LEISURE TIME TOURS
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
--------------------------------- --------------------
1993 1994 1995 1995 1996
---------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ (372) $ 1,298 $ 2,163 $ 15 $ 223
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation.............. 1,451 1,164 1,053 242 230
(Gain) loss on sale of
assets.................. 60 (62) 44
Net gain on sale of
investments............. (33) (17) (153) (49) (18)
Deferred tax provision
(benefit)............... (49) (56) 60 (41) 11
Changes in operating
assets and
liabilities --
Accounts receivable,
net.................. 186 (171) (117) 74 (16)
Inventories............. 61 99 3 -- --
Investments............. (124) (132) (126) (214) 109
Prepaid expenses and
other current
assets............... (35) (146) (156) (90) 197
Accounts payable and
accrued
liabilities.......... 376 643 194 457 253
Other................... (12) 74 (48) (6) (15)
---------- --------- ---------- --------- ---------
Net cash provided
by operating
activities..... 1,509 2,694 2,917 388 974
---------- --------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment.................... (911) (94) (5,625) (20) (542)
Proceeds from sales of property
and equipment................ 170 99 2,231 -- 221
---------- --------- ---------- --------- ---------
Net cash provided
by (used in)
investing
activities..... (741) 5 (3,394) (20) (321)
---------- --------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (1,759) (990) (1,065) (236) (323)
Proceeds from issuance of
long-term obligations........ 422 500 2,100 744 --
Dividends paid.................. (246) (175) (1,465) (190) (250)
---------- --------- ---------- --------- ---------
Net cash provided
by (used in)
financing
activities..... (1,583) (665) (430) 318 (573)
---------- --------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... (815) 2,034 (907) 686 80
CASH AND CASH EQUIVALENTS, beginning
of year............................ 1,003 188 2,222 2,222 1,315
---------- --------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 188 $ 2,222 $ 1,315 $ 2,908 $ 1,395
========== ========= ========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 372 $ 310 $ 318 65 86
Cash paid for income taxes...... 100 1 364 -- 14
</TABLE>
The accompanying notes are an integral part of these financial statements.
60
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Leisure Time Tours (the Company) provides motorcoach transportation
services through regularly scheduled excursion, charter and group tour services
primarily in the states of New Jersey, New York and Pennsylvania.
The Company and its stockholders entered into a definitive agreement with
Coach USA, Inc. (Coach USA), pursuant to which the Company merged with a
subsidiary of Coach USA (the Merger). All outstanding shares of the Company's
common stock were exchanged for cash and shares of Coach USA's common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of Coach USA.
The Company has a working capital deficit as of December 31, 1995. The
Company may continue to experience working capital deficits as it pursues its
business strategy of growth and expanding services. The Company has historically
funded its operations with cash flows from operations and debt from lenders and
stockholders. While there can be no assurances, management believes that the
Company has adequate financing alternatives to fund the Company's operations
through the first quarter of 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 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 a 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 reported at the lower
of cost or market.
INVESTMENTS
The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," which
requires that investments in debt securities and marketable equity securities be
designated as trading, held-to-maturity or available-for-sale. At December 31,
1994 and 1995, investments have been categorized as trading securities, are
stated at fair value, and are classified in the balance sheets as current
assets. Investments at December 31, 1994 and 1995 consist of marketable equity
securities and certificates of deposit. The realized gains and losses on the
sale of investments classified as trading securities are determined using the
specific identification method. Unrealized losses on trading securities totaling
$30,000, $600 and $78,000 are included in net income for the years ended
December 31, 1993, 1994 and 1995, respectively.
61
Included in investments at December 31, 1994 and 1995, are cash deposits of
$300,000 which are restricted as to withdrawal related to the Company's accrued
insurance claims 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.
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
various tour operators in the travel service industry. Management performs
ongoing credit evaluations of its customers and provides allowances as deemed
necessary.
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.
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.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of " (SFAS 121) which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have a material effect, if any, on the
financial statements. The Company will adopt SFAS 121 in 1996.
62
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED DECEMBER 31
USEFUL LIVES ----------------------
(YEARS) 1994 1995
-------------- ---------- ----------
(IN THOUSANDS)
Transportation equipment............. 12 $ 18,672 $ 19,107
Other................................ 3-25 3,214 3,221
---------- ----------
21,886 22,328
Less -- Accumulated depreciation..... (10,704) (8,849)
---------- ----------
$ 11,182 $ 13,479
========== ==========
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
Notes payable to a bank, interest
ranging from 8.0% to
8.4%, due in monthly installments
of $133,000, maturing December 1997
through September 2002; secured by
transportation equipment,
inventories, accounts receivable
and personal guarantee of a
stockholder........................ $ 3,178 $ 4,251
Other................................ 120 82
---------- ----------
3,298 4,333
Less -- Current maturities........... (1,009) (1,334)
---------- ----------
$ 2,289 $ 2,999
========== ==========
At December 31, 1995, future principal payments of long-term obligations
are as follows (in thousands):
Year ending December 31 --
1996......................... $ 1,334
1997......................... 1,449
1998......................... 279
1999......................... 302
2000......................... 328
Thereafter................... 641
---------
$ 4,333
=========
Management estimates that the fair value of its debt obligations
approximates the historical value of $4,333,000 at December 31, 1995.
63
5. INCOME TAXES:
The Company has elected S Corporation status, as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of the
Company's taxable earnings or losses on their personal income tax returns. The
Company's S Corporation status terminated with the effective date of the Merger.
The Company is subject to taxation in certain states based upon the jurisdiction
in which revenues are earned.
The provision for taxes on income consists of the following:
YEAR ENDED DECEMBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
State --
Current......................... $ 17 $ 195 $ 165
Deferred........................ (49) (56) 60
--------- --------- ---------
$ (32) $ 139 $ 225
========= ========= =========
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.
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.......... $ 554 $ 558
Other........................... 24 6
--------- ---------
Total deferred income tax
liabilities............. 578 564
--------- ---------
Deferred income tax assets --
Accrued expenses................ (331) (257)
Other........................... (6) (6)
--------- ---------
Total deferred income tax
assets.................. (337) (263)
--------- ---------
$ 241 $ 301
========= =========
64
6. COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENTS
The Company has entered into commitments to purchase 12 motorcoaches during
1996 for approximately $3.5 million. The Company has deposited $24,000 for the
purchase of these motorcoaches as of December 31, 1995, and is currently
evaluating financing alternatives with its present lending institution.
LEASES
The Company leases facilities and equipment under cancelable lease
agreements. Rental expense for the years ended December 31, 1993, 1994 and 1995
was $71,000, $79,000 and $60,000, respectively.
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 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 $50,000 deductible
(prior to April 1, 1995, the deductible was $100,000). As such, any claim within
the first $50,000 per incident would be the financial obligation of the Company.
The Company is contingently liable for a letter of credit of $300,000 issued in
connection with the Company's insurance policies.
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 December 31, 1995. The accrual
is based on known facts and historical trends, and management believes such
accrual to be adequate.
EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan which allows eligible employees to
defer a portion of their income through contributions to the plan. Under the
provisions of the plan, employees may contribute up to a maximum of four percent
of employee compensation, and the Company matches 50 percent of amounts
contributed by employees. Company contributions to the plan were $13,000,
$14,000 and $20,000 in 1993, 1994 and 1995, respectively.
COLLECTIVE BARGAINING AGREEMENT
The Company is a party to a collective bargaining agreement with certain of
its employees. The agreement requires the Company to pay specified wages and
provide certain benefits to its union employees. This agreement will expire in
1999.
RELATED-PARTY TRANSACTIONS
During 1994 and 1995, the Company had transactions with related parties
consisting primarily of services for purchased transportation and motorcoach
maintenance. During 1994, total revenues and expenses were approximately $24,000
and $23,000, respectively. During
65
1995, total revenues and expenses were approximately $213,000 and $217,000,
respectively. At December 31, 1994 and 1995, the net amount due to affiliated
companies was $27,000 and $30,000, respectively, which is included in trade
accounts payable.
ENVIRONMENTAL CONCERNS
Certain groundwater contamination has occurred at the Company's facility in
Mahwah, New Jersey as a result of leakage from an underground storage tank. As a
result of discussions with the State of New Jersey Department of Environmental
Protection (the Department), in December 1989, the Company submitted a Ground
Water Quality Assessment Program (GWQAP) work plan to the Department which
outlined a two-phase approach for the site assessment. Phase I and Phase II
reports were submitted to the Department in August 1990 and November 1990,
respectively. In August 1991, a Phase III report was submitted to the
Department, which detailed the Company's final stage of the assessment program.
In July 1992, the Company entered into a memorandum of agreement with the
Department as an alternative to the GWQAP under which the Company will sample
and monitor the groundwater contamination under the Department's oversight. A
sampling and monitoring schedule was submitted to the Department in September
1992 and was approved by the state of New Jersey in November 1994. The Company
has undertaken several remedial measures to improve groundwater quality at its
facility. The most recent groundwater sampling reports indicate that sampling
has been performed in accordance with the Department's Field Sampling Manual and
that the remedial measures taken by the Company have made an improvement in
groundwater quality at the site. The Company believes that the ultimate
resolution of this matter will not have a material adverse effect on the
financial position or results of operations of the Company. In addition, at the
Company's facility in Mahwah, the Company has discharged bus wash and toilet
waste into the groundwater. The Department has indicated that if the Company
continues to discharge this bus wash and toilet waste into the groundwater, the
Department would require the Company to connect to the public sanitary sewer
system. The Company has ceased discharging bus wash and bus toilet waste to
groundwater. Currently, the Company periodically hauls this waste off site for
disposal. After consulting with an environmental engineer, the Company accrued
approximately $220,000 which is included in accounts payable and accrued
liabilities at December 31, 1994 and 1995 for the anticipated cost of connecting
to the sewer system.
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Prepaid insurance.................... $ 444 $ 703
Deferred tax asset -- current........ 337 263
Other................................ 192 89
--------- ---------
$ 973 $ 1,055
========= =========
66
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Trade accounts payable............... $ 997 $ 887
Accrued compensation and benefits.... 273 268
Accrued insurance claims payable..... 3,159 3,624
Other................................ 666 492
--------- ---------
$ 5,095 $ 5,271
========= =========
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on January 1,
1993.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. One
owner agreed to reductions in salary and benefits in connection with the Merger
and entered into a five-year employment agreement which provides for a set base
salary, participation in future incentive bonus plans, certain other benefits
and a two-year covenant not to compete following termination of such person's
employment.
The unaudited pro forma data present compensation at the level the
stockholder of the Company has agreed to receive from the Company subsequent to
the Merger. In addition, the pro forma data present the incremental provision
for income taxes as if the Company had been subject to federal income taxes and
for the income tax impact of the compensation differential discussed above.
10. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1996, the Company and its stockholders entered into a definitive
agreement with Coach USA providing for the Merger of the Company with a
subsidiary of Coach USA.
In connection with the Merger, the Company dividended certain assets to the
stockholders consisting of land, buildings and automobiles with a total carrying
value of approximately $2,064,000. In addition, the Company made a cash
distribution of approximately $3,100,000 prior to the Merger which represents
the Company's estimated S Corporation Accumulated Adjustment Account. Had these
transactions been recorded at March 31, 1996, the effect on the accompanying
balance sheet would be a decrease in assets of approximately $5,164,000 and
stockholders' equity of $5,164,000. Pursuant to the dividend of land and
buildings, the stockholders will indemnify Coach USA for existing environmental
remediation liabilities associated with the property, including liabilities
related to those issues discussed in Note 6.
Concurrent with the Merger, the Company entered into agreements with the
stockholders to lease land and buildings used in the Company's operations for a
negotiated amount and term.
