3,500,000 SHARES
COACH USA, INC.
COMMON STOCK
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This Prospectus covers 3,500,000 shares of common stock, $.01 par value
(the "Common Stock"), which may be offered and issued by Coach USA, Inc. (the
"Company") from time to time in connection with the merger with or acquisition
by the Company of other businesses or assets. It is expected that the terms of
acquisitions involving the issuance of securities covered by this Prospectus
will be determined by direct negotiations with the owners or controlling persons
of the businesses or assets to be merged with or acquired by the Company, and
that the shares of Common Stock issued will be valued at prices reasonably
related to market prices current either at the time of a merger or acquisition
are agreed upon or at or about the time of delivery of shares. No underwriting
discounts or commissions will be paid, although finder's fees may be paid from
time to time with respect to specific mergers or acquisitions. Any person
receiving any such fees may be deemed to be an underwriter within the meaning of
the Securities Act of 1933, as amended (the "Securities Act").
The Company currently has 11,405,411 shares of its Common Stock listed on
the Nasdaq National Market, of which 4,140,000 are registered and available for
unrestricted trading in the public markets unless owned by affiliates of the
Company. Application will be made to list the shares of Common Stock offered
hereby on the Nasdaq National Market. On July 15, 1996, the closing price of the
Common Stock on the Nasdaq National Market was $20.00 per share as published in
THE WALL STREET JOURNAL on July 16, 1996.
All expenses of this offering will be paid by the Company. The Company is a
Delaware corporation and all references herein to the Company refer to the
Company and its subsidiaries. All references herein to "Coach USA" mean Coach
USA, Inc. prior to the consummation of the Mergers (as defined herein). The
executive offices of the Company are located at One Riverway, Suite 600,
Houston, Texas 77056-1903, and its telephone number is (888) COACH-US.
THE DATE OF THIS PROSPECTUS IS JULY 16, 1996.
<PAGE>
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE COMBINED, PRO FORMA
COMBINED AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
THE COMPANY IS THE LARGEST PROVIDER OF MOTORCOACH CHARTER, TOUR AND SIGHTSEEING
SERVICES AND ONE OF THE FIVE LARGEST NON-MUNICIPAL PROVIDERS OF COMMUTER AND
TRANSIT MOTORCOACH SERVICES IN THE UNITED STATES. THE COMPANY DOES NOT PROVIDE
REGULARLY SCHEDULED, LONG-HAUL INTERCITY BUS SERVICE LIKE GREYHOUND LINES, INC.
AND DOES NOT INTEND TO DO SO. DURING 1995, COMPANY VEHICLES TRAVELED OVER 40
MILLION MILES, AND THE COMPANY PROVIDED SERVICE TO MORE THAN 40 MILLION
PASSENGERS THROUGH A FLEET OF OVER 760 MOTORCOACHES AND OTHER HIGH OCCUPANCY
VEHICLES, INCLUDING 246 MOTORCOACHES PROVIDED BY VARIOUS TRANSIT AUTHORITIES
PURSUANT TO SERVICE CONTRACTS. THE COMPANY'S CHARTER AND TOUR FLEET FEATURES
LUXURY, EUROPEAN STYLE MOTORCOACHES WITH PLUSH SEATS, TELEVISIONS, VCRS AND
OTHER AMENITIES.
COACH USA 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
FOUNDING COMPANIES HAVE BEEN IN BUSINESS AN AVERAGE OF 41 YEARS AND PROVIDE
REGIONAL AND LOCAL SERVICES IN THE NORTHEASTERN, SOUTHWESTERN AND WESTERN UNITED
STATES.
THE MOTORCOACH INDUSTRY IN THE UNITED STATES CAN BE BROADLY DIVIDED INTO THREE
TYPES OF SERVICES: (I) RECREATION AND EXCURSION (CHARTER, TOUR AND SIGHTSEEING);
(II) COMMUTER AND TRANSIT; AND (III) REGULARLY SCHEDULED INTERCITY SERVICE. THE
COMPANY ONLY PROVIDES THE FIRST AND SECOND TYPES OF SERVICES. THE MOTORCOACH
INDUSTRY IS HIGHLY FRAGMENTED, WITH APPROXIMATELY 5,000 MOTORCOACH OPERATORS
PROVIDING THE FIRST OR SECOND TYPE OF SERVICES, PRIMARILY IN A SINGLE REGIONAL
OR LOCAL MARKET. THESE COMPANIES COLLECTIVELY GENERATED APPROXIMATELY 20 BILLION
IN REVENUES IN 1995.
THE COMPANY UTILIZES A DECENTRALIZED OPERATING AND SERVICE PHILOSOPHY, RATHER
THAN A STANDARDIZED NATIONAL MODEL, IN ORDER TO ASSURE HIGH QUALITY CUSTOMER
SERVICE WHILE CAPITALIZING ON THE CENTRALIZED FINANCE, ADMINISTRATIVE SUPPORT,
PURCHASING POWER AND NATIONAL SALES AND MARKETING CAPABILITIES OF A LARGE
ORGANIZATION. THIS STRATEGY ALSO EMPHASIZES THE RETENTION OF LOCAL MANAGEMENT,
ALL OF WHICH THE COMPANY BELIEVES WILL ALLOW IT TO SUCCESSFULLY IMPLEMENT ITS
ACQUISITION STRATEGY IN THE HIGHLY FRAGMENTED MOTORCOACH INDUSTRY.
THE COMPANY'S OBJECTIVE IS TO BE THE LARGEST PROVIDER OF REGIONAL AND LOCAL
MOTORCOACH SERVICES IN THE UNITED STATES. MANAGEMENT PLANS TO ACHIEVE THIS GOAL
BY:
EXPANDING THROUGH ACQUISITIONS.THE COMPANY INTENDS TO PURSUE AN AGGRESSIVE
ACQUISITION STRATEGY TO ENHANCE ITS POSITION IN ITS CURRENT MARKETS AND TO
EXPAND INTO NEW MARKETS BY:
ENTERING NEW GEOGRAPHIC MARKETS.THE COMPANY INTENDS TO EXPAND INTO
GEOGRAPHIC MARKETS IT DOES NOT CURRENTLY SERVE BY ACQUIRING WELL-ESTABLISHED
MOTORCOACH SERVICE PROVIDERS THAT, LIKE THE FOUNDING COMPANIES, ARE LEADERS IN
THEIR REGIONAL MARKETS.
EXPANDING EXISTING MARKETS.THE COMPANY ALSO PLANS TO ACQUIRE ADDITIONAL
MOTORCOACH OPERATIONS IN EACH OF THE MARKETS IN WHICH IT OPERATES, INCLUDING
ACQUISITIONS THAT EITHER BROADEN THE RANGE OF SERVICES PROVIDED BY THE COMPANY
IN THAT MARKET OR EXPAND THE GEOGRAPHIC SCOPE OF THE COMPANY'S OPERATIONS IN
THAT MARKET, AS WELL AS "TUCK-IN" ACQUISITIONS OF SMALLER MOTORCOACH OPERATIONS.
THE COMPANY BELIEVES THAT TUCK-IN ACQUISITIONS WILL INCREASE OPERATING
EFFICIENCIES WITHOUT A PROPORTIONATE INCREASE IN ADMINISTRATIVE COSTS AND, IN
SOME INSTANCES, WILL BROADEN THE COMPANY'S RANGE OF SERVICES.
ACCELERATING INTERNAL GROWTH.A KEY COMPONENT OF THE COMPANY'S STRATEGY IS TO
ACCELERATE INTERNAL GROWTH AT EACH FOUNDING COMPANY AND EACH SUBSEQUENTLY
ACQUIRED MOTORCOACH BUSINESS. THE COMPANY BELIEVES INTERNAL GROWTH CAN BE
ACCELERATED BY:
ESTABLISHING A NATIONAL SALES AND MARKETING PROGRAM.THE TRAVEL AND TOURISM
INDUSTRY HAS EXPERIENCED SIGNIFICANT GROWTH IN RECENT YEARS, AND THE COMPANY
EXPECTS
3
THIS TREND TO CONTINUE. THE COMPANY INTENDS TO ESTABLISH A NATIONAL SALES AND
MARKETING PROGRAM AS A MEANS TO EXPAND ITS RECREATION AND EXCURSION BUSINESS.
THIS PROGRAM WILL TARGET TRAVEL AND TOUR COMPANIES, NATIONAL AND INTERNATIONAL
TRAVEL AGENCIES AND CONVENTION ORGANIZERS, AS WELL AS ORGANIZATIONS SUCH AS AAA,
AARP AND PROFESSIONAL AND AMATEUR ATHLETIC TEAMS.
DEVELOPING PRIVATIZATION AND OUTSOURCING OPPORTUNITIES.OF THE COMPANY'S
TOTAL REVENUES IN 1995, APPROXIMATELY 16% WERE DERIVED FROM OPERATIONS THAT HAD
BEEN PRIVATIZED BY A STATE OR MUNICIPAL TRANSIT AUTHORITY OR OUTSOURCED BY A
BUSINESS WITHIN THE LAST 10 YEARS. THE COMPANY BELIEVES THAT THE TREND TOWARD
PRIVATIZATION AND OUTSOURCING WILL ACCELERATE, AS MORE TRANSIT AUTHORITIES AND
BUSINESSES SUCH AS HOTELS, CASINOS, RENTAL CAR AGENCIES, COLLEGES AND OTHER
INSTITUTIONS THAT OPERATE THEIR OWN MOTORCOACH FLEETS DECIDE TO PRIVATIZE OR
OUTSOURCE NON-CORE OPERATIONS.
CAPITALIZING ON NEW CORPORATE STRUCTURE.THE COMPANY INTENDS TO TAKE ADVANTAGE OF
THE CORPORATE STRUCTURE WHICH RESULTED FROM THE MERGERS BY:
CENTRALIZING ADMINISTRATIVE FUNCTIONS.THE COMPANY EXPECTS THAT SIGNIFICANT
COST SAVINGS CAN BE ACHIEVED THROUGH THE CONSOLIDATION OF ADMINISTRATIVE
FUNCTIONS SUCH AS EMPLOYEE BENEFITS, SAFETY AND MAINTENANCE PROGRAMS AND RISK
MANAGEMENT. THE COMPANY ALSO BELIEVES THAT IT WILL HAVE GREATER PURCHASING POWER
IN SUCH AREAS AS EQUIPMENT AND PARTS, FUEL, INSURANCE AND FINANCING THAN THE
FOUNDING COMPANIES HAD INDEPENDENTLY.
INCREASING OPERATING EFFICIENCIES.THE COMPANY BELIEVES THAT THERE ARE
OPPORTUNITIES TO ELIMINATE REDUNDANT FACILITIES AND EQUIPMENT THROUGH
COORDINATION AMONG THE FOUNDING COMPANIES AND OTHER SUBSEQUENTLY ACQUIRED
OPERATIONS. ADDITIONALLY, THE COMPANY EXPECTS TO BENEFIT FROM CROSS-MARKETING
AND INCREASED EQUIPMENT UTILIZATION AMONG THE FOUNDING COMPANIES.
RISK FACTORS
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
4
SUMMARY COMBINED FOUNDING COMPANIES' FINANCIAL DATA
COACH USA ACQUIRED, SIMULTANEOUSLY WITH THE CLOSING OF THE OFFERING, 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. SEE
"SELECTED COMBINED FOUNDING COMPANIES' FINANCIAL DATA."