67
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- MARCH 31
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 269 $ 209 $ 196
Accounts receivable, less
allowance of $10............. 183 183 143
Inventories..................... 257 307 317
Investments, including
restricted of $528, $580
and $580..................... 1,059 1,046 535
Prepaid expenses and other
current assets............... 766 1,022 753
--------- --------- -----------
Total current assets...... 2,534 2,767 1,944
PROPERTY AND EQUIPMENT, net.......... 2,590 3,241 3,065
OTHER ASSETS......................... 182 137 120
--------- --------- -----------
Total assets.............. $ 5,306 $ 6,145 $ 5,129
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 315 $ 497 $ 463
Accounts payable and accrued
liabilities.................. 2,485 2,953 2,070
Notes payable to stockholder.... 132 171 100
--------- --------- -----------
Total current
liabilities............... 2,932 3,621 2,633
LONG-TERM OBLIGATIONS, net of current
maturities...................... 784 1,191 1,319
--------- --------- -----------
Total liabilities......... 3,716 4,812 3,952
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 7,500
shares authorized, 3,600
shares issued................ 75 75 75
Additional paid-in capital...... 102 102 102
Retained earnings............... 1,837 1,580 1,424
Treasury stock, at cost......... (424) (424) (424)
--------- --------- -----------
Total stockholders'
equity.................. 1,590 1,333 1,177
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 5,306 $ 6,145 $ 5,129
========= ========= ===========
The accompanying notes are an integral part of these combined financial
statements.
68
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------- --------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 13,179 $ 14,106 $ 13,807 $ 2,840 $ 2,851
OPERATING EXPENSES................... 11,057 12,228 11,680 2,559 2,582
---------- ---------- ---------- --------- ---------
Gross profit.............. 2,122 1,878 2,127 281 269
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,760 1,999 2,193 428 424
---------- ---------- ---------- --------- ---------
Operating income (loss)... 362 (121) (66) (147) (155)
OTHER (INCOME) EXPENSE:
Interest expense................ 264 228 262 75 57
Interest income................. (34) (38) (49) -- (13)
Other, net...................... 28 49 (40) -- (78)
---------- ---------- ---------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.... 104 (360) (239) (222) (121)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 1 (98) (177) (89) (48)
---------- ---------- ---------- --------- ---------
NET INCOME (LOSS).................... $ 103 $ (262) $ (62) (133) (73)
========== ========== ========== ========= =========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 103 $ (262) $ (62) $ (133) $ (73)
Pro forma compensation
differential................. 818 1,015 1,449 159 160
Less: Pro forma provision for
income taxes................. 383 338 669 63 64
---------- ---------- ---------- --------- ---------
PRO FORMA NET INCOME................. $ 538 $ 415 $ 718 $ (37) $ 23
========== ========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
69
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN TREASURY RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK EARNINGS EQUITY
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992......... 3,600 $ 75 $ 102 $ (424) $2,101 $ 1,854
Net income...................... -- -- -- -- 103 103
------ ------ ---------- -------- -------- -------------
BALANCE AT DECEMBER 31, 1993......... 3,600 75 102 (424) 2,204 1,957
Dividends paid.................. -- -- -- -- (105) (105)
Net loss........................ -- -- -- -- (262) (262)
------ ------ ---------- -------- -------- -------------
BALANCE AT DECEMBER 31, 1994......... 3,600 75 102 (424) 1,837 1,590
Dividends paid.................. -- -- -- -- (195) (195)
Net loss........................ -- -- -- -- (62) (62)
------ ------ ---------- -------- -------- -------------
BALANCE AT DECEMBER 31, 1995......... 3,600 75 102 (424) 1,580 1,333
------ ------ ---------- -------- -------- -------------
Dividends paid (unaudited)...... -- -- -- -- (83) (83)
Net loss (unaudited)............ -- -- -- -- (73) (73)
------ ------ ---------- -------- -------- -------------
BALANCE AT MARCH 31, 1996
(unaudited)........................ 3,600 $ 75 $ 102 $ (424) $1,424 $ 1,117
====== ====== ========== ======== ======== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
70
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
-------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ 103 $ (262) $ (62) $ (133) $ (73)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation.................................... 365 349 350 84 91
(Gain) loss on sale of assets................... -- 15 (4) -- (77)
Deferred tax benefit............................ (3) (114) (204) (89) (48)
Changes in operating assets and liabilities --
Accounts receivable, net...................... (36) (25) -- (29) 40
Inventories................................... (41) (48) (50) (12) (10)
Investments................................... -- 132 65 (15) 511
Prepaid expenses and other current assets..... (693) 404 (48) 156 317
Accounts payable and accrued liabilities...... 68 410 507 (537) (883)
Other......................................... 158 74 41 79 17
--------- --------- ---------- --------- ---------
Net cash provided by (used in) operating
activities........................... (79) 935 595 (496) (115)
--------- --------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................... -- (436) (1,001) (40) --
Proceeds from sales of property and equipment......... -- 10 4 125 162
Purchases of investments -- restricted................ -- (19) (52) -- --
--------- --------- ---------- --------- ---------
Net cash provided by (used in) investing
activities........................... -- (445) (1,049) 85 162
--------- --------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations........... (910) (804) (459) (82) (177)
Proceeds from issuance of long-term obligations....... 700 558 1,048 304 200
Dividends paid........................................ -- (105) (195) -- (83)
--------- --------- ---------- --------- ---------
Net cash provided by (used in) financing
activities........................... (210) (351) 394 222 (60)
--------- --------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH............................ (289) 139 (60) (189) (13)
CASH AND CASH EQUIVALENTS, beginning of year............... 419 130 269 269 209
--------- --------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
year..................................................... $ 130 $ 269 $ 209 $ 80 $ 196
========= ========= ========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................ $ 248 $ 212 $ 294 $ 74 $ 61
Cash paid for income taxes............................ 30 31 14 -- --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
71
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Community Bus Lines, Inc., and its six affiliated companies (collectively,
the Company) operate city transit services, provide local commuter service and
provide motorcoach charter and group tour services. The Company operates
primarily in the New York/New Jersey metropolitan area.
The Company and its stockholders entered into a definitive agreement with
Coach USA, Inc. (Coach USA), pursuant to which the Company merged with a
subsidiary of Coach USA (the Merger). All outstanding shares of the Company's
common stock were exchanged for cash and shares of Coach USA's common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of Coach USA.
The Company has a working capital deficit as of December 31, 1995. The
Company may continue to experience working capital deficits as it pursues its
business strategy of growth and expanding services. The Company has historically
funded its operations with cash flows from operations and debt from lenders and
stockholders. While there can be no assurances, management believes that the
Company has adequate financing alternatives to fund the Company's operations
through the first quarter of 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and results of
operations of Community Bus Lines, Inc., and certain affiliated companies which
are under common control and management of six related stockholders. All
significant intercompany transactions and balances have been eliminated.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of March 31, 1996, and for the
three months ended March 31, 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 combined
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 a 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 reported at the lower
of cost or market.
INVESTMENTS
The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," which
requires that investments in debt securities and marketable equity securities be
designated as trading, held-to-maturity or available-for-sale. At December 31,
1994 and 1995, investments have been categorized as trading securities, are
stated at fair value, and are classified in the balance sheets as current
assets. Investments at December 31, 1994 and 1995 consist of debt securities,
marketable equity securities and certificates of deposit.
72
The realized gains and losses on the sale of investments classified as
trading securities are determined using the specific identification method.
Unrealized gains/(losses) on trading securities totaling $(11,000), $(18,000)
and $25,000 are included in net income for the years ended December 31, 1993,
1994 and 1995, respectively.
Included in investments at December 31, 1994 and 1995, are money market
funds and certificates of deposit of $528,000 and $580,000, respectively, which
are restricted as to withdrawal related to the Company's accrued insurance
claims 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.
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.
TREASURY STOCK
Treasury stock represents shares of the Company's common stock acquired
from a related party and are carried at cost.
CONCENTRATION OF CREDIT RISK
The Company's credit risks primarily consist of accounts receivable from
governmental entities and various tour operators in the travel service industry.
Management performs ongoing credit evaluations of its customers and provides
allowances as deemed necessary.
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
One of the affiliated companies is a C Corporation and the remaining
companies are S Corporations for federal income tax purposes. Federal income
taxes for the C Corporation 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.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of " (SFAS 121) which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have a material effect, if any, on the
combined financial statements. The Company will adopt SFAS 121 in 1996.
73
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED DECEMBER 31
USEFUL LIVES ----------------------
(YEARS) 1994 1995
------------- ---------- ----------
(IN THOUSANDS)
Transportation equipment............. 12 $ 4,300 $ 4,926
Other................................ 3-10 1,471 1,509
---------- ----------
5,771 6,435
Less -- Accumulated depreciation..... (3,181) (3,194)
---------- ----------
$ 2,590 $ 3,241
========== ==========
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Notes payable to financial
institutions, interest ranging from
LIBOR (5.4% at December 31, 1995)
plus 1%, to 10.5%, due in monthly
installments of $31,320, maturing
March 1996 through May 2001;
secured by certain transportation
equipment and personal guarantees
of the stockholders................ $ 375 $ 1,100
Notes payable to banks, interest
ranging from 7.3% to 9%, due in
monthly installments of $17,250
plus interest, maturing March 1996
through April 2000; secured by
certain transportation equipment... 626 480
Other................................ 98 108
--------- ---------
1,099 1,688
Less -- Current maturities........... (315) (497)
--------- ---------
$ 784 $ 1,191
========= =========
At December 31, 1995, future principal payments of long-term obligations
are as follows (in thousands):
Year ending December 31 --
1996............................ $ 497
1997............................ 360
1998............................ 277
1999............................ 277
2000............................ 208
Thereafter...................... 69
---------
$ 1,688
=========
Management estimates that the fair value of its debt obligations
approximates the historical value of $1,688,000 at December 31, 1995.
NOTES PAYABLE TO STOCKHOLDER
The Company had borrowings from a stockholder totaling $132,000 and
$171,000 at December 31, 1994 and 1995, respectively. The borrowings are
unsecured, bear interest at 10.5%, and are payable in monthly installments of
approximately $12,000.
74
5. INCOME TAXES:
The Company has implemented Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," which provides for a liability approach to
accounting for income taxes. The S Corporations in the affiliated group are not
subject to taxation for federal purposes. Under S Corporation status, the
stockholders report their share of the Company's taxable earnings or losses on
their personal income tax returns. These companies' S Corporation status
terminated with the effective date of the Merger. These companies are subject to
taxation in certain states based upon the jurisdiction in which revenues are
earned.
The provision for taxes on income consists of the following:
YEAR ENDED DECEMBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
Current --
Federal......................... $ -- $ 5 $ 1
State........................... 4 11 26
--------- --------- ---------
4 16 27
--------- --------- ---------
Deferred --
Federal......................... (8) (51) (172)
State........................... 5 (63) (32)
--------- --------- ---------
(3) (114) (204)
--------- --------- ---------
$ 1 $ (98) $ (177)
========= ========= =========
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.
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.......... $ 101 $ 130
Other........................... 25 33
--------- ---------
Total deferred income tax
liabilities............. 126 163
--------- ---------
Deferred income tax assets --
Accrued expenses................ (305) (546)
Other........................... (3) (3)
--------- ---------
Total deferred income tax
assets.................. (308) (549)
--------- ---------
$ (182) $ (386)
========= =========
75
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
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
Tax at statutory rate................ $ 36 $ (126) $ (84)
Add (deduct) --
State income taxes........ 6 (34) (3)
Effect of S Corporation
income.................. (46) 59 (146)
Other, net................ 5 3 56
--------- --------- ---------
$ 1 $ (98) $ (177)
========= ========= =========
6. COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENTS
The Company has entered into a commitment to purchase two motorcoaches
during 1996 for approximately $600,000. The Company intends to trade in one
motorcoach and finance the balance with bank debt which is presently being
negotiated.