<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) (unaudited)
<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
GROSS PROFIT..................... 16,295 17,350 17,705 18,457 23,820 2,885 3,057
GENERAL AND ADMINISTRATIVE
EXPENSES(3).................... 11,582 11,894 12,490 12,471 14,213 3,287 5,566
INTEREST AND OTHER EXPENSE,
NET............................ 2,014 2,281 2,101 2,068 2,534 680 599
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
</TABLE>
March 31, 1996
-----------------------------------
As
Pro Adjusted
Actual Forma(6) (6)(7)
------ ------- -------
BALANCE SHEET DATA:
WORKING CAPITAL DEFICIT ........... (9,030) (39,527) (904)
TOTAL ASSETS ...................... 78,059 73,141 74,044
TOTAL DEBT, INCLUDING CURRENT
PORTION ........................... 33,630 33,970 12,036
STOCKHOLDERS' EQUITY (DEFICIT) .... 22,911 (10,803) 39,000
(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 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 certain reductions in salaries and benefits to the owners of
the Founding Companies which were agreed to in connection with the Mergers
(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. See "Management --
1996 Long-Term Incentive Plan" and "-- 1996 Non-Employee Directors' Stock
Plan."
(6) Gives effect to: (i) the combination of the Founding Companies with Coach
USA as if such combination had occurred on March 31, 1996; (ii) a liability
for the cash consideration of approximately $23.8 million paid to the
stockholders of the Founding Companies in connection with the Mergers; (iii)
the transfer by the Founding Companies of certain assets and related
liabilities to their stockholders in connection with the Mergers; (iv) the
issuance of 5,099,687 shares of Common Stock to the Founding Companies'
stockholders in connection with the Mergers; and (v) the additional cash to
be borrowed from a bank.
(7) Adjusted for the sale of 4,140,000 shares of Common Stock sold in the
Offering and the application of the net proceeds therefrom and the
elimination of the deferred offering costs.
5
Summary Individual Founding Company Financial Data
The following table presents summary 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
Year Ended December 31(1) March 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.
6
THE COMPANY
Coach USA was founded in September 1995 to create a nationwide motorcoach
service provider. On May 17, 1996, Coach USA acquired, simultaneously with the
closing of the Offering, the six Founding Companies. The Founding Companies have
been in business an average of 41 years and provide regional and local services
in the Northeastern, Southwestern and Western United States. For a description
of the Mergers pursuant to which these businesses were acquired, see "Certain
Transactions."
SUBURBAN TRANSIT CORP. -- The principal operations of Suburban Transit
Corp. and its six affiliated entities ("Suburban") are in central and northern
New Jersey and the New York City metropolitan area. Suburban has been in
operation since 1941 and had revenues in 1995 of over $29 million. Suburban has
a fleet of over 260 motorcoaches primarily used to provide daily commuter
service into New York City from various locations in New Jersey and to provide
regular service from central New Jersey to the casinos in Atlantic City. Since
1966, Suburban has contracted with Rutgers University to transport students
within and between its five campuses, and, as of May 14, 1996 operated 42
motorcoaches that transport approximately 45,000 students and other passengers
per day. Kenneth Kuchin, the President of Suburban, has been employed by
Suburban for 21 years and has signed a five year employment agreement with
Suburban and the Company to continue in that position with Suburban and to be
Vice Chairman of the Board and Senior Vice President -- Northeast Region of the
Company.
GRAY LINE SF -- Grosvenor Bus Lines, Inc., which does business as Gray Line
of San Francisco ("Gray Line SF"), was incorporated in 1980 and operates one of
the oldest Gray Line franchises in the United States, principally in the San
Francisco Bay area. The franchise dates back to approximately 1910. Gray Line SF
had revenues in 1995 of more than $29 million and operates a fleet of over 200
vehicles, which includes luxury doubledecker motorcoaches and motorized replica
cable cars, in addition to traditional motorcoaches. Gray Line SF provides
sightseeing tours to all of the major sites in the San Francisco Bay area, the
Northern California wine country and the Monterey Peninsula. Gray Line SF
operates a network of hotel lobby ticket counters and has arrangements with
hotel concierges and other hotel personnel to promote its sightseeing tours. In
addition, Gray Line SF provides transit services for San Mateo County and Santa
Clara County and commuter service for Marin County, in each case with
motorcoaches provided by the county. Robert K. Werbe, Chairman of the Board of
Gray Line SF, has been with Gray Line SF for over 15 years and has signed a five
year employment agreement with Gray Line SF to continue in that position with
Gray Line SF. His son, Thomas A. Werbe, is the President of Gray Line SF and is
a director of the Company.
LEISURE TIME TOURS -- The principal operations of Leisure Time Tours
("Leisure") are in northern New Jersey, greater Philadelphia and the New York
City metropolitan area. Leisure has been in operation since 1970 and had
revenues in 1995 of approximately $19 million with a fleet of approximately 100
motorcoaches. Leisure has daily scheduled service from the five New York City
boroughs, Westchester County, northern New Jersey and the greater Philadelphia
area to Atlantic City under agreements with the major casinos, which advertise
the service and provide incentives to the passengers. In addition, Leisure
provides commuter service from five points in Bergen County, New Jersey to New
York City. Gerald Mercadante, the President and Chief Executive Officer of
Leisure, has signed a five year employment agreement with Leisure and the
Company to continue in that position with Leisure and to be Senior Vice
President -- Northeast Region Operations and a director of the Company.
COMMUNITY BUS LINES, INC. -- The operations of Community Bus Lines, Inc.
and its five affiliated entities ("Community") consist largely of transit
service in northern New Jersey and commuter service established over 65 years
ago with various municipalities to carry passengers from northern New Jersey
into New York City. Community has been operating since 1931 and had revenues in
1995 of approximately $14 million, with a fleet of 90 motorcoaches. Community
7
also provides service to the Meadowlands Sports Complex in New Jersey from New
York City and to major concerts and sporting events, as well as daily service
from three northern New Jersey locations to Atlantic City under agreements with
the major casinos similar to Leisure's agreements. Frank Gallagher, the
President and Chief Executive Officer of Community, has been employed by
Community for 30 years and has signed a five year employment agreement with
Community and the Company to continue in that position with Community and to be
Senior Vice President -- Corporate Development and a director of the Company.
ADVENTURE TRAILS -- The principal operations of Cape Transit Corp., which
does business as Adventure Trails ("Adventure"), are in the Atlantic City and
greater Philadelphia metropolitan areas. Adventure has been in operation since
1980 and had revenues in 1995 of over $11 million with a fleet of 56
motorcoaches. Adventure has contracts with many Atlantic City casinos to shuttle
their employees to and from parking lots located five miles away. Adventure also
provides motorcoach service from Philadelphia and Bucks County, Pennsylvania and
Wilmington, Delaware to the Atlantic City casinos under contracts with the
casinos and tour operators. In addition, Adventure provides service from the
Atlantic City airport for casino and hotel guests, as well as on a per seat
basis from Adventure's ticket counter in the airport. John Mercadante, Jr., the
President and Chief Operating Officer of Adventure, has signed a five year
employment agreement with Adventure and the Company to continue in that position
with Adventure and to be the President and Chief Operating Officer and a
director of the Company.
ARROW STAGE LINES, INC. -- Arrow Stage Lines, Inc. ("Arrow") operates from
Phoenix, Arizona, has been in operation since 1928 and had revenues in 1995 of
over $10 million. As of May 14, 1996, Arrow operated a fleet of 65 luxury
vehicles, primarily serving tourists from around the United States, Europe and
Asia. Arrow provides excursion service for tours as long as 14 days to major
tourist attractions and national parks throughout the Southwestern and Western
United States and into Mexico and Canada. Most of these excursions are arranged
by major tour organizers who obtain the passengers and contract with Arrow for
the motorcoaches and driver. Charles Busskohl, the Chief Executive Officer of
Arrow, has been with Arrow for 35 years and has signed a five year employment
agreement with Arrow to continue in that position and to be a director of the
Company.
The aggregate consideration paid by Coach USA in the Mergers was
approximately $95.2 million, consisting of approximately $23.8 million in cash
and 5,099,687 shares of Common Stock. The consideration paid by Coach USA for
the Founding Companies was determined by negotiations among Coach USA and
representatives of the Founding Companies and was based primarily upon the pro
forma net income of each Founding Company.
8
The following table sets forth the consideration paid for each Founding
Company in connection with the Mergers:
CASH COMMON STOCK TOTAL
---------- -------------------- ----------
VALUE
OF
SHARES SHARES(1)
------ ----------
(IN THOUSANDS)
Suburban...................... $ 8,054 1,342 $ 18,794 $ 26,848
Gray Line SF.................. 5,266 878 12,286 17,552
Leisure....................... 4,119 1,243 17,399 21,518
Community..................... 2,606 552 7,726 10,332
Adventure..................... 3,179 530 7,419 10,598
Arrow......................... 586 555 7,772 8,358
---------- ------ ---------- ----------
Total.................... $ 23,810 5,100 $ 71,396 $ 95,206
========== ====== ========== ==========
- ------------
(1) Represents the aggregate cash value of the shares of Common Stock issued as
consideration in the Mergers, based upon a price per share of $14.00, the
initial public offering price.
In addition, immediately prior to the Mergers, certain of the Founding
Companies made distributions to their stockholders of approximately $4.5
million, representing S Corporation earnings previously taxed to their
stockholders. Prior to the Mergers, certain Founding Companies also distributed
to their stockholders approximately $4.2 million in net book value of assets and
approximately $700,000 of related liabilities.
Coach USA was incorporated in September 1995 in Delaware. The Company's
executive offices are located at One Riverway, Suite 600, Houston, Texas 77056
- -1903, and its telephone number is (888)-COACH-US.
9
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK.
ABSENCE OF COMBINED OPERATING HISTORY. Coach USA was founded in September
1995 but conducted no operations and generated no revenues prior to the closing
of the Offering. Coach USA acquired the Founding Companies simultaneously with
the closing of the Offering. Prior to the closing of the Offering, the Founding
Companies operated as separate independent entities, and there can be no
assurance that the Company will be able to successfully integrate the operations
of these businesses or institute the necessary Company-wide systems and
procedures to successfully manage the combined enterprise on a profitable basis.
The Company's management group has been assembled only recently, and there can
be no assurance that the management group will be able to effectively manage the
combined entity or effectively implement the Company's internal growth strategy
and acquisition program. The combined historical financial results of the
Founding Companies cover periods when the Founding Companies and Coach USA were
not under common control or management and, therefore, may not be indicative of
the Company's future financial or operating results. The inability of the
Company to successfully integrate the Founding Companies would have a material
adverse effect on the Company's business, financial condition and results of
operations and would make it unlikely that the Company's acquisition program
will be successful. See "Management."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company intends to
grow primarily through the acquisition of additional motorcoach businesses.
Increased competition for acquisition candidates may develop, in which event
there may be fewer acquisition opportunities available to the Company as well as
higher acquisition prices. There can be no assurance that the Company will be
able to identify, acquire or profitably manage additional businesses or
successfully integrate acquired businesses, if any, into the Company without
substantial costs, delays or other operational or financial problems. Further,
acquisitions involve a number of special risks, including possible adverse
effects on the Company's operating results, diversion of management's attention,
failure to retain key acquired personnel, risks associated with unanticipated
events or liabilities and amortization of acquired intangible assets, some or
all of which could have a material adverse effect on the Company's business,
financial condition and results of operations. Customer dissatisfaction or
performance problems at a single acquired company could have an adverse effect
on the reputation of the Company and render ineffective the Company's national
sales and marketing initiative. In addition, there can be no assurance that the
Founding Companies or other motorcoach businesses acquired in the future will
achieve anticipated revenues and earnings. See "Business -- Strategy."