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended December 31, 1993, 1994 and 1995, was
$190,000, $297,000 and $357,000, respectively. Included in these amounts are
rent expenses paid to affiliated companies of $97,000, $233,000 and $300,000 for
the years ended December 31, 1993, 1994 and 1995, respectively. The following
represents future minimum rental payments under noncancelable operating leases
(in thousands):
Year ending December 31 --
1996............................ $ 250
1997............................ 240
1998............................ 226
1999............................ 228
2000............................ 229
Thereafter...................... 343
---------
$ 1,516
=========
Included in the yearly rental payments above is $195,000 to be paid to
affiliated companies in each year through 2000.
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 combined 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 $100,000 deductible. As
such, any claim within the first $100,000 per incident would be the financial
obligation of the Company. The Company
76
maintains a letter of credit of $500,000 which requires a commitment fee of one
percent which is payable annually and is secured by certificates of deposit.
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 December 31, 1995. 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 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 expire in
1998.
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Prepaid insurance.................... $ 191 $ 226
Deferred tax asset -- current........ 89 297
Cash surrender value of life
insurance............................ 462 479
Other................................ 24 20
--------- ---------
$ 766 $ 1,022
========= =========
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Trade accounts payable............... $ 306 $ 263
Accrued compensation and benefits.... 143 634
Accrued insurance claims payable..... 1,755 1,810
Other................................ 281 246
--------- ---------
$ 2,485 $ 2,953
========= =========
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on January 1,
1993.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. One
owner agreed to reductions in salary and benefits in connection with the Merger
and entered into five-year employment agreements which provide for a set base
salary, participation in future incentive bonus plans, certain other benefits
and a two-year covenant not to compete following termination of such person's
employment.
The unaudited pro forma data present compensation at the level the
stockholder of the Company has agreed to receive from the Company subsequent to
the Merger. In addition, the pro forma data present the incremental provision
for income taxes as if all of the affiliated companies had been subject to
federal income taxes and for the income tax impact of the compensation
differential discussed above.
77
10. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1996, the Company and its stockholders entered into a definitive
agreement with Coach USA providing for the Merger of the Company with a
subsidiary of Coach USA.
In connection with the Merger, the Company dividended certain assets to the
stockholders, consisting of cash surrender value of life insurance policies and
automobiles, with a total carrying value of approximately $514,000. In addition,
the Company made a cash distribution of approximately $655,000 prior to the
Merger which represents the Company's estimated S Corporation Accumulated
Adjustment Account. Had these transactions been recorded at March 31, 1996, the
effect on the accompanying balance sheet would be a decrease in assets of
approximately $1,169,000, liabilities of $130,000 and stockholders' equity of
$1,039,000.
78
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- MARCH 31
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 129 $ 20 $ 19
Accounts receivable, less
allowance of $14, $16 and
$16.......................... 77 141 157
Inventories..................... 367 326 326
Prepaid expenses and other
current assets............... 97 27 27
--------- --------- -----------
Total current assets...... 670 514 529
PROPERTY AND EQUIPMENT, net.......... 8,521 8,294 8,680
OTHER ASSETS......................... 46 36 32
--------- --------- -----------
Total assets.............. $ 9,237 $ 8,844 $ 9,241
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,648 $ 1,708 $ 1,691
Accounts payable and accrued
liabilities.................. 1,397 1,223 1,281
Notes payable to stockholders... 315 315 315
--------- --------- -----------
Total current
liabilities............. 3,360 3,246 3,287
LONG-TERM OBLIGATIONS, net of current
maturities......................... 5,653 4,675 5,163
DEFERRED INCOME TAXES................ 120 142 142
--------- --------- -----------
Total liabilities......... 9,133 8,063 8,592
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 2,500
shares authorized, 300 shares
issued....................... 16 16 16
Retained earnings............... 88 765 633
--------- --------- -----------
Total stockholders'
equity.................. 104 781 649
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 9,237 $ 8,844 $ 9,241
========= ========= ===========
The accompanying notes are an integral part of these financial statements.
79
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
--------------------------------- --------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 8,494 $ 10,001 $ 11,053 $ 2,342 $ 2,269
OPERATING EXPENSES................... 6,665 8,457 8,241 1,996 1,971
--------- ---------- ---------- --------- ---------
Gross profit.............. 1,829 1,544 2,812 346 298
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 840 968 1,089 228 250
--------- ---------- ---------- --------- ---------
Operating income.......... 989 576 1,723 118 48
OTHER (INCOME) EXPENSE:
Interest expense................ 640 683 787 206 185
Other, net...................... (14) (42) 141 17 (2)
--------- ---------- ---------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.... 363 (65) 795 (105) (135)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 35 (7) 76 (10) (13)
--------- ---------- ---------- --------- ---------
NET INCOME (LOSS).................... $ 328 $ (58) $ 719 $ (95) $ (122)
========= ========== ========== ========= =========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 328 $ (58) $ 719 $ (95) $ (122)
Pro forma compensation differential.. 79 86 142 35 35
Less: Pro forma provision for
income taxes................. 152 16 324 (20) (30)
--------- ---------- ---------- --------- ---------
PRO FORMA NET INCOME................. $ 255 $ 12 $ 537 $ (40) $ (57)
========= ========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
80
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1992.... 300 $ 16 $ (99) $ (83)
Dividends paid............. -- -- (42) (42)
Net income................. -- -- 328 328
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1993.... 300 16 187 203
Dividends paid............. -- -- (41) (41)
Net loss................... -- -- (58) (58)
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1994.... 300 16 88 104
Dividends paid............. -- -- (42) (42)
Net income................. -- -- 719 719
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1995.... 300 16 765 781
------ ------ --------- -------------
Dividends paid (unaudited). -- -- (10) (10)
Net loss (unaudited)....... -- -- (122) (122)
------ ------ --------- -------------
BALANCE AT MARCH 31, 1996
(unaudited)................... 300 $ 16 $ 633 $ 649
====== ====== ========= =============
The accompanying notes are an integral part of these financial statements.
81
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 328 $ (58) $ 719 $ (95) $ (122)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation.............. 377 634 593 141 156
(Gain) loss on sale of
assets.................. -- (42) 60
Deferred tax provision
(benefit)............... 35 (7) 58 (7) (13)
Changes in operating
assets and
liabilities --
Accounts receivable,
net.................. 52 (8) (64) (74) (16)
Inventories............. (209) (50) 41 32 --
Prepaid expenses and
other current
assets............... (61) 9 60 92 13
Accounts payable and
accrued liabilities.. 447 277 (174) 153 58
Other................... (31) 21 (16) 7 4
---------- ---------- ---------- ---------- ----------
Net cash provided
by operating
activities..... 938 776 1,277 249 80
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment.................... (954) (2,163) (711) (14) (542)
Proceeds from sales of property
and equipment................ -- 1,172 285 -- --
---------- ---------- ----------
Net cash used in
investing
activities..... (954) (991) (426) (14) (542)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (1,012) (2,954) (1,545) (350) (227)
Proceeds from issuance of
long-term obligations........ 1,085 3,294 627 698
Dividends paid.................. (42) (41) (42) (10) (10)
---------- ---------- ---------- ---------- ----------
Net cash provided
by (used in)
financing
activities..... 31 299 (960) (360) 461
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... 15 84 (109) (125) (1)
CASH AND CASH EQUIVALENTS, beginning
of year............................ 30 45 129 129 20
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 45 $ 129 $ 20 $ 4 $ 19
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 649 $ 799 $ 680 $ 180 $ 147
</TABLE>
The accompanying notes are an integral part of these financial statements.
82
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Cape Transit Corp., operating as Adventure Trails (the Company), provides
motorcoach services to the Atlantic City, New Jersey, casinos (the casinos),
including shuttles from the airport, scheduled service from Philadelphia,
Pennsylvania, and contract service for employee shuttles. The Company also
provides charter and group tour services.
The Company and its stockholders entered into a definitive agreement with
Coach USA, Inc. (Coach USA), pursuant to which the Company merged with a
subsidiary of Coach USA (the Merger). All outstanding shares of the Company's
common stock were exchanged for cash and shares of Coach USA's common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of Coach USA.
The Company has a working capital deficit as of December 31, 1995. The
Company may continue to experience working capital deficits as it pursues its
business strategy of growth and expanding services. Management expects that
expanded operations will generate sufficient cash flows from operations to meet
the Company's working capital needs in 1996. In the event that cash flows from
operations are not sufficient in 1996, the Company could initially defer
repayment of its obligations to stockholders and may also consider other
refinancing alternatives. The Company has historically funded its operations
with cash flows from operations and debt from lenders and stockholders. The
Company's operations may be impacted by its concentration of services provided
to the casinos and its geographical concentration in New Jersey and neighboring
states, as the Company could be impacted by changes in the economic or other
conditions of its customer base. Additionally, the Company's operations are
seasonal with the Company achieving the highest levels of operations and net
income during the second and third quarters of the year. While there can be no
assurances, management believes that the Company has adequate financing
alternatives to fund the Company's operations through the first quarter of 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less as cash equivalents.
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 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 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.
INVENTORIES
Inventories primarily consist of motorcoach replacement parts. Inventory
cost is accounted for on the first-in, first-out basis and reported at the lower
of cost or market.
83
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
the casinos or their affiliates, or businesses dependent upon the casinos.
Management performs ongoing credit evaluations of its customers and provides
allowances as deemed necessary.
REVENUE RECOGNITION
The Company recognizes revenue from recreation, excursion and commuter
services when such services are rendered. Costs associated with the revenues are
incurred and recorded as services are rendered.
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.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of " (SFAS 121) which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have a material effect, if any, on the
financial statements. The Company will adopt SFAS 121 in 1996.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED DECEMBER 31
USEFUL LIVES --------------------
(YEARS) 1994 1995
------------- --------- ---------
(IN THOUSANDS)
Transportation equipment............. 12 $ 9,411 $ 9,639
Other................................ 5-10 304 347
--------- ---------
9,715 9,986
Less --Accumulated depreciation...... (1,194) (1,692)
--------- ---------
$ 8,521 $ 8,294
========= =========
84
Included in transportation equipment at December 31, 1994 and 1995, are
approximately $5,097,000 and $5,325,000, respectively, of assets held under
capital leases.
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
Notes payable to financial
institutions, interest ranging from
prime (8.5% at December 31, 1995)
plus 1.5%, to 11.5%, due in monthly
installments of $47,600, maturing
at various dates through November
2004; secured by certain
transportation equipment and the
personal guarantees of the
stockholders....................... $ 3,257 $ 2,758
Obligations under capital leases of
certain transportation equipment,
implicit interest rates ranging
from 7.7% to 13.5%, due in monthly
installments of $82,400, maturing
at various dates through 2000...... 2,986 2,708
Note payable to a bank, interest at
prime plus 1.5%, due in monthly
installments of $3,333 plus
interest, maturing December 1998;
secured by the assets of the
Company and personal guarantees of
the stockholders................... 400 360
Note payable to an individual,
interest at 7.5%, due in monthly
installments of $6,224, maturing
February 2000; secured by certain
transportation equipment and the
personal guarantees and partial
assignment of life insurance
policies of the stockholders....... 319 267
Other................................ 339 290
---------- ----------
7,301 6,383
Less -- Current maturities........... (1,648) (1,708)
---------- ----------
$ 5,653 $ 4,675
========== ==========
85
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...................... $ 868 $ 1,074
1997...................... 641 1,048
1998...................... 715 636
1999...................... 319 220
2000...................... 247 103
Thereafter................ 885 123
------------ -------------
$3,675 3,204
============
Less -- Amounts representing
interest..................... (496)
-------------
$ 2,708
=============
Certain obligations totaling $4,410,000 contain warranties and covenants
with which the Company was not in compliance as of December 31, 1995. The
Company requested and received waivers from the lenders indicating that the
scheduled repayment terms would not be revised as a result of these covenant
violations through January 1, 1997.