RISKS RELATED TO ACQUISITION FINANCING. The Company currently intends to
finance future acquisitions by using shares of its Common Stock for all or a
substantial portion of the consideration to be paid. In the event that the
Common Stock does not maintain a sufficient market value, or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company may be required
to utilize more of its cash resources, if available, in order to initiate and
maintain its acquisition program. If the Company does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity financings. Although the Company has established
a $30 million line of credit, there can be no assurance that the Company will be
able to obtain all the financing it will need in the future on terms the Company
deems acceptable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
LABOR RELATIONS. At December 31, 1995, the Company had approximately 1,800
employees, approximately 1,200 of whom were drivers. Approximately 875 of the
Company's
10
employees were members of various labor unions at such date. Four of the six
Founding Companies have collective bargaining agreements, most of which expire
over the next three years. The Company's inability to negotiate acceptable
contracts with these unions could result in strikes by the affected workers and
increased operating costs as a result of higher wages or benefits paid to union
members. If the unionized employees were to engage in a strike or other work
stoppage, or other employees were to become unionized, the Company could
experience a significant disruption of its operations and higher ongoing labor
costs, which could have an adverse effect on the Company's business and results
of operations. See "Business -- Drivers and Other Personnel."
INSURANCE COSTS; CLAIMS. The Company's cost of maintaining personal injury,
property damage and workers' compensation insurance is significant. The Company
could experience higher insurance premiums as a result of adverse claims
experience or because of general increases in premiums by insurance carriers for
reasons unrelated to the Company's own claims experience. As an operator of
motorcoaches and other high occupancy vehicles, the Company is exposed to claims
for personal injury or death and property damage as a result of accidents. The
Company intends to self-insure for the first $100,000 of losses per incident. If
the Company were to experience a significant increase in the number of claims
for which it is self-insured or claims in excess of its insurance limits, its
results of operations and financial condition would be adversely affected. See
"Business -- Risk Management and Insurance."
CAPITAL REQUIREMENTS. The Company's operations require significant capital
in order to maintain a modern fleet of motorcoaches and to achieve internal
growth. The Company has historically financed the acquisition of new
motorcoaches with debt financing. A new motorcoach costs approximately $300,000,
and there can be no assurance that adequate financing will be available in the
future on terms favorable to the Company to enable the Company to efficiently
maintain operations and implement any expansion of service through a larger
fleet. In addition, as motorcoaches age, they require increasing amounts of
maintenance and, therefore, are more expensive to operate. The Company's
inability to acquire, or a material delay in acquiring, the financing necessary
to acquire replacement motorcoaches as needed would have an adverse effect on
the Company's results of operations due to the higher operating costs associated
with operating an aging fleet. See "Business -- Equipment."
GOVERNMENT SUBSIDIES. Payments to the Company under a number of its
commuter and transit contracts are funded through Federal or state subsidy
programs, and, without these subsidies, the state or local transit authority may
be unwilling to continue or renew these contracts. In addition, many of the
motorcoaches provided at nominal rent to the Company under these contracts are
purchased with funds provided by Federal programs. If funding for these Federal
programs were eliminated or curtailed, the Company would be required to operate
existing motorcoaches longer than economically practicable or be forced to
acquire replacement equipment and/or seek to renegotiate its contracts with the
transit authorities to cover the cost of financing this replacement equipment.
Either alternative could result in an increase in the Company's costs of
operations or could cause the Company to decide not to renew some of its
contracts. See "Business -- Services Provided."
SUBSTANTIAL SEASONALITY OF THE MOTORCOACH BUSINESS. The motorcoach business
is subject to seasonal variations in operations. During the winter months,
operating costs are higher due to the cold weather and demand for motorcoach
services is lower, particularly because of a decline in tourism. As a result,
the Company expects its revenues and results of operations to be lower in the
first and fourth quarters than in the second and third quarters of each year.
The Founding Companies on a combined basis recorded a first quarter 1996 pro
forma net loss of $(282,000). See "Selected Combined Founding Companies'
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
11
FUEL PRICES AND TAXES. Fuel is a significant cost to the Company. Fuel
prices are subject to sudden increases as a result of variations in supply
levels and demand. Any sustained increase in fuel prices could adversely affect
the Company's results of operations unless it were able to increase prices. From
time to time, there are efforts at the Federal or state level to increase fuel
or highway use taxes, which, if enacted, also could adversely affect the
Company's results of operations. See "Business -- Fuel Availability and Costs."
SIGNIFICANT REGULATION. As a result of the enactment of the ICC Termination
Act of 1995, interstate motorcoach operations previously regulated by the
Interstate Commerce Commission became subject, as of January 1, 1996, to
regulatory requirements administered by the Federal Highway Administration (the
"FHWA") and the new Surface Transportation Board, both units of the United
States Department of Transportation. Motorcoach operators subject to FHWA
jurisdiction are required to be registered with the FHWA and to maintain minimum
amounts of insurance. The Surface Transportation Board must approve or exempt
any consolidation or merger of two or more regulated interstate motorcoach
operators or the acquisition of one such operator by another. Motorcoach
operators are also subject to extensive safety requirements and requirements
imposed by environmental laws, workplace safety and anti-discrimination laws,
including the Americans with Disabilities Act. Safety, environmental and vehicle
accessibility requirements for motorcoach operators have increased in recent
years, and this trend could continue. The FHWA and state regulatory agencies
have broad power to suspend, amend or revoke the Company's operating
authorizations for failure to comply with statutory requirements, including
safety and insurance requirements. Although the acquisition of the Founding
Companies by Coach USA was exempted by the Surface Transportation Board on May
3, 1996, there can be no assurance that future acquisitions of other motorcoach
operators will be approved or exempted from the need for regulatory approval. A
number of states, such as New Jersey and Pennsylvania, require motorcoach
operators to obtain authority to operate over certain specified intrastate
routes, and, in some instances, such authority cannot be obtained if another
operator already has obtained authority to operate on that route. As a result,
there may be regulatory constraints on the expansion of the Company's operations
in these states. Furthermore, the Company has a competitive advantage with
respect to its existing route authorities as a result of this regulatory
posture. Therefore, if New Jersey or another highly regulated state were to
reduce the level of regulation, the Company's competitive advantage could be
lost. See "Business -- Regulation."
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES. The Company's operations
are subject to various environmental laws and regulations, including those
dealing with air emissions, water discharges and the storage, handling and
disposal of petroleum and hazardous substances. The motorcoach industry may in
the future become subject to stricter regulations. There have been spills and
releases of hazardous substances, including petroleum and petroleum related
products, at several of the Founding Companies' facilities in the past. As a
result of past and future operations at these facilities, the Company may be
required to incur remediation costs and may be subject to penalties. In
addition, although the Company intends to conduct appropriate due diligence with
respect to environmental matters in connection with future acquisitions, there
can be no assurance that the Company will be able to identify or be indemnified
for all potential environmental liabilities relating to any acquired business.
See "Business -- Environmental Matters."
GEOGRAPHIC CONCENTRATION. Four of the six Founding Companies operate in New
Jersey and the New York City metropolitan area. These four companies generated
revenues of approximately $74 million, or 65% of the combined revenues of the
Founding Companies, in 1995. Therefore, the Company's results of operations are
susceptible to downturns in the general economy or demand for motorcoach
services in this geographic area. The Company has a number of commuter and
transit contracts with the New Jersey Transit Authority, and the loss of these
contracts could adversely affect the Company.
12
SUBSTANTIAL COMPETITION. The motorcoach industry is highly competitive,
fragmented and subject to rapid change, particularly with regard to recreational
and excursion services and commuter and transit services. There are numerous
other companies that provide these services, some of which have greater
financial and marketing resources than the Company. Certain of these competitors
operate in several of the Company's existing or target markets, and others may
choose to enter those markets in the future. The majority of the Company's
competition at the Founding Company level is made up of smaller regional or
local motorcoach operators with a strong presence in their respective local
markets. As a result of these factors, the Company may lose customers or have
difficulty in acquiring new customers. See "Business -- Competition."
LITIGATION. Suburban is a plaintiff in a lawsuit challenging the denial of
its access to certain terminals by the Township of East Brunswick, New Jersey.
If Suburban is unsuccessful, the result could be a loss by Suburban of
significant revenues. See "Business -- Legal Proceedings."
MUNICIPAL AND OTHER CONTRACTS. The Company's contracts to provide commuter
or transit service have terms of three years or less and are subject to
competitive bidding under applicable Federal, state and local regulations
whenever the contracts are to be renewed. The Company's contracts with casinos,
airlines and other entities also have relatively short terms, and, from time to
time, there may be competitors who seek to obtain these contracts by offering
lower prices than the Company could offer without adversely affecting the
contracts' profitability. There can be no assurance that all or most of these
contracts will be renewed or that they will be renewed at prices as profitable
to the Company. See "Business -- Services Provided." The Company also could
become subject to litigation by an unsuccessful bidder for a contract awarded by
a transit authority.
RELIANCE ON KEY PERSONNEL. The Company's operations are dependent on the
continued efforts of its executive officers and the senior management of the
Founding Companies. Furthermore, the Company will likely be dependent on the
senior management of any businesses acquired in the future. If any of these
persons becomes unable to continue in his or her present role, or if the Company
is unable to attract and retain other qualified employees, the Company's
business or prospects could be adversely affected. Although the Company or an
individual Founding Company will enter into an employment agreement with each of
the Company's executive officers, there can be no assurance that any individual
will continue in his present capacity with the Company or such Founding Company
for any particular period of time. The Company does not intend to obtain key man
life insurance covering any of its executive officers or other members of senior
management. See "Management."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. The Company's executive
officers and directors, and entities affiliated with them, beneficially own
approximately 49.2% of the outstanding shares of Common Stock. These persons, if
acting in concert, will be able to continue to exercise control over the
Company's affairs, and are likely to be able to elect the entire Board of
Directors and to control the disposition of any matter submitted to a vote of
stockholders. See "Principal Stockholders."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. The market price of the Common Stock may be adversely affected by the
sale, or availability for sale, of substantial amounts of the Common Stock in
the public market. The Company issued 4,140,000 shares of its Common Stock in
the Offering, all of which are freely tradeable unless held by affiliates of the
Company. In addition, simultaneously with the closing of the Offering, the
stockholders of the Founding Companies received, in the aggregate, 5,099,687
shares of Common Stock as a portion of the consideration for the sale of their
businesses to the Company. These shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and, therefore, may
not be sold unless registered under the Securities Act or sold pursuant to an
exemption from registration, such as the exemption provided by Rule 144.