Management estimates that the fair value of its debt obligations
approximates the historical value of $3,675,000 at December 31, 1995.
NOTES PAYABLE TO STOCKHOLDERS
The Company had borrowings from stockholders totaling $315,000 at December
31, 1994 and 1995. The borrowings are unsecured, noninterest-bearing and payable
upon demand.
5. INCOME TAXES:
The Company has elected S Corporation status, as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of the
Company's taxable earnings or losses on their personal income tax returns. The
Company's S Corporation status terminated with the effective date of the Merger.
The Company is subject to taxation in certain states based upon the jurisdiction
in which revenues are earned.
The provision for taxes on income consists of the following:
YEAR ENDED DECEMBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
State --
Current................... $ -- $ -- $ 18
Deferred.................. 35 (7) 58
--------- --------- ---------
$ 35 $ (7) $ 76
========= ========= =========
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
86
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.
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.......... $ 120 $ 142
Other........................... -- --
--------- ---------
Total deferred income tax
liabilities............. 120 142
--------- ---------
Deferred income tax assets --
Accrued expenses................ (39) (34)
Other........................... (34) (3)
--------- ---------
Total deferred income tax
assets.................. (73) (37)
--------- ---------
$ 47 $ 105
========= =========
6. COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENTS
The Company has entered into a commitment to purchase 11 motorcoaches
during 1996 for approximately $3,100,000. The Company took delivery of the first
two motorcoaches during January 1996 and financed the transaction by issuing two
installment promissory notes totaling approximately $515,000 bearing interest at
9.8 percent. The notes are payable in monthly installments totaling
approximately $6,700, mature January 2006, and are secured by the two
motorcoaches and personal guarantees of the Company's stockholders. The Company
has received a proposal from the same institution regarding the financing of the
remaining motorcoaches.
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended December 31, 1993, 1994 and 1995, was
$53,000, $56,000 and $67,000, respectively. The following represents future
minimum rental payments under noncancelable operating leases (in thousands):
Year ending December 31 --
1996............................ $ 63
1997............................ 45
1998............................ 42
1999............................ 42
2000............................ 35
---------
$ 227
=========
87
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 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 $10,000 deductible. As
such, any claim within the first $10,000 per incident would be the financial
obligation of the Company.
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 December 31, 1995. The accrual
is based on known facts and historical trends, and management believes such
accrual to be adequate.
COLLECTIVE BARGAINING AGREEMENT
Certain employees of the Company are involved in discussions which could
lead to their representation under a collective bargaining agreement. Such an
agreement could require the Company to pay specified wages to its union
employees over the course of the agreement as well as to contribute to the
union's employee benefit plans.
SUBSEQUENT EVENTS
Subsequent to December 31, 1995, the Company issued a promissory note for
$350,000, secured by certain transportation equipment, and used the proceeds to
retire a capital lease obligation of approximately $166,000 and to provide
working capital. The note bears interest at 10.8 percent and is payable in
monthly installments of principal and interest of $8,210. The note matures July
16, 2000.
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Prepaid insurance.................... $ 60 $ --
Deferred tax asset -- current........ 37 27
--------- ---------
$ 97 $ 27
========= =========
88
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Trade accounts payable............... $ 735 $ 371
Accrued compensation and benefits.... 203 197
Accrued insurance claims payable..... 44 99
Other................................ 415 556
--------- ---------
$ 1,397 $ 1,223
========= =========
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on January 1,
1993.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. One
owner agreed to reductions in salary and benefits in connection with the Merger
and entered into a five-year employment agreement which provides for a set base
salary, participation in future incentive bonus plans, certain other benefits
and a two-year covenant not to compete following termination of such person's
employment.
The unaudited pro forma data present compensation at the level the
respective stockholder of the Company has agreed to receive from the Company
subsequent to the Merger. In addition, the pro forma data present the
incremental provision for income taxes as if the Company had been subject to
federal income taxes and for the income tax impact of the compensation
differential discussed above.
10. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS (UNAUDITED):
In March 1996, the Company and its stockholders entered into a definitive
agreement with Coach USA providing for the Merger of the Company with a
subsidiary of Coach USA.
89
ARROW STAGE LINES, INC.
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30
---------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 147 $ 286 $ 10
Accounts receivable, less
allowance of $34, $38
and $38...................... 1,067 1,021 670
Inventories..................... 285 297 346
Investments..................... 278 543 297
Prepaid expenses and other
current assets............... 322 458 344
---------- ---------- ----------
Total current assets...... 2,099 2,605 1,667
PROPERTY AND EQUIPMENT, net.......... 13,559 14,581 16,138
OTHER ASSETS......................... 325 196 204
---------- ---------- ----------
Total assets.............. $ 15,983 $ 17,382 $ 18,009
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,659 $ 1,887 $ 2,077
Accounts payable and accrued
liabilities.................. 1,038 1,338 1,844
---------- ---------- ----------
Total current
liabilities............. 2,697 3,225 3,921
LONG-TERM OBLIGATIONS, net of current
maturities......................... 9,024 9,117 9,407
---------- ---------- ----------
Total liabilities......... 11,721 12,342 13,328
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $100 par, 990
shares authorized,
10 shares issued............. 1 1 1
Retained earnings............... 4,261 5,039 4,680
---------- ---------- ----------
Total stockholders'
equity.................. 4,262 5,040 4,681
---------- ---------- ----------
Total liabilities and
stockholders' equity.... $ 15,983 $ 17,382 $ 18,009
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
90
ARROW STAGE LINES, INC.
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30 MARCH 31
--------------------------------- --------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 9,469 $ 10,039 $ 10,650 $ 4,835 $ 4,661
OPERATING EXPENSES................... 6,655 6,957 7,222 3,783 3,668
--------- ---------- ---------- --------- ---------
Gross profit.............. 2,814 3,082 3,428 1,052 993
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,216 1,493 1,751 646 697
--------- ---------- ---------- --------- ---------
Operating income (loss)... 1,598 1,589 1,677 406 296
OTHER (INCOME) EXPENSE:
Interest expense................ 726 773 807 377 467
Interest income................. (76) (19) (41) (4) (22)
Other, net...................... (149) (220) (108) (13) (10)
--------- ---------- ---------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.... 1,097 1,055 1,019 46 (139)
PROVISION FOR INCOME TAXES........... -- -- -- -- --
--------- ---------- ---------- --------- ---------
NET INCOME (LOSS).................... $ 1,097 $ 1,055 $ 1,019 $ 46 $ (139)
========= ========== ========== ========= =========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 1,097 $ 1,055 $ 1,019 $ 46 $ (139)
Pro forma compensation
differential................. 60 30 32 15 17
Less: Pro forma provision
(benefit) for income taxes... 480 432 431 26 (49)
--------- ---------- ---------- --------- ---------
PRO FORMA NET INCOME (LOSS).......... $ 677 $ 653 $ 620 $ 35 $ (73)
========= ========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
91
ARROW STAGE LINES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
BALANCE AT SEPTEMBER 30, 1992..... 10 $ 1 $2,182 $ 2,183
Dividends paid............... -- -- (73) (73)
Net income................... -- -- 1,097 1,097
------ ------ -------- -------------
BALANCE AT SEPTEMBER 30, 1993..... 10 1 3,206 3,207
Net income................... -- -- 1,055 1,055
------ ------ -------- -------------
BALANCE AT SEPTEMBER 30, 1994..... 10 1 4,261 4,262
Dividends paid............... -- -- (241) (241)
Net income................... -- -- 1,019 1,019
------ ------ -------- -------------
BALANCE AT SEPTEMBER 30, 1995..... 10 1 5,039 5,040
------ ------ -------- -------------
Dividends paid (unaudited)... -- -- (220) (220)
Net loss (unaudited)......... -- -- (139) (139)
------ ------ -------- -------------
BALANCE AT MARCH 31, 1996
(unaudited)..................... 10 $ 1 $4,680 $ 4,681
====== ====== ======== =============
The accompanying notes are an integral part of these financial statements.
92
ARROW STAGE LINES, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 SIX MONTHS ENDED MARCH, 31
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 1,097 $ 1,055 $ 1,019 $ 46 $ (139)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation.................... 766 926 1,240 506 735
Gain on sale of assets.... (146) (180) (49) -- --
Changes in operating
assets and
liabilities --
Accounts receivable,
net.................. (211) (193) 46 331 351
Inventories............. (62) (70) (12) (1) (49)
Investments............. -- (16) (265) -- 246
Prepaid expenses and
other current
assets............... (179) (120) (136) 226 114
Accounts payable and
accrued
liabilities.......... 167 222 300 25 506
Other................... (9) (154) 129 89 (8)
---------- ---------- ---------- ---------- ----------
Net cash provided
by operating
activities..... 1,423 1,470 2,272 1,222 1,756
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment.................... (103) (759) (2,513) (1,146) (2,292)
Proceeds from sales of property
and equipment................ 183 -- 300 349 --
---------- ---------- ---------- ---------- ----------
Net cash provided
by (used in)
investing
activities..... 80 (759) (2,213) (797) (2,292)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (2,115) (1,382) (2,128) (1,062) (824)
Proceeds from issuance of
long-term obligations........ 753 572 2,449 540 1,304
Dividends paid.................. (73) -- (241) -- (220)
---------- ---------- ---------- ---------- ----------
Net cash provided
by (used in)
financing
activities..... (1,435) (810) 80 (522) 260
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... 68 (99) 139 (97) (276)
CASH AND CASH EQUIVALENTS, beginning
of year............................ 178 246 147 147 286
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of
year................................. $ 246 $ 147 $ 286 $ 50 $ 10
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 697 $ 774 $ 807 $ 378 $ 483
</TABLE>
The accompanying notes are an integral part of these financial statements.
93
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Arrow Stage Lines, Inc. (the Company), provides motorcoach charter services
principally in the southwestern United States.
The Company and its stockholders entered into a definitive agreement with
Coach USA, Inc. (Coach USA), pursuant to which the Company merged with a
subsidiary of Coach USA (the Merger). All outstanding shares of the Company's
common stock were exchanged for cash and shares of Coach USA's common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of Coach USA.
The Company has a working capital deficit as of September 30, 1995. The
Company may continue to experience working capital deficits as it pursues its
business strategy of growth and expanding services. The Company has historically
funded its operations with cash flows from operations and debt from lenders and
stockholders. While there can be no assurances, management believes that the
Company has adequate financing alternatives to fund the Company's operations
through the first quarter of 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1996 and for the six
months ended March 31, 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 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 a 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 reported at the lower
of cost or market.
INVESTMENTS
The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," which
requires that investments in debt securities and marketable equity securities be
designated as trading, held-to-maturity or available-for-sale. At September 30,
1994 and 1995, investments have been categorized as trading securities, are
stated at fair value, and are classified in the balance sheets as current
assets. Investments at September 30, 1994 and 1995, consist of money market and
mutual funds.
The realized gains and losses on the sale of investments classified as
trading securities are determined using the specific identification method.
Unrealized gains, (losses) on trading securities totaling $2,000, $(3,000) and
$52,000 are included in net income for the years ended September 30, 1993, 1994
and 1995, respectively.
94
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
various tour operators in the travel service industry. One of the Company's
customers individually represents 20%, 18% and 20% of total revenues for the
years ended September 30, 1993, 1994 and 1995, respectively. Management performs
ongoing credit evaluations of its customers and provides allowances as deemed
necessary.
REVENUE RECOGNITION
The Company recognizes revenue from recreation and excursion services when
such services are rendered. Costs associated with the revenues are incurred and
recorded as services are rendered.
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.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of " (SFAS 121) which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have a material effect, if any, on the
financial statements. The Company will adopt SFAS 121 in 1996.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED SEPTEMBER 30
USEFUL LIVES ----------------------
(YEARS) 1994 1995
------------ ---------- ----------
(IN THOUSANDS)
Transportation equipment............. 12 $ 14,288 $ 15,720
Other................................ 3-31 1,989 2,075
---------- ----------
16,277 17,795
Less -- Accumulated depreciation..... (2,718) (3,214)
---------- ----------
$ 13,559 $ 14,581
========== ==========
95
Included in transportation equipment at September 30, 1994 and 1995, are
approximately $8,110,000 and $7,726,000, respectively, of assets held under
capital leases.