Furthermore, the stockholders who received these shares have agreed with Coach
USA not to
13
sell, transfer or otherwise dispose of any of these shares for two years
following consummation of the Offering, subject to reduction in the event the
two-year "holding" period for restricted securities under Rule 144 is reduced by
the Securities and Exchange Commission (the "Commission"). However, the
stockholders who received these shares also have certain demand registration
rights with respect to these shares, beginning two years after the closing of
the Offering, as well as certain piggyback registration rights with respect to
these shares. In addition, the original stockholders of Coach USA hold, in the
aggregate, 2,165,724 shares of Common Stock. See "Certain Transactions." None of
these shares have been registered under the Securities Act and, accordingly, may
not be sold unless registered under the Securities Act or sold pursuant to an
exemption, such as the exemption provided by Rule 144. The holders of
substantially all of these shares also have certain piggyback registration
rights with respect to these shares and have agreed with Coach USA to the same
two-year restriction on dispositions described above.
The 3,500,000 shares of Common Stock offered hereby shall, upon
registration thereof, be freely tradable unless the resale thereof is
contractually restricted. The piggyback registration rights described above will
not apply to these 3,500,000 shares. See "Shares Eligible for Future Sale."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. The Board of Directors
of the Company is empowered to issue preferred stock in one or more series
without stockholder action. The existence of this "blank-check" preferred stock
could render more difficult or discourage an attempt to obtain control of the
Company by means of a tender offer, merger, proxy contest or otherwise. In
addition, the Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") provides for a classified Board of Directors,
which may also have the effect of inhibiting or delaying a change in control of
the Company. Certain provisions of the Delaware General Corporation Law may also
discourage takeover attempts that have not been approved by the Board of
Directors. See "Management -- Directors and Executive Officers," "Principal
Stockholders" and "Description of Capital Stock."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the Nasdaq National Market since
May 14, 1996. On July 15, 1996, the last sale price of the Common Stock was
$20.00 per share, as published in THE WALL STREET JOURNAL on July 16, 1996. At
July 15, 1996, there were approximately 94 stockholders of record of the
Company's Common Stock. The following table sets forth the range of high and low
sale prices for the Common Stock for the period from May 14, 1996, the date of
the Offering, through July 15, 1996.
HIGH LOW
--------- ---------
May 14, 1996 through July 15, 1996... $ 24.50 $ 17.25
========= =========
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Company's line of credit
includes, and any additional lines of credit established in the future may
include, restrictions on the ability of the Company to pay dividends without the
consent of the lender.
14
SELECTED COMBINED FOUNDING COMPANIES' FINANCIAL DATA
Coach USA acquired, simultaneously with the closing of the Offering, 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 Prospectus. 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
</TABLE>
- ------------
(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
15
$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. See "Management -- 1996 Long-Term Incentive Plan"
and "-- 1996 Non-Employee Directors' Stock Plan."
16
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.
17
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
Prospectus.
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.
18
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
19
$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
20
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
21
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 $100 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
22
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.
23
BUSINESS
The Company is the largest provider of motorcoach charter, tour and
sightseeing services and one of the five largest non-municipal providers of
commuter and transit motorcoach services in the United States. The Company does
not provide regularly scheduled, long-haul, intercity bus service like Greyhound
and does not intend to do so. During 1995, Company vehicles traveled more than
40 million miles and provided service to more than 40 million passengers through
a fleet of over 760 motorcoaches and other high occupancy vehicles, including
246 motorcoaches provided by various transit authorities pursuant to service
contracts. The Company's charter and tour fleet features luxury, European style
motorcoaches with plush seats, televisions, VCRs and other amenities.
Coach USA was founded in September 1995 to create a nationwide motorcoach
service provider and conducted no operations prior to the Offering. Coach USA
acquired, simultaneously with the closing of the Offering, the six Founding
Companies. The Founding Companies have been in business an average of 41 years
and provide regional and local services in the Northeastern, Southwestern and
Western United States.
INDUSTRY OVERVIEW
The motorcoach industry in the United States can be broadly divided into
three types of services: (i) recreation and excursion (charter, tour and
sightseeing); (ii) commuter and transit; and (iii) regularly scheduled intercity
service. The Company only provides the first and second types of services. The
motorcoach industry is highly fragmented with approximately 5,000 motorcoach
operators providing the first or second type of services, primarily in a single
regional or local market. These companies collectively generated approximately
$20 billion in revenues in 1995.
The Company believes that there will be increasing demand for both
recreation and excursion services and commuter and transit motorcoach services
for a broad range of customers based on a number of factors, including:
GROWING TRAVEL AND TOURISM INDUSTRY. Travel and tourism is one of the
fastest growing industries in the United States. Nationwide charter users
include such large organizations as AAA, AARP and convention organizers,
whose members are potential users of motorcoach services. As the population
of the United States continues to age, the Company believes more people
will find motorcoach touring an attractive, low cost alternative to travel
by automobile. Also, the number of European and Asian tourists traveling to
the United States continues to increase, and motorcoach travel is a popular
way for tourists to travel in the United States.
PRIVATIZATION. The Company expects state and local governments to
accelerate their efforts to privatize capital intensive operations, such as
commuter and transit services, and ancillary services, such as paratransit
services required under the Americans with Disabilities Act. The Company
believes that this acceleration will result primarily from a decrease in
Federal funds available to subsidize operations and the increasing capital
cost of acquiring equipment.
OUTSOURCING. Many hotels, casinos, rental car companies, colleges and
other institutions operate large motorcoach fleets and other high occupancy
vehicles. These entities are increasingly seeking to outsource these
non-core activities as a means to better manage their capital and operating
resources and to improve their profits.
EXPANDING METROPOLITAN AREAS. Metropolitan areas are continuing to
expand geographically and in population. As a result, state and local
governments face increasing automobile traffic congestion, deteriorating
infrastructures and a continuing migration of offices and commuters to
suburban locations. These trends should increase the Company's
31
opportunities to provide motorcoach commuter and transit services. The
Company believes that the fuel and emissions efficiency, flexibility and
low capital cost of motorcoaches and other high occupancy vehicles will
make them increasingly viable alternatives to the high cost of widening
existing roads or establishing or expanding other transit and commuter
systems, such as subways and commuter trains.
INCREASING AIRPORT CONGESTION. The number of passengers served by the
current United States airport system is estimated to increase by 25% over
the next five years. Currently, there is no coordinated effort to provide
seamless transportation between planes and motorcoaches, and many
passengers continue to use private automobiles for local or regional travel
to and from airports. With no major airport expansions expected at most
major airports in the next five years, the Company believes that
motorcoaches and other high occupancy vehicles can alleviate much of this
congestion and address the shortage of convenient parking at many airports.
BUSINESS STRATEGY
The Company's objective is to be the largest provider of regional and local
motorcoach services in the United States. Management plans to achieve this goal
by:
EXPANDING THROUGH ACQUISITIONS. The Company intends to pursue an
aggressive acquisition strategy to enhance its position in its current markets
and to acquire operations in new markets by:
ENTERING NEW GEOGRAPHIC MARKETS. The Company intends to expand into
geographic markets it does not currently serve by acquiring
well-established motorcoach service providers that, like the Founding
Companies, are leaders in their regional markets.
EXPANDING EXISTING MARKETS. The Company also plans to acquire
additional motorcoach operations in each of the markets in which it
operates, including acquisitions that either broaden the range of services
provided by the Company in that market or expand the geographic scope of
the Company's operations in that market, as well as tuck-in acquisitions of
smaller motorcoach operations. The Company believes that tuck-in
acquisitions will increase operating efficiencies without a proportionate
increase in administrative costs and, in some instances, will broaden the
Company's range of services.
ACCELERATING INTERNAL GROWTH. A key component of the Company's strategy is
to accelerate internal growth at each of the Founding Companies and each
subsequently acquired motorcoach business. The Company believes internal growth
can be accelerated by:
ESTABLISHING A NATIONAL SALES AND MARKETING PROGRAM. The travel and
tourism industry has experienced significant growth in recent years, and
the Company expects this trend to continue. The Company intends to
establish a national sales and marketing program as a means to expand its
recreational and excursion business. This program will target travel and
tour companies, national and international travel agencies and convention
organizers, as well as organizations such as AAA, AARP and professional and
amateur athletic teams.
DEVELOPING PRIVATIZATION AND OUTSOURCING OPPORTUNITIES. Of the
Company's total revenues in 1995, approximately 16% were derived from
operations that had been privatized by a state or municipal transit
authority or outsourced by a business within the last 10 years. The Company
believes that the trend toward privatization and outsourcing will
accelerate, as more transit authorities and businesses such as hotels,
casinos, rental car agencies, colleges and other institutions that operate
their own motorcoach fleets decide to privatize or outsource non-core
operations.
CAPITALIZING ON NEW CORPORATE STRUCTURE. The Company intends to take
advantage of its new corporate structure by:
32
CENTRALIZING ADMINISTRATIVE FUNCTIONS. The Company expects that
significant cost savings can be achieved through the consolidation of
administrative functions such as employee benefits, safety and maintenance
programs and risk management. The Company also believes that it will have
greater purchasing power in such areas as equipment and parts, fuel,
insurance and financing than the Founding Companies had independently.
INCREASING OPERATING EFFICIENCIES. The Company believes that there are
opportunities to eliminate redundant facilities and equipment through
coordination among the Founding Companies and other subsequently acquired
operations. Additionally, the Company expects to benefit from
cross-marketing and increased equipment utilization among the Founding
Companies.
ACQUISITION STRATEGY
The Company believes that there are many attractive acquisition candidates
in the motorcoach industry because of the highly fragmented nature of the
industry, industry participants' need for capital and their owners' desire for
liquidity. The Company intends to pursue an aggressive acquisition program to
consolidate and enhance its position in its current markets and to acquire
operations in new markets.
A "primary acquisition" will be one that creates a significant presence for
the Company in a new geographic market. The Company intends, where possible, to
make a primary acquisition in a targeted market by acquiring an established,
high quality local company. As it did with each of the Founding Companies, the
Company, in most cases, will retain management and operating and sales personnel
of a primary acquisition in order to maintain continuity of operations and
customer service. The Company will seek to increase the acquired company's
revenues and improve its profitability by efficiently implementing the Company's
operating strategies for internal growth.
An acquisition in an existing market generally will be smaller than a
primary entry acquisition and will enable the Company to offer additional
services or expand into secondary markets within the region already served. When
justified by the size of an existing market acquisition, the Company expects to
retain the management and operating and sales personnel of the acquired company
while seeking to improve that company's profitability by efficiently
implementing the Company's operating strategies. The Company also intends to
effect tuck-in acquisitions of small companies or individual motorcoach
operations in existing markets. In most instances, operations acquired in a
tuck-in acquisition can be integrated into the Company's existing operations in
that market, resulting in elimination of duplicative overhead and operating
costs.
The Company believes that it can successfully implement its acquisition
strategy due to: (i) its strategy for creating a national company, which should
enhance the acquired company's ability to compete in its local and regional
market through an expansion of offered services, improved equipment utilization
and lower operating costs; (ii) the additional capital available for new
equipment; (iii) the potential for increased profitability as a result of the
Company's centralization of certain administrative functions, greater purchasing
power and economies of scale; (iv) its financial strength and visibility as a
public company; and (v) its decentralized management strategy, which should, in
most cases, enable the acquired company's management to remain involved in the
operation of the company.