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
SEPTEMBER 30
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
Obligations under capital leases
of certain transportation
equipment, implicit interest
rates ranging from 6.1% to
9.7%, due in monthly
installments of $93,809,
maturing at various dates
through 2002.................. $ 6,379 $ 5,157
Notes payable to banks, interest
ranging from 7.1% to 8.8%, due
in monthly installments
totaling $84,408 including
interest, maturing at various
dates through July 2002;
secured by certain
transportation equipment...... 1,832 4,029
Note payable to a bank, interest
at 7.5% until May 1998, at
which time interest accrues at
3.2% above the Federal Reserve
Bank rate on treasury notes,
due in monthly installments of
$13,849 including interest,
through May 2001; secured by
certain transportation
equipment..................... 870 767
Note payable to a bank, interest
at 8.8%, due in monthly
installments of $7,267
including interest, through
May 1999; secured by real
property...................... 568 530
Note payable to a leasing
corporation, interest at 8.2%,
due in monthly installments of
$11,756 including interest,
through March 2000; secured by
certain transportation
equipment..................... 626 521
Notes payable to banks, paid in
1995.......................... $ 408 $ --
---------- ----------
10,683 11,004
Less -- Current maturities...... (1,659) (1,887)
---------- ----------
$ 9,024 $ 9,117
========== ==========
96
At September 30, 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 September 30 --
1996............................ $ 973 $ 1,282
1997............................ 988 1,522
1998............................ 953 970
1999............................ 1,255 730
2000............................ 800 1,048
Thereafter...................... 878 739
----------- -------------
$ 5,847 6,291
===========
Less -- Amounts representing
interest........................... (1,134)
-------------
$ 5,157
=============
Management estimates that the fair value of its debt obligations
approximates the historical value of $5,847,000 at September 30, 1995.
Certain obligations totaling $5,816,000 contain warranties and covenants
with which the Company was not in compliance as of September 30, 1995. The
Company requested and received waivers from the lenders indicating that the
scheduled repayment terms would not be revised as a result of these covenant
violations through January 1, 1997.
5. INCOME TAXES:
The Company has elected S Corporation status, as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal and
state purposes. Under S Corporation status, the stockholders report their share
of the Company's taxable earnings or losses on their personal income tax
returns. The Company's S Corporation status terminated with the effective date
of the Merger.
97
6. COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENTS
The Company has entered into commitments to purchase 15 motorcoaches during
1996 for approximately $4,700,000. The Company intends to trade in a similar
number of motorcoaches and finance the balance with bank debt which is presently
being negotiated.
LEASES
The Company leases certain equipment under noncancelable leases. Rental
expense for the years ended September 30, 1993, 1994 and 1995, was $1,000,
$5,000 and $5,000, respectively. The following represents future minimum rental
payments under noncancelable operating leases (in thousands):
Year ending September 30 --
1996............................ $ 5
1997............................ 2
1998............................ --
1999............................ --
2000............................ --
---
$ 7
===
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 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 $25,000 deductible. As
such, any claim within the first $25,000 per incident would be the financial
obligation of the Company.
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 September 30, 1995. The
accrual is based on known facts and historical trends, and management believes
such accrual to be adequate.
98
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
SEPTEMBER 30
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Prepaid insurance.................... $ 54 $ 35
Cash surrender value of life
insurance.......................... 71 133
Other................................ 197 290
--------- ---------
$ 322 $ 458
========= =========
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
SEPTEMBER 30
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Trade accounts payable............... $ 421 $ 426
Accrued compensation and benefits.... 179 292
Deferred revenue..................... 133 195
Accrued insurance claims payable..... 61 67
Other................................ 244 358
--------- ---------
$ 1,038 $ 1,338
========= =========
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on October 1,
1992.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. These
owners agreed to reductions in salaries and benefits in connection with the
Merger and entered into five-year employment agreements which provide for a set
base salary, participation in future incentive bonus plans, certain other
benefits and a two-year covenant not to compete following termination of such
person's employment.
The unaudited pro forma data present compensation at the level the
respective stockholders of the Company have agreed to receive from the Company
subsequent to the Merger. In addition, the pro forma data present the
incremental provision for income taxes as if the Company had been subject to
federal and state income taxes and for the income tax impact of the compensation
differential discussed above.
99
10. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In March 1996, the Company and its stockholders entered into a definitive
agreement with Coach USA providing for the Merger of the Company with a
subsidiary of Coach USA.
In connection with the Merger, the Company dividended certain assets to the
stockholders, consisting of land, buildings, cash surrender value of life
insurance and automobiles, with a total carrying value of approximately
$1,545,000. In addition, the Company made a cash distribution of approximately
$729,000 prior to the Merger which represents the Company's estimated S
Corporation Accumulated Adjustment Account. Had these transactions been recorded
at March 31, 1996, the effect on the accompanying balance sheet would be a
decrease in assets of approximately $2,274,000, liabilities of $530,000 and
stockholders' equity of $1,744,000.
Concurrent with the Merger, the Company entered into agreements with the
stockholders to lease land and buildings used in the Company's operations for a
negotiated amount and term.
100
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Combined
Founding Companies' Financial Statements and related notes thereto and
"Selected Combined Founding Companies' Financial Data" appearing elsewhere in
this filing.
INTRODUCTION
The Company's motorcoach revenues are derived from fares charged to
individual passengers and fees charged under contracts to provide motorcoach
services. Operating expenses consist primarily of salaries and benefits for
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 Founding Companies' owners and certain
key employees, administrative salaries and benefits, marketing, communications
and professional fees.
The Founding Companies have been managed throughout the periods presented
as independent private companies, and, as such, their results of operations
reflect a variety of tax structures (S Corporations and C Corporations) which
have influenced, among other things, their historical levels of owners'
compensation. These owners and certain key employees agreed to certain
reductions in their compensation and benefits in connection with the
organization of the Company and the Mergers. The differential between the
previous compensation and benefits of these individuals and the compensation
they agreed to receive subsequent to the Mergers is referred to as
"Compensation Differential." This Compensation Differential and the related
income tax effect have been reflected as pro forma adjustments in the Coach USA
pro forma financial information. See "Management -- Executive Compensation;
Employment Agreements; Covenants-Not-To-Compete."
The Company has preliminarily analyzed the savings that it expects to
realize by consolidating certain general and administrative functions, including
reductions in insurance and employee benefit plan expenses. In addition, the
Company anticipates that it will realize benefits from: (i) the reduction in
interest payments related to the prepayment of a portion of the Founding
Companies' debt; (ii) its ability to borrow at lower interest rates than the
Founding Companies; and (iii) savings in other general and administrative areas.
The Company cannot, at this time, quantify these savings. It is anticipated that
these savings will be partially offset by the costs of being a public company
and the incremental increase in costs related to the Company's new corporate
management. However, these costs also cannot be accurately quantified.
Accordingly, neither the anticipated savings nor the anticipated costs have been
included in the pro forma financial information included herein. As a result,
historical combined results may not be comparable to, or indicative of, future
performance.
101
RESULTS OF OPERATIONS -- COMBINED
The combined results discussed below occurred when the combined Founding
Companies were not under common control or management and may not be comparable
to, or indicative of, future performance. See "Risk Factors -- Absence of
Combined Operating History."
COMBINED RESULTS FOR 1994 COMPARED TO 1995
REVENUES. Revenues increased $6.7 million, or 6.3%, from $106.8 million in
1994 to $113.5 million in 1995. This increase was largely due to: (i) an
increase in Gray Line SF's revenues of $4.7 million, or 19.2%, from $24.5
million in 1994 to $29.2 million in 1995, primarily attributable to additional
transit services which began during the middle of 1994 and increased sightseeing
business in 1995; (ii) an increase in Leisure's revenues of $1.3 million, or
7.3%, from $17.7 million in 1994 to $19.0 million in 1995, primarily
attributable to increased charter and transit services and the addition of two
daily scheduled routes to Atlantic City; and (iii) an increase in Adventure's
revenues of $1.1 million, or 11.0%, from $10.0 million in 1994 to $11.1 million
in 1995, primarily attributable to additional airport service between the
Atlantic City airport and the Atlantic City casinos. This increase was partially
offset by a decrease in Suburban's and Community's revenues of $0.6 million, or
2.0%, from $30.4 million in 1994 to $29.8 million in 1995 and $0.3 million, or
2.1%, from $14.1 million in 1994 to $13.8 million in 1995, respectively.
OPERATING EXPENSES. Operating expenses increased by $1.4 million, or 1.6%,
from $88.3 million in 1994 to $89.7 million in 1995, but declined to 79.0% of
revenues in 1995 from 82.7% in 1994. The dollar increase was primarily
attributable to a $3.6 million increase, or 18.9%, from $19.0 million in 1994 to
$22.6 million in 1995 in Gray Line SF's operating expenses, consistent with its
percentage increase in revenues. Gray Line SF's additional operating expenses
consisted largely of increased drivers' salaries, agents' commissions and
vehicle maintenance expenses. This increase was partially offset by a decrease
in Suburban's, Community's and Adventure's operating expenses of $2.2 million,
or 8.0%, from $27.5 million in 1994 to $25.3 million in 1995, $0.5 million, or
4.5%, from $12.2 million in 1994 to $11.7 million in 1995, and $0.3 million, or
2.6%, from $8.5 million in 1994 to $8.2 million in 1995, respectively. The
decrease in operating expenses as a percentage of revenues was primarily
attributable to the 8.0% decrease in Suburban's operating expenses resulting
from the decision not to renew a municipal contract, lower salaries, wages and
related benefits from favorable revisions of its collective bargaining
agreements and changes to Suburban's employee group medical benefits program.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $1.7 million, or 13.6%, from $12.5 million in 1994 to $14.2 million in
1995. This increase was largely due to an increase in owners' compensation in
1995 of $1.1 million and an increase in Gray Line SF's general and
administrative expenses consistent with its increase in revenues. The $1.1
million increase in owners' compensation was primarily attributable to an
increase in 1995 from the prior year of $0.3 million for Suburban, $0.4 million
for Community and $0.3 million for Gray Line SF.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential of $2.1 million in 1994 and $3.2
million in 1995, increased 60.0%, from $8.0 million, or 7.5% of revenues, in
1994 to $12.8 million, or 11.3% of revenues, in 1995. The increase was
attributable to the net increase in revenues of $6.7 million, primarily from
additional charter and transit services provided by Gray Line SF, Leisure and
Adventure and the reduction of operating expenses as a percentage of revenues,
particularly by Suburban, due to its decision not to renew a municipal contract,
favorable revisions of its collective bargaining agreements and lower expenses
related to its employee group medical benefits program. Specifically, pro forma
operating income increased (i) $1.6 million, from $1.2 million in 1994 to
102
$2.8 million in 1995 for Suburban; (ii) $0.5 million, from $1.8 million in 1994
to $2.3 million in 1995 for Gray Line SF; (iii) $1.0 million, from $1.8 million
in 1994 to $2.8 million in 1995 for Leisure; (iv) $0.5 million, from $0.9
million in 1994 to $1.4 million in 1995 for Community; and (v) $1.2 million,
from $0.7 million in 1994 to $1.9 million in 1995 for Adventure. The
Compensation Differential increased (i) $0.3 million, from $0.6 million in 1994
to $0.9 million in 1995 for Suburban; (ii) $0.3 million, from $0.1 million in
1994 to $0.4 million in 1995 for Gray Line SF; and (iii) $0.4 million, from $1.0
million in 1994 to $1.4 million in 1995 for Community.
INTEREST EXPENSE. Interest expense increased $0.5 million, or 17.8%, from
$2.7 million in 1994 to $3.2 million in 1995. This increase was largely due to:
(i) an increase in Suburban's interest expense of $0.2 million; (ii) an increase
in Gray Line SF's interest expense of $0.1 million; and (iii) an increase in
Adventure's interest expense of $0.1 million. In each case, the increase
resulted from higher outstanding debt during 1995 as a result of equipment
purchases.
OTHER INCOME, NET. Other income, net decreased $0.1 million, or 23.6%,
from $0.4 million in 1994 to $0.3 million in 1995, primarily due to gains and
losses realized from the sale of transportation equipment by several of the
Founding Companies.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for taxes, increased
66.7% from $3.6 million, or 3.4% of revenues, in 1994 to $6.0 million, or 5.3%
of revenues, in 1995. The pro forma provision for taxes includes the incremental
taxes provided for Federal and state income taxes relating to the Compensation
Differential of $0.8 million in 1994 and $1.3 million in 1995, and income taxes
on S Corporation income and on revenues generated from motorcoaches owned by a
stockholder of Gray Line SF which were not included in historical net income of
$1.0 million in 1994 and $2.0 million in 1995. Specifically, pro forma net
income increased (i) $0.8 million, from $0.7 million in 1994 to $1.5 million in
1995 for Suburban; (ii) $0.2 million, from $0.9 million in 1994 to $1.1 million
in 1995 for Gray Line SF; (iii) $0.6 million, from $1.0 million in 1994 to $1.6
million in 1995 for Leisure; (iv) $0.3 million, from $0.4 million in 1994 to
$0.7 million in 1995 for Community; and (v) $0.5 million, from $12,000 in 1994
to $0.5 million in 1995 for Adventure.
COMBINED RESULTS FOR 1993 COMPARED TO 1994
REVENUES. Revenues increased $3.7 million, or 3.6%, from $103.1 million in
1993 to $106.8 million in 1994. This increase was largely due to: (i) an
increase in Gray Line SF's revenues of $2.4 million, or 10.9%, from $22.1
million in 1993 to $24.5 million in 1994, primarily attributable to the start-up
of additional transit and commuter operations and a higher volume of sightseeing
business; and (ii) an increase in Adventure's revenues of $1.5 million, or
17.6%, from $8.5 million in 1993 to $10.0 million in 1994, primarily
attributable to expanded Atlantic City casino employee shuttle contracts and
additional tour and charter business. These increases were partially offset by a
decrease in Suburban's revenues of $1.9 million, or 5.9%, from $32.3 million in
1993 to $30.4 million in 1994, primarily attributable to the loss of one
municipal contract and the decision to discontinue a low margin municipal
contract during 1994.
OPERATING EXPENSES. Operating expenses increased $2.9 million, or 3.4%,
from $85.4 million in 1993 to $88.3 million in 1994, but declined as a percent
of revenues from 82.8% in 1993 to 82.7% in 1994. This dollar increase was
largely due to: (i) an increase in Gray Line SF's operating expenses of $2.4
million, or 14.5%, from $16.6 million in 1993 to $19.0 million in 1994,
primarily attributable to additional fleet, employee and other costs associated
with new transit and commuter contracts; (ii) an increase in Community's
operating expenses of $1.1 million, or 9.9%, from $11.1 million in 1993 to $12.2
million in 1994, primarily attributable to higher operating activity and
increased maintenance expenses; and (iii) an increase in Adventure's operating
expenses of $1.8 million, or 26.9%, from $6.7 million in 1993 to $8.5 million in
1994, primarily attributable to an increase in its motorcoach fleet and related
maintenance, depreciation and employee expenses. These increases were partially
offset by a decrease in Suburban's
103
operating expenses of $1.4 million, or 4.8%, from $28.9 million in 1993 to $27.5
million in 1994, and a decrease in Leisure's operating expenses of $1.4 million,
or 9.0%, from $15.5 million in 1993 to $14.1 million in 1994, primarily
attributable to a reduction in maintenance costs for its transportation
equipment.
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative
expenses were $12.5 million, or 12.1% of revenues, in 1993 and $12.5 million, or
11.7% of revenues, in 1994.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential of $1.8 million in 1993 and $2.1
million in 1994, increased 12.7%, from $7.1 million, or 6.9% of revenues, in
1993, to $8.0 million, or 7.5% of revenues, in 1994. The increase was
attributable to the net increase in revenues of $3.7 million primarily from
additional charter and transit services provided by Gray Line SF and Adventure,
offset by Suburban's decrease in revenues from two municipal contracts. The net
increase in revenues, along with the decrease in Leisure's operating expenses,
were offset by increases in maintenance costs for Adventure and Community
attributable to increases in their motorcoach fleet and higher operating
activity. Specifically, the pro forma operating income (i) decreased $0.3
million, from $1.5 million in 1993 to $1.2 million in 1994 for Suburban; (ii)
increased $0.3 million, from $1.5 million in 1993 to $1.8 million in 1994 for
Gray Line SF; (iii) increased $1.7 million, from $0.1 million in 1993 to $1.8
million in 1994 for Leisure; (iv) decreased $0.3 million, from $1.2 million in
1993 to $0.9 million in 1994 for Community; and (v) decreased $0.4 million, from
$1.1 million in 1993 to $0.7 million in 1994 for Adventure.
INTEREST EXPENSE. Interest expense increased $0.1 million, or 3.1%, from
$2.6 million in 1993 to $2.7 million in 1994.
OTHER INCOME, NET. Other income, net increased $0.1 million, or 43.8%,
from $0.3 million in 1993 to $0.4 million in 1994, primarily due to gains and
losses realized from the sale of transportation equipment by several of the
Founding Companies.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for taxes, was $2.9
million, or 2.8% of revenues, in 1993 compared to $3.6 million, or 3.4% of
revenues, in 1994. The pro forma provision for taxes includes the incremental
taxes provided for Federal and state income taxes relating to the Compensation
Differential of $0.8 million in 1993 and $0.8 million in 1994, and income taxes
on S Corporation income and on revenues generated from motorcoaches owned by a
stockholder of Gray Line SF which were not included in historical net income of
$0.5 million in 1993 and $1.0 million in 1994. Specifically, pro forma net
income (i) decreased $0.1 million, or 17.2%, from $0.8 million in 1993 to $0.7
million in 1994 for Suburban; (ii) increased $0.2 million, or 18.0%, from $0.7
million in 1993 to $0.9 million in 1994 for Gray Line SF; (iii) increased $1.1
million, from a loss of $0.1 million in 1993 to income of $1.0 million in 1994
for Leisure; and (iv) decreased $0.1 million, or 22.9%, from $0.5 million in
1993 to $0.4 million in 1994 for Community.
LIQUIDITY AND CAPITAL RESOURCES -- COMBINED
Net cash provided by combined operating activities was $6.6 million, $8.9
million and $11.0 million for 1993, 1994 and 1995, respectively. The increase in
net cash provided by combined operating activities for 1995 as compared to 1994
of $2.1 million was primarily due to an increase in net income of: (i) $0.9
million at Suburban, (ii) $0.8 million at Adventure and (iii) $0.9 million at
Leisure.
Cash used in combined investing activities was $3.1 million, $4.8 million
and $10.4 million for 1993, 1994 and 1995, respectively. Cash used in combined
investing activities for 1995 was primarily for additions and replacements of
motorcoaches and for expansions of facilities, consisting principally of
additions to property and equipment, net of proceeds from sales of
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property and equipment of: (i) $2.8 million at Suburban, (ii) $1.0 million at
Community, (iii) $3.4 million at Leisure, (iv) $0.4 million at Adventure and (v)
$2.2 million at Arrow.
Cash used in combined financing activities was $4.6 million, $2.2 million
and $1.8 million for 1993, 1994 and 1995, respectively. Cash used in combined
financing activities consisted of dividends paid to owners of the individual
Founding Companies partially offset by proceeds from issuances of long-term
obligations net of repayments. Dividends paid to owners of the individual
Founding Companies primarily consisted of payments at: (i) Suburban of $1.1
million, (ii) Leisure of $1.5 million, (iii) Community of $0.2 million and (iv)
Arrow of $0.2 million. These dividend payments were partially offset by proceeds
from issuance of long-term obligations net of repayments at: Suburban of $1.2
million, Leisure of $1.0 million and Community of $0.6 million. Grayline SF had
net principal payments on long-term obligations of $1.0 million and Adventure
had net principal payments on long-term obligations of $0.9 million.
Combined cash and cash equivalents decreased by $1.1 million in 1993,
increased by $1.9 million in 1994 and decreased by $1.2 million in 1995. The
decrease in 1995 principally resulted from a decrease of $0.4 million at
Suburban and a decrease of $0.9 million at Leisure.
Coach USA's sole stockholder as of December 31, 1995 advanced certain funds
in order to effect the Mergers and the Offering. Portions of those advances were
repaid out of the proceeds of the Offering. As of March 31, 1996, these advances
totaled $2,741,000.
On May 17, 1996 the Company completed the Offering, which involved the
public sale of 4,140,000 shares of Common Stock at a price of $14.00 per share.
The proceeds from the transaction, net of underwriting discounts and commissions
and after deducting estimated expenses of the Offering, were approximately $49.8
million. Of this amount, $23.8 million was used to pay the cash portion of the
purchase price for the Founding Companies. In addition, approximately $22.3
million of the net proceeds were used to repay indebtedness assumed by the
Company in the Mergers. The approximately $3.7 million of remaining net proceeds
will be used for working capital and for general corporate purposes, which are
expected to include future acquisitions.
The Company has established an interim $30 million credit facility with
NationsBank of Texas, N.A. ("NationsBank"). The credit facility is available
for acquisitions, for working capital, to finance equipment replacements and
additions and to refinance indebtedness of the Founding Companies not repaid out
of the net proceeds of the Offering. This credit facility provides for a
revolving credit facility with a term of one year and bears interest at LIBOR
plus 100 basis points, with the interest rate escalating as the Company's level
of funded debt increases relative to its cash flow. NationsBank is also acting
as the agent to establish a syndicate of financial institutions to expand and
extend this facility to a $70 million, three year revolving credit facility. At
March 31, 1996, the combined Founding Companies had total debt of $33.6 million.
Approximately $21.9 million of these obligations were repaid from the net
proceeds of the Offering, with the majority of the remaining balance refinanced
with the credit facility discussed above.
Certain of the Founding Companies have entered into agreements to purchase
motorcoaches for delivery in 1996 as follows: (i) Suburban, 10 motorcoaches for
$3.0 million, (ii) Leisure, 12 motorcoaches for $3.5 million, (iii) Community,
two motorcoaches for $0.6 million, (iv) Adventure, 11 motorcoaches for $3.1
million and (v) Arrow, 15 motorcoaches for $4.7 million. Each of the applicable
Founding Companies has either obtained financing or is currently pursuing
financing arrangements for these motorcoaches. The Company expects to realize
approximately $2.9 million on the trade in of approximately 30 motorcoaches in
connection with its 1996 motorcoach purchases, resulting in net capital
expenditures of approximately $12.0 million.
Certain of the Founding Companies made cash distributions to their
stockholders prior to the Mergers which represented the applicable company's
estimated S Corporation Accumulated
105
Adjustment Account as follows: (i) Leisure, $3.1 million, (ii) Community, $0.7
million and (iii) Arrow, $0.7 million. These distributions were funded through
cash provided by operating activities of the applicable company and additional
debt as needed.
Suburban, Leisure, Community, Adventure and Arrow each had a working
capital deficit as of its most recent balance sheet date. These companies may
continue to experience working capital deficits as they pursue their business
strategy of growth and expanding services. These companies have historically
funded their operations with cash flows from operations and debt from lenders
and stockholders. While there can be no assurance, management of each of these
companies believes that it has adequate financing alternatives to fund its
operations through the first quarter of 1997.