The Company has analyzed a substantial amount of data on the motorcoach
industry and individual businesses within the industry and believes it is well
positioned to implement its acquisition program. Several of the principals of
the Founding Companies have leadership roles in both national and regional
motorcoach trade associations, which has allowed these principals to become
personally acquainted with operators of motorcoach businesses across the
country. The Company believes that the visibility of these individuals within
these associations will increase the industry's awareness of the Company and its
strategies, thereby attracting interest
33
from local and regional motorcoach operators. Within the past several months,
the Company has contacted the owners of a number of motorcoach businesses,
several of whom have expressed some interest in having their business acquired
by the Company. The Company currently has no binding agreements to effect any
acquisition. There can be no assurance that the Company's acquisition program
will be successful, and the Company cannot predict when, if ever, it will make
its first acquisition.
As consideration for future acquisitions, the Company intends to use
various combinations of Common Stock, including the shares of Common Stock
offered hereby, and cash or, possibly, notes.
SERVICES PROVIDED
The type and level of services provided by the Company vary by market
served. The services offered in each of the Company's markets are determined by
the management team responsible for that market location and are based on such
management's estimate of the demand for a particular service in the market,
competition to provide that service and the Company's ability to provide that
service consistent with the quality standard that the Company seeks.
The Company provides services on both a contracted and per seat basis. For
contracted services, the Company arranges a fee for the use of the equipment. In
these arrangements, the customer contracts the vehicle for use and the Company
is paid a rate, generally on a daily or per mile basis, that is not dependent on
passenger load factors. In per seat operations, the Company is paid by each
individual customer. Fares for these per seat services are usually determined by
the Company and payment is received from individual passengers or through a
commissioned agent. In some states, these fares are subject to regulatory
approval.
RECREATION AND EXCURSION
CHARTER AND TOUR SERVICES. Charter services are provided on a fixed daily
rate, based on mileage and hours of operation. The Company offers both daily and
long-term charter and tour arrangements (as long as 14 days) with various levels
of luxury and price. The Company has arrangements with tour agencies to provide
various levels of service and equipment for agent-sponsored and organized tours.
Under these arrangements, the Company contracts with tour agencies to provide
the motorcoach and driver at a fixed daily rate. To increase equipment
utilization, the Company also regularly offers shorter charter service to
various social groups or other organizers for transportation to events or
specific destinations. For example, the Company regularly obtains charter
business for sporting events at the Meadowlands Sports Complex and day trips for
social groups to Atlantic City or other popular destinations. In some instances,
the Company organizes its own tours and markets them on a per passenger basis.
SIGHTSEEING. Per seat sightseeing services are provided on a scheduled
basis at an advertised or published price. Typically, customers will make
reservations for the tours or can simply board on an "open-door" basis at
scheduled locations. Payment is made by the customer, or through the travel
agent or the hotel. For example, hourly or day trips are provided throughout the
San Francisco Bay area, the Northern California wine country and the Monterey
Peninsula by motorcoaches and motorized cable car replicas. The Company uses a
network of hotel lobby ticket counters, hotel concierges, travel agents and the
international marketing program of Gray Line, an international marketing
cooperative, to sell the Company's sightseeing tours.
AIRPORT SERVICE. The Company picks up passengers at the Atlantic City
International Airport and transports them to and from their hotel, casino or
convention site. The Company's airport service is typically handled on a fixed
schedule and fixed fee service basis. Reservations can be made through the
airlines' computerized reservations systems and may be prepaid, although
customers are also taken on an "open-door" basis through a service desk at the
airport. Returns are arranged through various hotels and at specified pick-up
points.
34
SPECIALIZED DESTINATION ROUTE. The Company's specialized destination route
service includes daily scheduled service to the casinos in Atlantic City from
various points in New Jersey, New York, Pennsylvania, Delaware and Maryland, as
well as service to Foxwoods Casino in Ledyard, Connecticut from New York and to
the casinos in Laughlin, Nevada from Phoenix. Luxury motorcoaches pick
passengers up at specified locations. Tickets are sold through agents and at
specified locations. Customers are taken on an "open-door" basis or by
reservation.
COMMUTER AND TRANSIT SERVICES
COMMUTER SERVICES. In most of its commuter services, the Company has fixed
routes serviced on a daily basis. Most of these routes are owned (as a result of
having received Federal or state regular route authority) by the individual
Founding Company although one of the Founding Companies has a contract with a
municipal transit authority to provide commuter service from Marin County,
California to San Francisco on specified routes. Many of the Company's
motorcoaches that are dedicated to commuter service are owned by a state or
municipal transit authority and provided to the Company at nominal rent or given
by such authority to the Company to service a particular route. In all cases,
the drivers and operations personnel are employed by the Company and the Company
is responsible for maintenance of the equipment. The Company is paid through
individual ticket purchases or through a fare box. Contracts with transit
authorities for this service typically have one to three year terms and are
periodically reviewed for rate and fare increases. The Company provides daily
commuter service from various points in New Jersey to New York City as well as
from various points in Marin County, California to San Francisco.
CORPORATE OUTSOURCING CONTRACTS. The Company has agreements with hotels and
casinos to provide motorcoaches, drivers and equipment for their employees and
customers. The Company contracts with the hotel or casino to provide the
schedule of service required by the customer, often 24 hours per day. For
example, the Company has contracts to shuttle Atlantic City casino employees
from employee parking lots to the casinos and also has the required authority to
transport hotel guests between the Atlantic City airport and the hotels.
PRIVATIZATION TRANSIT CONTRACTS. In privatization transit contracts, the
Company has a contract with a transit authority for fixed routes on a daily
basis, with the schedule established by the transit authority. The Company
operates dedicated equipment owned by the Company or by the transit authority.
In each instance, the drivers and operations personnel are employees of the
Company and the Company is responsible for equipment maintenance. The Company is
paid a fixed amount from the municipality based on number of miles or hours
operated. Contracts for this service are typically for three years and are
periodically reviewed for rate increases. The Company provides transit services
for San Mateo and Santa Clara Counties, California, and for Bergen and Passaic
Counties, New Jersey.
SALES AND MARKETING
The Company has a broad customer base. Although some of the Founding
Companies have customers that accounted for more than 10% of such Founding
Company's revenues in 1995, no single customer of the Founding Companies on a
combined basis accounted for more than 9.2% of their combined revenues in 1995.
See Note 6 of Notes to the individual historical financial statements of each of
the Founding Companies. Management of the Founding Companies has been
responsible for establishing and maintaining relationships with tour organizers,
travel agencies and other regular users of charter and tour services as well as
pursuing outsourcing and privatization opportunities. Each of the Founding
Companies also has a small sales staff that focuses primarily on obtaining
specific charter and tour business.
Historically, most of the Founding Companies conducted limited marketing.
The principal means of marketing charter and tour services has been in telephone
directories and through direct mail to customers included in the Founding
Companies' data bases, which include civic
35
groups, schools and domestic and foreign tour organizers and travel agencies.
Gray Line SF benefits from the international marketing programs of Gray Line.
Arrangements have been made with a number of leading hotels in the San Francisco
Bay area to provide lobby ticket counters or concierges to promote Gray Line
SF's sightseeing tours. Adventure maintains a ticket counter at the Atlantic
City airport for its service to hotels, casinos and convention centers.
The Company's specialized destination route services to casinos in Atlantic
City, New Jersey, Foxwoods Casino in Ledyard, Connecticut and casinos in
Laughlin, Nevada are promoted by individual casinos. These casinos typically
provide incentives to passengers, including vouchers for a small amount of cash
to gamble with and a meal at the casino, which are included with each motorcoach
ticket purchased. In some instances, the casinos actively advertise these
promotions in various media, such as newspapers, television and billboards.
Once the Company has established operations in a sufficient number of
metropolitan areas, the Company intends to implement a targeted national sales
and marketing campaign for its recreation and excursion services. The focus of
this campaign will be on national users of motorcoach service, such as travel
agencies, convention organizers and sports teams. The Company believes that it
will have a marketing advantage over its competitors since it will be able to
offer consistent, dependable, quality service in various metropolitan areas in
the United States, thereby enabling its customers to use the Company's services
in multiple locations rather than dealing with numerous regional or local
motorcoach operators.
Contracts with counties and municipalities to provide commuter and transit
services are generally obtained through a competitive bidding process. In some
instances where the Company is the existing provider, the county or municipality
may elect to renegotiate the Company's existing contract instead of putting the
contract out for rebid. The Company believes that counties and municipalities
consider quality of service, reliability and price to be the most important
factors in awarding contracts although other factors, such as financial
stability, personnel policies and practices and total cost both to the
municipality and the public, are also considered.
OPERATIONS
All aspects of the Company's daily motorcoach operations are handled on a
local basis. Each location has an operations center staffed by customer service
personnel, fleet managers and dispatchers. All of the Company's commuter and
transit services as well as its sightseeing and specialized destination route
services are operated with dedicated fleets of motorcoaches and drivers, and
most fleets include back-up vehicles in case of equipment breakdown or higher
passenger volume. Because commuter and transit services as well as specialized
destination route services involve fixed routes which rarely vary, the dispatch
function is limited to communicating with drivers by radio to determine that the
motorcoach is in service, the number of passengers embarked and whether the
motorcoach is on schedule and to deal with any problems in route. When
necessary, dispatchers can communicate necessary modifications in schedules to
meet customer demand and increase utilization. Operations personnel schedule
individual motorcoaches for recreation and excursion services as charter
business is obtained. In many instances, the Company receives bookings for tours
and charters well in advance, which enables the Company to predict periods
during which equipment utilization is likely to be low. When this occurs, the
Company more actively solicits charter business in an effort to maintain
equipment utilization or schedules alternative uses for its equipment,
particularly during the winter months when tourism declines.
The Company maintains a decentralized management structure. Most operating
decisions will remain at the Founding Company level. At the same time, the
Company intends to centralize and maintain certain administrative support
activities. The Company believes that by removing the burden and
attention-diverting responsibility of administrative and support functions, the
36
principals of the Founding Companies and any other acquired businesses will be
able to focus on pursuing new business opportunities and improving equipment
utilization and yields.
The Company believes there are opportunities to increase equipment
utilization by coordination among the Founding Companies and any additional
acquired businesses. For example, some motorcoaches that transport passengers
into New York City or Atlantic City in the morning are parked until they run the
reverse trip at the end of the day. The use of these motorcoaches for day
charters and sightseeing could be increased. In addition, equipment stored
during the "off-season" could be transported and utilized by another location
that has more business during that time.
EQUIPMENT
The Founding Companies operated a total of over 760 motorcoaches and other
high occupancy vehicles as of December 31, 1995. Approximately 130 of these
motorcoaches are provided by various transit authorities for nominal rent, with
the Company assuming full responsibility for maintenance and repairs. These
motorcoaches are provided under contracts to perform transit and commuter
services and must be returned to the transit authorities in the event the
contracts for them are not renewed. In addition, approximately 116 other
motorcoaches have been provided by certain transit authorities to the Founding
Companies to operate for the normal useful operating lives thereof, and these
motorcoaches must only be returned to such transit authorities if the applicable
Founding Company surrenders its routes for which such motorcoaches were
provided, or at the end of the normal useful operating lives thereof. The
Company's owned fleet of motorcoaches has an average age of six years.
Motorcoaches have a useful operating life in excess of 10 years. The Company's
replacement policy will depend on the use being made of the particular
motorcoach, but the Company expects that on average it will replace motorcoaches
every 10 to 12 years. The Company's current fleet of motorcoaches comprises
approximately 380 vehicles from one manufacturer, Motorcoach Industries
Incorporated, although other manufacturers are represented in the Company's
fleet. Most engines and drive trains are manufactured by Detroit Diesel and
Allison Transmissions, respectively. This continuity of engine and drive train
should enable the Company to implement a standardized, Company-wide maintenance
program and allow it to reduce its spare parts inventory. The Company leases
most of its tires from Goodyear or Firestone, with the lease payments based on
mileage driven on the tires.
MAINTENANCE
Each of the Founding Companies has a comprehensive preventive maintenance
program for its equipment to minimize equipment downtime and prolong equipment
life. This program includes regular safety checks when a motorcoach returns to
the terminal, regular oil and filter changes, lubrication, cooling system checks
and wheel alignment on average every 6,000 to 12,000 miles, and more extensive
maintenance procedures at greater intervals. Interiors of motorcoaches are
cleaned and exteriors washed usually on a daily basis.
Repairs and maintenance are performed at 11 maintenance facilities operated
by the Founding Companies. These facilities employed a total of 266 mechanics
and other maintenance personnel at December 31, 1995. Most maintenance provided
by outside facilities results from on-the-road breakdowns or involves major
engine overhauls.
To the extent economically and logistically practicable, the Company
intends to share maintenance facilities and personnel among the Founding
Companies. The Company expects this will result in a decrease in the percentage
of maintenance costs incurred at outside shops and a decrease in total
maintenance costs. For example, several of the Founding Companies have
motorcoaches parked during the day in Atlantic City where other Founding
Companies have maintenance facilities. Preventive maintenance could be performed
on these motorcoaches while idle rather than at night when they return to their
home facilities. It also may be possible to close
37
some maintenance facilities in areas where there will be multiple maintenance
facilities, such as Atlantic City and Philadelphia.
The Company expects that replacement of older motorcoaches with newer
equipment will reduce maintenance costs largely because late model motorcoaches
are more reliable and have better engine and power train warranties. In
addition, the Company believes that it may be able to negotiate better warranty
terms than the individual Founding Companies could because of the increased
negotiating power of the combined Founding Companies. The Company intends to
purchase most of its motorcoaches with standard component specifications,
particularly engines and drive trains, thereby reducing the complexity of
maintenance and spare parts management. The Company also believes that it may be
able to lease or purchase replacement tires on more favorable terms than
currently available.
FACILITIES
All of the Company's facilities will be leased although most of the
Founding Companies owned their own facilities prior to the Mergers. As part of
the agreements pursuant to which the Founding Companies were acquired, the
Founding Companies which owned their facilities transferred ownership of these
facilities to their stockholders or to entities controlled by their
stockholders, who entered into long-term leases with the Company with respect to
such facilities. The Company intends whenever possible to require other acquired
companies that own facilities to also transfer those facilities to their owners
prior to acquisition.
The Company's facilities consist principally of offices, garages and
maintenance facilities. Some of these are single facilities, and other
facilities have limited operations, which may not include complete maintenance
services. Some of the facilities currently operated by the Company are leased
from related parties. See "Certain Transactions -- Leases of Facilities." The
Company believes that its facilities are adequate for its current needs.
Set forth below is information concerning the current facilities of the
Founding Companies :
USE
----------------------
FOUNDING GARAGE AND
COMPANY LOCATION ACREAGE MAINTENANCE OFFICE
- ------------------- -------------------- ---------- ----------- ------
Suburban........... New Brunswick, NJ 5.8 X X
Hightstown, NJ 8.0 X --
South Plainfield, NJ 2.3 X --
Gray Line SF....... San Francisco, CA 3.0 X X
Leisure............ Mahwah, NJ 4.4 X X
Pleasantville, NJ 2.3 X --
Philadelphia, PA 2.5 X --
Community.......... Passaic, NJ 4.3 X X
Adventure.......... Atlantic City, NJ 4.0 X X
Philadelphia, PA 2.0 X --
Arrow.............. Phoenix, AZ 3.5 X X
The Company believes that the ability of each of the Founding Companies to
use garages and maintenance facilities of the other Founding Companies for
maintenance and personnel support will increase operating efficiencies for the
Company as a whole. For example, the Company is considering eliminating one of
the two facilities in the Atlantic City area and one of the two facilities in
Philadelphia.
The Company leases its principal executive and administrative offices in
Houston, Texas.
DRIVERS AND OTHER PERSONNEL
At December 31, 1995, the Founding Companies had approximately 1,800
employees, of whom approximately 1,200 were drivers and approximately 300 were
maintenance personnel.
38
The balance included administrative personnel, sales personnel, customer service
personnel, fleet managers, dispatchers and safety and training personnel. Of
these employees, approximately 1,300 were full-time employees.
Each of the Founding Companies has established driver retention programs
which seek to maintain a sufficient number of qualified drivers to handle
passenger service. The Founding Companies historically had relatively minimal
driver turnover among full-time drivers other than for sightseeing and tour
services, where the need for drivers varies seasonally. Safety and dependability
of drivers are critical to the Company's operations. Drivers are required to
comply with all applicable Federal and state driver qualification and safety
regulations, including hours of service and medical qualifications, and to hold
a Commercial Driver's License issued in conformity with regulations of the FHWA.
Drivers are also subjected to drug and alcohol testing requirements imposed by
the FHWA, including random, reasonable suspicion and post-accident testing.
Driver applicants are required to have significant driving experience and to
pass medical examinations.
Several different unions represent approximately 875 employees of the
Company, of whom approximately 793 are drivers. The Company is a party to a
number of different collective bargaining agreements which expire at various
dates through 1999. In the last 10 years, the Founding Companies have not
experienced any work stoppages and believe that relationships with union
representatives and union employees are satisfactory.
SAFETY
Each of the Founding Companies is dedicated to safe operations. The
Founding Companies vigorously adhere to the FHWA and comparable state motor
carrier safety rules, including rules concerning safe motor vehicle equipment,
driver qualifications and safe operation of vehicles. The Founding Companies
maintain drug and alcohol testing programs for their drivers in conformity with
FHWA and comparable state requirements. The Founding Companies also address
accidents and other incidents and take follow-up steps intended to reduce the
risk of repeat accidents and incidents.
The Founding Companies employ safety specialists and maintain safety
programs designed to meet the specific needs of the Founding Companies,
including field spotters and riders who assess driver performance. In addition,
the Founding Companies employ specialists to perform compliance checks and
conduct safety tests throughout the Founding Companies' operations. The Founding
Companies conduct a number of safety programs designed to promote compliance
with rules and regulations and to reduce accidents and injury claims. These
programs include incentive programs for accident-free driving, driver safety
meetings, distribution of safety bulletins to drivers and participation in
national safety associations.
RISK MANAGEMENT AND INSURANCE
The primary risks in the Company's motorcoach operations are bodily injury,
property damage and workers' compensation. The Founding Companies currently
maintain insurance against these risks and are subject to liability as self
insurers to the extent of the deductible under each policy. The Company intends
to obtain and maintain liability insurance for bodily injury and third party
property damage in amounts which it considers sufficient, with a deductible for
bodily injury and property damage of $100,000 per incident. The workers'
compensation policies in the states where most of the Founding Companies'
employees are located provide for first dollar coverage. The Company will self
insure as to damage or loss to its own equipment, subject to "stop loss"
insurance coverage in excess of $250,000 per incident.
39
FUEL AVAILABILITY AND COST
Each of the Founding Companies purchases fuel in bulk and stores it at its
facilities. See "-- Environmental Matters." Currently, fuel is purchased from a
number of suppliers at prevailing market prices. The Company expects that the
aggregate volume of fuel purchased by the Founding Companies will create
improved negotiating leverage with fuel vendors and may result in lower fuel
prices.
Fuel prices are subject to sudden increases as a result of variations in
supply levels and demand. Any sustained increase in fuel prices could adversely
affect the Company's results of operations. From time to time, there are efforts
at the Federal or state level to increase fuel or highway use taxes, which, if
enacted, also could adversely affect the Company's results of operations.
COMPETITION
The portions of the motorcoach industry in which the Company operates are
highly competitive, fragmented and served by numerous operators, most of which
serve only a single area or region. The Company's competitors include other
operators of motorcoaches and other high occupancy vehicles, such as Laidlaw,
Inc. and Ryder System, Inc., operators of passenger automobiles and, to a more
limited extent, airlines, Amtrak and commuter rail service providers. Some of
the Company's competitors, which vary depending on geographic region and the
nature of the service provided, have greater financial, technical and marketing
resources and generate greater revenues than the Company in specific regions.
The majority of the Company's motorcoach competitors at the Founding Company
level consist of small regional operators with a strong presence in their
respective markets. The Company believes that as it expands geographically, it
may compete with additional national, regional and local transportation service
providers.
The Company believes that the principal competitive factors in the
motorcoach industry are reliability, customer service and price, as well as
equipment comfort and appearance. In addition, competition with respect to some
services is limited in some locations by the difficulty in obtaining required
state route authorizations. The Company believes that its ownership of route
authorizations provides it with a competitive advantage in certain markets
because of the relative difficulty of obtaining these authorizations.
The Company also will compete for acquisition candidates. The Company
believes that its decentralized management philosophy and operating strategies
will make it an attractive acquiror to other motorcoach companies. However, no
assurance can be given that the Company's acquisition program will be successful
or that the Company will be able to compete effectively in its chosen markets.
REGULATION
As a result of the ICC Termination Act of 1995 (the "Termination Act"), the
Interstate Commerce Commission (the "ICC"), which previously regulated
motorcoach operators engaged in interstate commerce, was abolished effective
January 1, 1996. However, certain of the ICC's regulatory functions were
transferred as of that date to the Surface Transportation Board (the "STB"), a
new regulatory body established within the United States Department of
Transportation (the "USDOT"), and certain other functions were transferred to
the United States Secretary of Transportation (the "Secretary"). Under the
Termination Act, motorcoach operators engaged in interstate commerce are
generally required to be registered with the Secretary, who has delegated
responsibility for registration to the Office of Motor Carriers of the FHWA,
another body of the USDOT. By virtue of the Termination Act, persons who held
operating authority issued by the ICC prior to December 31, 1995 were
automatically deemed registered with the Secretary. Each of the Founding
Companies, with the exception of certain affiliates of two of the
40
Founding Companies, held authority issued by the ICC prior to December 31, 1995,
and, accordingly, each was deemed registered with the FHWA and is now subject to
the regulatory requirements of the STB and the FHWA.
The Bus Regulatory Reform Act of 1982 significantly reduced federal
regulation of the motorcoach industry. The Termination Act further lessened
regulatory requirements, with the result that the Secretary, the STB and the
FHWA have only limited regulatory authority over interstate motorcoach
operations. The level of fares is not subject to federal regulation, and
motorcoach operators are not required to file tariffs. Motorcoach operators are,
however, required by the Termination Act to provide transportation service on
reasonable request and to provide safe and adequate service, equipment and
facilities. They must also maintain minimum amounts of insurance and file
evidence of such insurance with the FHWA. The Secretary and the Board are vested
with enforcement authority, including authority to impose civil penalties, with
respect to violations of applicable regulatory requirements. The Secretary may
also suspend, amend or revoke a registration for willful failure to comply with
the Termination Act, with the regulations of the Secretary, the STB or the FHWA
or with any condition of the operator's registration.
The Termination Act preempts states, their political subdivisions and
multistate agencies from regulating the scheduling or rates of interstate or
intrastate transportation provided by motorcoach operators on interstate routes.
However, states may require motorcoach operators to provide notice, not in
excess of 30 days, of changes in their schedules. These preemption provisions do
not apply to commuter service.