INTERIM PERIOD LIQUIDITY
Net cash provided by operating activities was $1.5 million and $2.2 million
for the three months ended March 31, 1995 and 1996, respectively. The increase
in net cash provided by combined operating activities was primarily due to a
decrease in investments and an increase in depreciation expense, a non-cash
expense item.
Cash used in combined investing activities was $2.6 million and $3.5
million for the three months ended March 31, 1995 and 1996, respectively. Cash
used in investing activities was primarily for additions and replacements of
motorcoaches.
Cash provided by financing activities was $1.0 million and $0.4 million for
the three months ended March 31, 1995 and 1996, respectively. Cash used in
combined financing activities for the three months ended March 31, 1996
consisted of principal payments on long-term obligations, largely offset by
proceeds from issuances of long-term obligations and dividends paid to owners of
the Founding Companies, primarily Leisure.
Combined cash and cash equivalents decreased by $0.8 million during the
three months ended March 31, 1996. The decrease primarily resulted from
decreases of $0.9 million at Suburban.
UNAUDITED INTERIM RESULTS -- COMBINED
Revenues for the three months ended March 31, 1996 increased $1.2 million,
or 5.2%, as compared to the three months ended March 31, 1995. The increase in
revenues was largely due to an increase in Gray Line SF's revenues of $0.9
million, primarily attributable to an increase in the level of municipal
contract services, and an increase in Leisure's revenues of $0.6 million,
primarily attributable to significantly increased ridership on scheduled service
to the Atlantic City casinos. These increases were partially offset by revenue
decreases at several other locations resulting from weather conditions.
Operating expenses for the three months ended March 31, 1996 increased $1.0
million, or 5.1%, as compared to the three months ended March 31, 1995. The
increase in operating expenses was largely due to an increase of $0.8 million at
Gray Line SF, which was primarily attributable to higher fuel costs and
increased operations. Operating expenses at several other locations also
increased due to higher fuel costs.
General and Administrative expenses increased $0.2 million, or 6.2%, as
compared to the three months ended March 31, 1995. The increase in general and
administrative expenses was largely due to an increase of $0.3 million at Gray
Line SF which resulted from increased expenses consistent with its higher
revenue levels.
Interest expense remained relatively constant between the periods.
Pro forma net loss, which has been adjusted for the Compensation
Differential and the pro forma provision for taxes, decreased during the three
months ended March 31, 1996 as compared to the three months ended March 31,
1995.
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RESULTS OF OPERATIONS - SUBURBAN
SUBURBAN RESULTS FOR 1994 COMPARED TO 1995
REVENUES. Revenues decreased $0.6 million, or 2.0%, from $30.4 million in
1994 to $29.8 million in 1995. This decline was primarily attributable to the
decision not to renew a municipal transit contract.
OPERATING EXPENSES. Operating expenses decreased $2.2 million, or 8.0%,
from $27.5 million in 1994 to $25.3 million in 1995, and declined to 85.1% of
revenues in 1995 from 90.5% in 1994. The decrease in operating expenses was
attributable to the decision not to renew a municipal transit contract, lower
salaries, wages and related benefits from favorable collective bargaining
revisions and changes to the medical benefits program.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.3 million, or 12.3%, from $2.3 million in 1994 to $2.6 million in
1995. This increase was the result of an increase in owners' compensation in
1995 of $0.3 million.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential of $0.6 million in 1994 and $0.9
million in 1995, increased 133.3%, from $1.2 million, or 3.9% of revenues, in
1994 to $2.8 million, or 9.4% of revenues, in 1995.
INTEREST AND OTHER EXPENSES, NET. These expenses increased $0.1 million,
or 100.0%, from $0.1 million in 1994 to $0.2 million in 1995. This increase was
primarily due to an increase in interest expense from higher outstanding debt as
a result of equipment purchases, partially offset by an increase in interest
income.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for income taxes,
increased 129.8%, from $0.7 million, or 2.2% of revenues, in 1994 to $1.5
million, or 5.1% of revenues, in 1995. The pro forma provision for taxes
includes the incremental taxes provided for Federal and state income taxes
relating to the Compensation Differential and income taxes on S Corporation
income.
SUBURBAN RESULTS FOR 1993 COMPARED TO 1994
REVENUES. Revenues decreased $1.9 million, or 5.9%, from $32.3 million in
1993 to $30.4 million in 1994. This decrease was primarily due to the loss of
one municipal transit contract and the decision to discontinue a low margin
municipal transit contract during 1994.
OPERATING EXPENSES. Operating expenses decreased $1.4 million, or 4.8%,
from $28.9 million in 1993 to $27.5 million in 1994, but increased to 90.5% of
revenues in 1994 from 89.6% in 1993. The decrease in operating expenses was
primarily related to the reduction in municipal transit contract services.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $0.1 million, or 5.5%, from $2.4 million in 1993 to $2.3 million in
1994.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential of $0.6 million in 1993 and 1994,
decreased 20.0% from $1.5 million, or 4.6% of revenues, in 1993 to $1.2 million,
or 3.9% of revenues in 1994.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for income taxes,
decreased 17.2% from $0.8 million, or 2.5% of revenues, in 1993 to $0.7 million,
or 2.2% of revenues, in 1994. The pro forma provision for taxes includes the
incremental taxes provided for Federal and state income taxes relating to the
Compensation Differential and income taxes on S Corporation income.
UNAUDITED INTERIM RESULTS - SUBURBAN
Revenues for the three months ended March 31, 1996 remained relatively
constant with the three months ended March 31, 1995. Operating expenses for the
three months ended March 31,
107
1996 increased $0.4 million as compared to the three months ended March 31,
1995, primarily due to higher fuel costs and increased maintenance and operating
expenses which were largely a result of unusual weather conditions. General and
administrative expenses remained relatively constant between the periods.
Interest expense increased $27,000 during the three months ended March 31, 1996
as compared to the same period in the prior year due to higher levels of average
debt outstanding resulting from additional motorcoaches purchased with borrowed
funds. As a result of the foregoing, the net loss increased from $(0.2 million)
for the three months ended March 31, 1995 to $(0.4 million) for the three months
ended March 31, 1996.
RESULTS OF OPERATIONS - GRAY LINE SF
GRAY LINE SF RESULTS FOR 1994 COMPARED TO 1995
REVENUES. Revenues increased $4.7 million, or 19.2%, from $24.5 million in
1994 to $29.2 million in 1995. This increase was primarily attributable to an
additional municipal transit contract which began during the middle of 1994 and
increased sightseeing business in 1995.
OPERATING EXPENSES. Operating expenses increased $3.6 million, or 18.9%,
from $19.0 million in 1994 to $22.6 million in 1995, and declined to 77.4% of
revenues in 1995 from 77.6% in 1994. The increase in operating expenses was
consistent with the percentage increase in revenues. The additional operating
expenses consisted largely of increased drivers' salaries, agents' commissions
and vehicle maintenance expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.9 million, or 23.7%, from $3.8 million in 1994 to $4.7 million in
1995. This increase was consistent with the increase in revenues and an increase
in owners' compensation in 1995 of $0.3 million.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential of $0.1 million in 1994 and $0.4
million in 1995, increased 27.8%, from $1.8 million, or 7.3% of revenues, in
1994 to $2.3 million, or 7.9% of revenues, in 1995.
INTEREST AND OTHER EXPENSES, NET. Interest expenses increased $0.1
million, or 32.2%, from $0.4 million in 1994 to $0.6 million in 1995. The
increase in interest expense resulted from higher outstanding debt levels during
1995.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for income taxes,
increased 22.2%, from $0.9 million, or 3.7% of revenues, in 1994 to $1.1
million, or 3.8% of revenues, in 1995. The pro forma provision for income taxes
includes the incremental taxes provided for Federal and state income taxes
relating to the Compensation Differential and income taxes on revenues generated
from motorcoaches owned by a stockholder for which taxes were not required to be
provided in Grayline SF's historical net income.
GRAY LINE SF RESULTS FOR 1993 COMPARED TO 1994
REVENUES. Revenues increased $2.4 million, or 10.9%, from $22.1 million in
1993 to $24.5 million in 1994. This increase was primarily attributable to the
start up of additional municipal transit contract operations and a higher volume
of sightseeing business.
OPERATING EXPENSES. Operating expenses increased $2.4 million, or 14.5%,
from $16.6 million in 1993 to $19.0 million in 1994, and increased to 77.6% of
revenues in 1994 from 75.1% in 1993. The increase in operating expenses was
primarily related to additional fleet, employee and other start up costs
associated with new municipal transit contracts.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $0.3 million, or 7.3%, from $4.1 million in 1993 to $3.8 million in
1994.
108
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential of $0.1 million in 1993 and 1994,
increased 20.0%, from $1.5 million, or 6.8% of revenues, in 1993 to $1.8
million, or 7.3% of revenues, in 1994.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for income taxes,
increased 28.6%, from $0.7 million, or 3.2% of revenues, in 1993 to $0.9
million, or 3.7% of revenues, in 1994. The pro forma provision for income taxes
includes the incremental taxes provided for Federal and state income taxes
relating to the Compensation Differential and income taxes on revenues generated
from motorcoaches owned by a stockholder for which taxes were not required to be
provided in Grayline SF's historical net income.
UNAUDITED INTERIM RESULTS - GRAY LINE SF
Revenues for the five months ended March 31, 1996 increased $0.9 million as
compared to the five months ended March 31, 1995. This increase was due to an
increase in the level of municipal contract service. Operating expenses for the
five months ended March 31, 1996 increased $0.8 million as compared to the five
months ended March 31, 1995, primarily due to higher fuel costs and increased
operations. General and administrative expenses for the five months ended March
31, 1996 increased $0.3 million as compared to the five months ended March 31,
1995 due to increased expenses to support the higher revenue levels. Interest
expense decreased $0.1 million during the five months ended March 31, 1996 as
compared to the same period in the prior year due to lower levels of average
debt outstanding. As a result of the foregoing, the net loss increased from
$(0.6 million) for the five months ended March 31, 1995 to $(0.7 million) for
the five months ended March 31, 1996.
RESULTS OF OPERATIONS - LEISURE
LEISURE RESULTS FOR 1994 COMPARED TO 1995
REVENUES. Revenues increased $1.3 million, or 7.3%, from $17.7 million in
1994 to $19.0 million in 1995. This increase was primarily attributable to
increases in charter and the addition of two daily scheduled routes to Atlantic
City.
OPERATING EXPENSES. Operating expenses increased $0.5 million, or 3.5%,
from $14.1 million in 1994 to $14.6 million in 1995, and declined to 76.8% of
revenues in 1995 from 79.7% in 1994. The increase in operating expenses was
primarily attributable to an increase in its motorcoach fleet and related
maintenance, depreciation and employee expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were unchanged at $1.9 million for 1994 and 1995.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential of $0.2 million in 1994 and $0.3
million in 1995, increased 55.6%, from $1.8 million, or 10.2% of revenues, in
1994 to $2.8 million, or 14.7% of revenues, in 1995.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for income taxes,
increased 60.0%, from $1.0 million, or 5.6% of revenues, in 1994 to $1.6
million, or 8.4% of revenues, in 1995. The pro forma provision for taxes
includes the incremental taxes provided for Federal and state income taxes
relating to the Compensation Differential and income taxes on S Corporation
income.
LEISURE RESULTS FOR 1993 COMPARED TO 1994
REVENUES. Revenues increased $0.2 million, or 1.1%, from $17.5 million in
1993 to $17.7 million in 1994.