The Company is subject to extensive FHWA and state regulations with respect
to the qualifications of its drivers and the safety of its vehicles and their
operation. See "-- Drivers and Other Personnel" and "-- Safety." In addition,
the vehicles operated by the Company are required by FHWA regulations to meet
Federal noise standards established by the Environmental Protection Agency. The
Company believes that the Founding Companies have conducted their operations in
substantial compliance with FHWA regulations, and the Company does not believe
that ongoing compliance with such regulations will require substantial capital
expenditures. Under the Americans with Disabilities Act (the "ADA"), the Company
could become obligated to provide accessible vehicles to persons who are
disabled under certain circumstances defined in that statute and in USDOT
regulations. If the Company were required to make its motorcoaches compatible
with ADA regulations, it could result in significant capital expenditures by the
Company. The Company is subject to regulation by the Occupational Safety and
Health Administration with respect to worker and workplace safety.
Community, Suburban, Leisure and Adventure are subject to regulation by the
New Jersey Department of Transportation (the "NJDOT") in connection with the
operation of their vehicles and with respect to the safety of operation and
equipment. New Jersey has a comprehensive regulatory scheme, administered by the
NJDOT. Although some of New Jersey's regulatory restrictions have been preempted
by federal legislation, as described above, New Jersey maintains strong
regulatory control over wholly intrastate routes subject to NJDOT jurisdiction.
Because these Founding Companies have been granted authority to provide commuter
service and scheduled service to Atlantic City, these companies have a
competitive advantage. However, there can be no assurance that New Jersey will
maintain its current regulatory posture, and any reduction in regulation of
motorcoach operators in New Jersey could adversely affect the Company.
The Termination Act requires the STB's approval of any transaction under
which a person that is not a regulated motorcoach operator, such as Coach USA,
acquires control of two or more STB-regulated motorcoach operators. However, the
STB is empowered to exempt persons from this requirement for approval of
motorcoach acquisitions. Coach USA filed a petition with the STB seeking such
exemption in order to permit the acquisition by Coach USA of those of the
41
Founding Companies and their affiliates that are regulated by the STB, and the
exemption was granted and became effective on May 3, 1996. Further, certain
affiliates of the Founding Companies which operate exclusively in New Jersey,
and are subject only to NJDOT and not STB jurisdiction, filed petitions with the
NJDOT seeking approval to transfer shares of their capital stock in connection
with the Mergers. Those petitions were approved effective on May 2, 1996.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various Federal, state and local
environmental laws and regulations governing vehicle emissions, underground and
aboveground fuel tanks and the storage, use and disposal of hazardous materials
and hazardous waste in connection with the Company's in-house maintenance
operations. These laws include the Water Pollution Control Act, the Clean Air
Act, as amended, the Resource Conservation and Recovery Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act and various
state and local laws. There are underground storage tanks at most of the
Company's facilities. The Company also conducts motorcoach washing at its
facilities and the resulting waste must be disposed of in accordance with
regulatory requirements. In the event of a spill, the Company would be
responsible for the cost of the clean-up, which could be significant. As a
result of historical operations, there have been spills and releases of
hazardous substances, including petroleum and petroleum products, at several of
the Founding Companies' facilities. Certain of the Founding Companies have had
to remediate these spills and releases at a significant cost to the Founding
Companies. However, additional spills and releases of hazardous substances of
which the Company is unaware, including spills and releases of petroleum and
petroleum products, may have occurred at the Founding Companies' facilities. In
addition, with respect to unknown pre-existing contamination at a Founding
Company's facilities, each of the stockholders of such Founding Company has
agreed to indemnify the Company (up to the amount of consideration such
stockholder received in the Mergers, after satisfaction of a threshold payable
by the Company, which varies depending on the Founding Company) for liabilities
in connection with such contamination. If and to the extent that any stockholder
of a Founding Company had actual knowledge of a spill or release and did not
disclose it to the Company pursuant to the agreement to consummate the Merger,
such stockholder has agreed to indemnify the Company for all liabilities in
connection with such contamination, not subject to any limit on such
indemnification obligation. Some of the Founding Companies have disclosed that
from time to time they have spilled or released certain hazardous substances in
the course of operating their businesses. The Company will be liable for the
costs, if any, in connection with these disclosed spills and releases. As a
result of operations at the Founding Companies' facilities, the Company also may
be subject to penalties.
Certain groundwater contamination has occurred at Leisure's facility in
Mahwah, New Jersey, principally 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 (the "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 Department 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
42
have made an improvement in groundwater quality at the site. In addition, at
Leisure's facility in Mahwah, Leisure historically discharged certain motorcoach
wash and toilet waste into the ground. The Department has indicated that it may
require Leisure to connect to the public sanitary sewer system. Leisure has
ceased discharging motorcoach wash and toilet waste to the ground and currently
hauls this waste off site on a periodic basic for disposal. After consulting
with an environmental engineer, Leisure has accrued approximately $220,000 for
the anticipated cost of connecting to the sewer system.
The Company intends to implement an environmental compliance program at all
of its facilities in an effort to prevent or reduce future releases of hazardous
substances.
LEGAL PROCEEDINGS
One or more of the Founding Companies (or other motorcoach operators
acquired in the future by the Company) may become subject to litigation in
connection with the competitive bidding process for a contract to provide
transit or commuter service on behalf of a transit authority. Unsuccessful
bidders occasionally will challenge, through a regulatory appeals process or in
court, the awarding of the contract and will often name the successful bidder as
an additional defendant. The cost of defending such an action can be
significant, and if the required competitive bidding procedures were not
followed by the transit authority, the authority could be ordered to begin the
process over or even award the contract to another bidder.
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 the court initially denied Suburban's request for an
injunction against the granting of the award. However, on Suburban's request for
reconsideration, the court ordered an evidentiary hearing to explore certain
factual issues. The evidentiary hearing took place in late May and early June of
1996. The court is currently deciding whether to vacate its prior denial of the
injunction. Proceedings in the case are continuing. Suburban is unable to
predict whether it will prevail in this litigation and whether it will be able
to recoup a significant portion of its lost revenues. Moreover, even if Suburban
prevails in this litigation, it could face competition at the terminals to which
it is not currently subject.
From time to time, each of the Founding Companies is a party to routine
litigation incidental to its business, primarily involving claims for personal
injury or property damage incurred in the transportation of its passengers. The
Company is not aware of any pending claims or threatened claims which, if
adversely determined, might materially affect the Company's operating results or
financial condition.
43
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,
24
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.
25
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%
26
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.
27
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
28
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
29
$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.
30
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,
24
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.
25
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%
26
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.
27
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
28
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
29
$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.
30
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of May 14, 1996 concerning
the Company's directors, executive officers and certain key employees.
NAME AGE POSITION
- ------------------------------------ --- -------------------------------------
Richard H. Kristinik................ 56 Chairman of the Board and Chief
Executive Officer
John Mercadante, Jr................. 51 President and Chief Operating
Officer; Director; President and
Chief Executive Officer of Adventure
Kenneth Kuchin...................... 42 Vice Chairman of the Board; Senior
Vice President -- Northeast Region;
President of Suburban
Douglas M. Cerny.................... 37 Senior Vice President, General
Counsel and Secretary
Frank P. Gallagher.................. 52 Senior Vice President -- Corporate
Development; Director; President and
Chief Executive Officer of Community
Lawrence K. King.................... 39 Senior Vice President and Chief
Financial Officer; Director
Gerald Mercadante................... 49 Senior Vice President -- Northeast
Region Operations; Director;
President of Leisure
Charles D. Busskohl................. 63 Director; Chairman and Chief
Executive Officer of Arrow
Steven S. Harter.................... 33 Director
William J. Lynch.................... 54 Director
Paul M. Verrochi.................... 47 Director
Thomas A. Werbe..................... 44 Director; President of Gray Line SF
Jon M. Garfield(1).................. 32 Vice President -- Acquisitions
Raymond K. Turner(1)................ 39 Vice President and Treasurer
Steven T. Zellers(1)................ 35 Vice President and Comptroller
Robert K. Werbe(1).................. 68 Chairman of the Board of Gray Line SF
- ------------
(1) Key Employee
Richard H. Kristinik has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since March 1996. Prior to that time, Mr.
Kristinik was a Partner with Arthur Andersen LLP from 1973 to March 1996,
serving in its Houston office for all those years, except for the period from
1979 to 1984, when he served as Managing Partner of the Tulsa office, and the
period from 1985 to 1989, when he served as Managing Partner of the Denver
office.
John Mercadante, Jr. is President and Chief Operating Officer and a
director of the Company. Mr. Mercadante co-founded Leisure with his brother,
Gerald Mercadante, in 1970 and acquired Adventure in 1988. He has served as
Adventure's President and Chief Operating Officer since 1988. Mr Mercadante is
currently the President of the Atlantic City Bus Operators Association and a
director of the New Jersey Motor Bus Association, both motorcoach trade
associations.
Kenneth Kuchin is Vice Chairman of the Board and Senior Vice President --
Northeast Region of the Company. He has been employed by Suburban since 1975 and
has served as Suburban's President and Chief Executive Officer since 1990.
Douglas M. Cerny has been Senior Vice President, General Counsel and
Secretary of the Company since January 1996. From February 1994 through January
1996, he was Vice President and General Counsel of Medical Review Systems, Inc.,
a privately held health care cost-containment services company which was
acquired by Equifax, Inc. in March 1995. Between March 1995 and January 1996,
Mr. Cerny provided operational support in the transition of operations to
44
Equifax, Inc. From July 1988 through February 1994, Mr. Cerny was Vice President
and Corporate Counsel and then Vice President and General Counsel of Allwaste,
Inc., a publicly traded environmental services company.
Frank P. Gallagher is Senior Vice President -- Corporate Development and a
director of the Company. Mr. Gallagher has served as President and Chief
Executive Officer of Community since 1969. Mr. Gallagher currently serves as the
President of the New Jersey Motor Bus Association and President of Bus Park of
Atlantic City, a bus parking cooperative.
Lawrence K. King has served as Senior Vice President and Chief Financial
Officer and a director of the Company since December 1995. From 1992 until
December 1995, Mr. King was Executive Vice President, Secretary, Treasurer and
Chief Financial Officer of SI Diamond Technology, Inc., a publicly traded
technology development company. From 1988 to 1991, he served as Assistant
Secretary and Treasurer of The Permian Corporation, the general partner of
Permian Partners L.P., a publicly traded crude oil, trucking, transportation and
distribution master limited partnership. From 1979 to 1988, Mr. King served in a
number of positions as a certified public accountant with Arthur Andersen LLP.
Gerald Mercadante is Regional Vice President and a director of the Company.
Mr. Mercadante co-founded Leisure in 1970 and has been President and Chief
Executive Officer of Leisure since 1980.
Charles D. Busskohl is a director of the Company. He has been employed by
Arrow since 1960 and has served as Arrow's Chairman for six years and has served
as Chief Executive Officer of Arrow for 34 years. Mr. Busskohl was a founder of
the United Motorcoach Association, a motorcoach trade association.
Steven S. Harter has been a director of the Company since September 1995.