OPERATING EXPENSES. Operating expenses decreased $1.4 million, or 9.0%,
from $15.5 million in 1993 to $14.1 million in 1994, and decreased to 79.7% of
revenues in 1994 from 88.6%
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in 1993. The decrease in operating expenses was primarily attributable to a
reduction in maintenance cost for transportation equipment.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $0.2 million, or 9.1%, from $2.1 million in 1993 to $1.9 million in
1994.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential of $0.2 million in 1993 and 1994,
increased from $0.1 million in 1993 to $1.8 million, or 10.2% of revenues, in
1994, primarily as a result of reduced operating expenses.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for income taxes,
increased from a loss of $(0.1 million) in 1993 to $1.0 million, or 5.6% of
revenues, in 1994. The pro forma provision for taxes includes the incremental
taxes provided for Federal and state income taxes relating to the Compensation
Differential and income taxes on S Corporation income.
UNAUDITED INTERIM RESULTS - LEISURE
Revenues for the three months ended March 31, 1996 increased $0.6 million
as compared to the three months ended March 31, 1995. The increase in revenues
was primarily the result of significantly increased ridership on scheduled
service to the Atlantic City casinos, which was only partially offset by the
unusual winter weather conditions experienced in much of the Northeast.
Operating expenses for the three months ended March 31, 1996 increased $0.3
million as compared to the three months ended March 31, 1995, primarily due to
increased operating, fuel and maintenance costs. General and administrative
expenses remained relatively constant between the periods due to an increase in
administrative staffing. Interest expense increased $16,000 during the three
months ended March 31, 1996 as compared to the same period in the prior year due
to higher levels of debt outstanding from additional motorcoaches purchased with
borrowed funds. As a result of the foregoing, net income for the three months
ended March 31, 1996 increased to $0.2 million as compared to net income of
$15,000 for the three months ended March 31, 1995.
RESULTS OF OPERATIONS - COMMUNITY
COMMUNITY RESULTS FOR 1994 COMPARED TO 1995
REVENUES. Revenues decreased $0.3 million, or 2.1%, from $14.1 million in
1994 to $13.8 million in 1995.
OPERATING EXPENSES. Operating expenses decreased $0.5 million, or 4.1%,
from $12.2 million in 1994 to $11.7 million in 1995, and declined to 84.8% of
revenues in 1995 from 86.5% in 1994.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.2 million, or 10.0%, from $2.0 million in 1994 to $2.2 million in
1995. This increase was primarily a result of the Compensation Differential
increasing from $1.0 million in 1994 to $1.4 million in 1995.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential of $1.0 million in 1994 and $1.4
million 1995, increased 55.6%, from $0.9 million, or 6.4% of revenues, in 1994
to $1.4 million, or 10.1% of revenues, in 1995.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for income taxes,
increased 75.0%, from $0.4 million, or 2.8% of revenues, in 1994 to $0.7
million, or 5.1% of revenues, in 1995. The pro forma provision for taxes
includes the incremental taxes provided for Federal and state income taxes
relating to the Compensation Differential and income taxes on S Corporation
income.
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COMMUNITY RESULTS FOR 1993 COMPARED TO 1994
REVENUES. Revenues increased $0.9 million, or 6.8%, from $13.2 million in
1993 to $14.1 million in 1994.
OPERATING EXPENSES. Operating expenses increased $1.1 million, or 9.9%,
from $11.1 million in 1993 to $12.2 million in 1994, and increased to 86.5% of
revenues in 1994 from 84.1% in 1993. The increase in operating expenses was
primarily attributable to higher operating activity and increased maintenance
expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.2 million, or 11.1%, from $1.8 million in 1993 to $2.0 million in
1994. This increase was the result of the Compensation Differential increasing
from $0.8 million in 1993 to $1.0 million in 1994.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential of $0.8 million in 1993 and $1.0
million in 1994, decreased from $1.2 million, or 9.1% of revenues, in 1993 to
$0.9 million, or 6.4% of revenues, in 1994, primarily as a result of the
increased operating expenses.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for income taxes,
decreased 20.0%, from $0.5 million, or 3.8% of revenues, in 1993 to $0.4
million, or 2.8% of revenues, in 1994. The pro forma provision for taxes
includes the incremental taxes provided for Federal and state income taxes
relating to the Compensation Differential and income taxes on S Corporation
income.
UNAUDITED INTERIM RESULTS -- COMMUNITY
Revenues for the three months ended March 31, 1996 remained relatively
constant with the three months ended March 31, 1995. Operating expenses for the
three months ended March 31, 1996 increased $23,000, primarily due to higher
fuel costs as compared to the three months ended March 31, 1995. General and
administrative expenses remained relatively constant between the periods. Other
income, net, is principally the result of insurance proceeds following a loss.
As a result of the foregoing, the net loss decreased from $(133,000) for the
three months ended March 31, 1995 to $(73,000) for the three months ended March
31, 1996.
RESULTS OF OPERATIONS - ADVENTURE
ADVENTURE RESULTS FOR 1994 COMPARED TO 1995
REVENUES. Revenues increased $1.1 million, or 11.0%, from $10.0 million in
1994 to $11.1 million in 1995. This increase was primarily attributable to
additional airport service between the Atlantic City airport and the Atlantic
City casinos.
OPERATING EXPENSES. Operating expenses decreased $0.3 million, or 3.5%,
from $8.5 million in 1994 to $8.2 million in 1995, and declined from 85.0% of
revenues in 1994 to 73.9% of revenues in 1995. The decrease in operating expense
as a percentage of revenues was primarily attributable to a higher utilization
of the motorcoach fleet in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.1 million, or 10.0%, from $1.0 million in 1994 to $1.1 million in
1995.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential, increased 171.4%, from $0.7 million,
or 7.0% of revenues, in 1994 to $1.9 million, or 17.1% of revenues, in 1995.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for taxes, increased
$0.5 million in 1995 to $0.5 million, or 4.5% of revenues. The pro forma
provision for taxes includes the incremental
111
taxes provided for Federal and state income taxes relating to the Compensation
Differential and income taxes on S Corporation income.
ADVENTURE RESULTS FOR 1993 COMPARED TO 1994
REVENUES. Revenues increased $1.5 million, or 17.6%, from $8.5 million in
1993 to $10.0 million in 1994. This increase was primarily attributable to
expanded Atlantic City casino employee shuttle contracts and additional tour and
charter business.
OPERATING EXPENSES. Operating expenses increased $1.8 million, or 26.9%,
from $6.7 million in 1993 to $8.5 million in 1994, and increased from 78.8% of
revenues in 1993 to 85.0% of revenues in 1994. The increase in operating
expenses was primarily attributable to an increase in its motorcoach fleet and
related maintenance, depreciation and employee expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.2 million, from $0.8 million in 1993 to $1.0 million in 1994.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential, decreased from $1.1 million, or
12.9% of revenues, in 1993 to $0.7 million, or 7.0% of revenues, in 1994.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for taxes, decreased
$0.3 million, or 3.5% of revenues, in 1994. The pro forma provision for taxes
includes the incremental taxes provided for Federal and state income taxes
relating to the Compensation Differential and income taxes on S Corporation
income.
UNAUDITED INTERIM RESULTS -- ADVENTURE
Revenues for the three months ended March 31, 1996 declined $(0.1 million)
as compared to the three months ended March 31, 1995. The decrease in revenues
was primarily the result of unusual winter weather conditions that limited the
ability of motorcoaches to operate. Operating expenses for the three months
ended March 31, 1996 remained relatively constant with the three months ended
March 31, 1995, primarily as a result of lower operating levels offset by
increased fuel costs. General and administrative expenses remained relatively
constant between the periods. Interest expense decreased $(21,000) during the
three months ended March 31, 1996 as compared to the same period in the prior
year due to lower levels of average debt outstanding. As a result of the
foregoing, the net loss for the three months ended March 31, 1996 of $(0.1
million) remained relatively constant as compared to the three months ended
March 31, 1995.
RESULTS OF OPERATIONS - ARROW
ARROW RESULTS FOR 1994 COMPARED TO 1995
REVENUES. Revenues increased $0.7 million, or 7.0%, from $10.0 million in
1994 to $10.7 million in 1995.
OPERATING EXPENSES. Operating expenses increased $0.2 million, or 2.9%,
from $7.0 million in 1994 to $7.2 million in 1995, and declined from 70.0% of
revenues in 1994 to 67.3% of revenues in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.3 million, or 20.0%, from $1.5 million in 1994 to $1.8 million in
1995.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential, increased 6.3% from $1.6 million, or
16.0% of revenues, in 1994 to $1.7 million, or 15.9% of revenues, in 1995.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for taxes, decreased
from $0.7 million in 1994 to
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$0.6 million, or 5.6% of revenues, in 1995. The pro forma provision for taxes
includes the incremental taxes provided for Federal and state income taxes
relating to the Compensation Differential and income taxes on S Corporation
income.
ARROW RESULTS FOR 1993 COMPARED TO 1994
REVENUES. Revenues increased $0.5 million, or 5.3%, from $9.5 million in
1993 to $10.0 million in 1994.
OPERATING EXPENSES. Operating expenses increased $0.3 million, or 4.5%,
from $6.7 million in 1993 to $7.0 million in 1994, and increased from 70.5% of
revenues in 1993 to 70.0% of revenues in 1994.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.3 million, from $1.2 million in 1993 to $1.5 million in 1994.
PRO FORMA OPERATING INCOME. Pro forma operating income, which has been
adjusted for the Compensation Differential, decreased from $1.7 million, or
17.9% of revenues, in 1993 to $1.6 million, or 16.0% of revenues, in 1994.
PRO FORMA NET INCOME. Pro forma net income, which has been adjusted for
the Compensation Differential and the pro forma provision for income taxes,
remained unchanged at $0.7 million in 1993 and 1994. The pro forma provision for
taxes includes the incremental taxes provided for Federal and state income taxes
relating to the Compensation Differential and income taxes on S Corporation
income.
UNAUDITED INTERIM RESULTS - ARROW
Revenues for the six months ended March 31, 1996 declined $(0.2 million) as
compared to the six months ended March 31, 1995. The decrease in revenues was
primarily due to reduced charter revenues resulting from weather conditions that
produced less snow in the Southwest and less favorable ski conditions. Operating
expenses for the six months ended March 31, 1996 decreased $(0.1 million) as
compared to the six months ended March 31, 1995, primarily due to reduced
maintenance costs. General and administrative expenses increased $51,000 as
compared to the six months ended March 31, 1995 as Arrow expanded its marketing
efforts. Interest expense increased $0.1 million during the six months ended
March 31, 1996 as compared to the same period in the prior year due to higher
levels of debt outstanding from additional motorcoaches purchased with borrowed
funds. As a result of the foregoing, net income decreased $(0.1 million) to a
loss of $(0.1 million) for the six months ended March 31, 1996.
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. The Founding Companies on a
combined basis recorded a pro forma net loss for the first quarter of 1996. See
"-- Recent Results."
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121."Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of " (SFAS 121) which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS 121 to have a material effect, if any, on its
combined financial statements. The Company will adopt SFAS 121 in 1996.
113
COACH USA, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. See Note 6 of Notes to Combined Founding Companies'
Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
114
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: June 21, 1996 By: /s/ LAWRENCE K. KING
Lawrence K. King
Senior Vice President and
Chief Financial Officer
115
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,796,000
<SECURITIES> 2,750,000
<RECEIVABLES> 5,386,000
<ALLOWANCES> 301,000
<INVENTORY> 2,492,000
<CURRENT-ASSETS> 16,692,000
<PP&E> 90,785,000
<DEPRECIATION> 30,247,000
<TOTAL-ASSETS> 78,059,000
<CURRENT-LIABILITIES> 25,722,000
<BONDS> 0
0
0
<COMMON> 6,272,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 78,059,000
<SALES> 24,221,000
<TOTAL-REVENUES> 24,221,000
<CGS> 21,164,000
<TOTAL-COSTS> 24,654,000
<OTHER-EXPENSES> 599,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 786,000
<INCOME-PRETAX> (1,032,000)
<INCOME-TAX> (386,000)
<INCOME-CONTINUING> (646,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (646,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