Mr. Harter is President of Notre Capital Ventures II, L.L.C., a consolidator of
highly fragmented businesses. Mr. Harter was Senior Vice President of Notre
Capital Ventures, Ltd. from June 1993 through July 1995 and was the Notre
principal primarily responsible for the initial public offerings of US Delivery
Systems, Inc. and Physicians Resource Group, Inc. From April 1989 to June 1993,
Mr. Harter was Director of Mergers and Acquisitions for Allwaste, Inc. From May
1984 to April 1989, Mr. Harter was a certified public accountant with Arthur
Andersen LLP.
William J. Lynch is a director of the Company. Mr. Lynch is a Managing
Director of Capstone Partners, LLC, a special situations venture capital firm.
From October 1989 to March 1996, Mr. Lynch was a partner of the law firm of
Morgan, Lewis & Bockius LLP. Mr. Lynch also serves as a director of Sanifill,
Inc., a publicly traded environmental services company, and is an investor in
Notre Capital Ventures II, L.L.C.
Paul M. Verrochi is a director of the Company. Mr. Verrochi has served as
Chairman of the Board of American Medical Response, Inc., a publicly traded
provider of ambulance services, since its inception in February 1992. Since
February 1992, he has also been a Principal of Exel Holdings, Ltd., a
privately-held investment firm he co-founded. From April 1989 to December 1990,
Mr. Verrochi was President of Allwaste Asbestos Abatement, Inc., a subsidiary of
Allwaste, Inc. Mr. Verrochi was a founder of American Environmental Group, a
regional asbestos abatement company, and served as Chairman of its Board of
Directors from July 1987 until April 1989, when it was acquired by Allwaste,
Inc.
Thomas A. Werbe is a director of the Company. Mr. Werbe is the President of
Gray Line SF and has been a director of Gray Line SF for more than five years.
Jon M. Garfield has served as Vice President -- Acquisitions of the Company
since February 1996. From 1991 until joining the Company, Mr. Garfield served as
Assistant Corporate Controller of Maxxim Medical, Inc., a publicly traded
manufacturer of medical devices. Mr. Garfield served as a certified public
accountant for Coopers & Lybrand from 1990 to 1991. Mr. Garfield served as
45
Accounting Manager for Premisys Realty from 1989 to 1990. From 1986 to 1989, Mr.
Garfield was a certified public accountant with Arthur Andersen LLP.
Raymond K. Turner became Vice President and Treasurer of the Company in
February 1996. From 1989 until joining the Company, Mr. Turner held various
accounting and financial positions, including Treasurer and Regional Controller,
with Allwaste, Inc. From 1983 until 1989, Mr. Turner was a certified public
accountant with Arthur Andersen LLP.
Steven T. Zellers has served as Vice President and Comptroller of the
Company since December 1995. From 1993 until joining the Company, Mr. Zellers
was Director of Finance and an officer of a privately held manufacturing
company. From 1988 to 1992, Mr. Zellers was Assistant Controller of Gundle
Environmental Corporation, a publicly traded environmental company. From 1984 to
1988, Mr. Zellers was a certified public accountant with Arthur Andersen LLP.
Robert K. Werbe has been the Chairman of the Board and Chief Executive
Officer of Gray Line SF for over 15 years. Mr. Werbe is the father of Thomas A.
Werbe, who is a director of the Company
The Board of Directors is divided into three classes of four, four and
three directors, respectively, with directors serving staggered three-year
terms, expiring at the annual meeting of stockholders in 1997, 1998 and 1999,
respectively. At each annual meeting of stockholders, one class of directors
will be elected for a full term of three years to succeed that class of
directors whose terms are expiring. All officers serve at the discretion of the
Board of Directors.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The members of the Audit Committee and the Compensation
Committee are Messrs. Harter, Lynch and Verrochi.
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $2,000 for attendance at each Board of Directors meeting and $1,000 for
each committee meeting (unless held on the same day as a Board of Directors'
meeting). In addition, under the Company's 1996 Non-Employee Directors' Stock
Plan, each non-employee director will automatically receive an option to acquire
10,000 shares of Common Stock upon such person's initial election as a director,
and, subject to a certain exception, an annual option to acquire 5,000 shares at
each annual meeting of the Company's stockholders thereafter at which such
director is re-elected or remains a director. Each non-employee director also
may elect to receive shares of Common Stock or credits representing "deferred
shares" in lieu of cash directors' fees. See "-- 1996 Non-Employee Directors'
Stock Plan." Directors are also reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof incurred
in their capacity as directors.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
The Company was incorporated in September 1995, conducted no operations and
generated no revenue prior to the closing of the Offering and did not pay any of
its executive officers compensation during 1995. The Company anticipates that
during 1996 its most highly compensated executive officers will be Messrs.
Kristinik, John Mercadante, Kuchin, Cerny, Gallagher, King and Gerald
Mercadante.
Each of Messrs. John Mercadante, Kuchin, Gallagher and Gerald Mercadante
has entered into an employment agreement with the Company and a Founding Company
providing for an annual base salary of $150,000 and a bonus to be determined
annually pursuant to an incentive bonus plan to be established by the Company.
Each employment agreement is for a term of five years,
46
and unless terminated or not renewed by the Company or not renewed by the
employee, the term will continue thereafter on a year-to-year basis on the same
terms and conditions existing at the time of renewal. Each of these agreements
provides that, in the event of a termination of employment by the Company
without cause during the first three years of the employment term (the "Initial
Term"), the employee will be entitled to receive from the Company an amount
equal to his then current salary for the remainder of the Initial Term or for
one year, whichever is greater. In the event of a termination of employment
without cause during the final two years of the initial five year term of the
employment agreement, the employee will be entitled to receive an amount equal
to his then current salary for one year. In either case, payment is due in one
lump sum on the effective date of termination. In the event of a change in
control of the Company (as defined in the agreement) during the Initial Term, if
the employee is not given at least five days' notice of such change in control,
the employee may elect to terminate his employment and receive in one lump sum
three times the amount he would receive pursuant to a termination without cause
during the Initial Term. In addition, the non-competition provisions of the
employment agreement would not apply. In the event the employee is given at
least five days' notice of such change in control, the employee may elect to
terminate his employment agreement and receive in one lump sum two times the
amount he would receive pursuant to a termination without cause during the
Initial Term. In such an event, the non-competition provisions of the employment
agreement would apply for two years from the effective date of termination. Each
of Messrs. Busskohl and Robert Werbe has entered into an employment agreement
with Arrow and Gray Line SF, respectively, containing substantially similar
terms.
Each employment agreement contains a covenant not to compete with the
Company for a period equivalent to the longer of two years immediately following
termination of employment or, in the case of a termination by the Company
without cause in the absence of a change in control, for a period of one year
following termination of employment.
Each of Messrs. Kristinik, Cerny and King has entered into an employment
agreement with the Company providing for an annual base salary of $150,000 and a
bonus to be determined annually pursuant to an incentive bonus plan to be
established by the Company. Each employment agreement is for a term of three
years, and unless terminated or not renewed by the Company or not renewed by the
employee, the term will continue thereafter on a year-to-year basis on the same
terms and conditions existing at the time of renewal. Each of these agreements
provides that, in the event of a termination of employment by the Company
without cause, the employee will be entitled to receive from the Company an
amount equal to one year's salary, payable in one lump sum on the effective date
of termination. In the event of a change in control of the Company (as defined
in the agreement) during the initial three-year term, if the employee is not
given at least five days' notice of such change in control, the employee may
elect to terminate his employment and receive in one lump sum three times the
amount he would receive pursuant to a termination without cause during such
initial term. In addition, the non-competition provisions of the employment
agreement would not apply. In the event the employee is given at least five
days' notice of such change in control, the employee may elect to terminate his
employment and receive in one lump sum three times the amount he would receive
pursuant to a termination without cause during such initial term. In such an
event, the non-competition provisions of the employment agreement would apply
for two years from the effective date of termination.
Each employment agreement contains a covenant not to compete with the
Company for a period equivalent to the longer of two years immediately following
termination of employment or, in the case of a termination by the Company
without cause in the absence of a change in control, for a period of one year
following termination of employment.
47
1996 LONG-TERM INCENTIVE PLAN
No stock options were granted to, or exercised by or held by any executive
officer in 1995. In March 1996, the Board of Directors and the Company's
stockholders approved the Company's 1996 Long-Term Incentive Plan (the "Plan").
The purpose of the Plan is to provide directors, officers, key employees,
consultants and other service providers with additional incentives by increasing
their ownership interests in the Company. Individual awards under the Plan may
take the form of one or more of: (i) either incentive stock options ("ISOs") or
non-qualified stock options ("NQSOs"), (ii) stock appreciation rights ("SARs"),
(iii) restricted or deferred stock, (iv) dividend equivalents and (v) other
awards not otherwise provided for, the value of which is based in whole or in
part upon the value of the Common Stock.
The Compensation Committee administers the Plan and generally selects the
individuals who will receive awards and the terms and conditions of those
awards. The maximum number of shares of Common Stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may not
exceed the greater of 1,500,000 shares or 15% of the aggregate number of shares
of Common Stock outstanding. Shares of Common Stock which are attributable to
awards which have expired, terminated or been canceled or forfeited are
available for issuance or use in connection with future awards.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any Federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
In connection with the Offering, NQSOs to purchase a total of 495,000
shares of Common Stock of the Company were granted as follows: 200,000 shares to
Mr. Kristinik, 100,000 shares to Mr. Cerny, 100,000 shares to Mr. King and
95,000 shares to other management. In addition, options to purchase
approximately 650,000 shares were granted to the employees of the Founding
Companies. The grants of all of the foregoing options were effective as of the
commencement of the Offering and each has an exercise price equal to $14.00 per
share, the initial public offering price. These options vest at the rate of 20%
per year commencing on June 30, 1997, and expire 10 years from the date of grant
or three months following termination of employment.
1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1996 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in March 1996, provides for (i) the automatic grant to
each non-employee director serving at the commencement of the Offering of an
option to purchase 10,000 shares, and thereafter (ii) the automatic grant to
each non-employee director of an option to purchase 10,000 shares upon such
person's initial election as a director. In addition, the Directors' Plan
provides for an automatic annual grant to each non-employee director of an
option to purchase 5,000 shares at each annual meeting of stockholders following
the Offering; provided, however, that if the first annual meeting of
stockholders following a person's initial election as a non-employee director is
within three months of the date of such election, such person will not be
granted an option to purchase 5,000 shares of Common Stock at such annual
meeting. These options will have an exercise price per share equal to the fair
market value of a share at the date of grant. The options granted to Messrs.
Harter, Lynch and Verrochi effective upon the commencement of the Offering have
an exercise price equal to $14.00 per share, the initial public offering price.
Options granted under the Directors' Plan will expire at the earlier of 10 years
from the date of grant or one year after termination of service as a director,
and options will be immediately exercisable. In
48
addition, the Directors' Plan permits non-employee directors to elect to
receive, in lieu of cash directors' fees, shares or credits representing
"deferred shares" settleable at future dates, as elected by the director. The
number of shares or deferred shares received will be equal to the number of
shares which, at the date the fees would otherwise be payable, will have an
aggregate fair market value equal to the amount of such fees.
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of Coach USA, Coach USA issued
approximately 147 shares of Common Stock for $1,000 to Notre Capital Ventures
II, L.L.C., a Texas limited liability company ("Notre"). Mr. Harter is the
President of Notre and a director of the Company. Subsequently, Coach USA
declared a stock dividend of 9,999 shares of Common Stock for each share of
Common Stock outstanding. In addition, Coach USA sold 692,000 shares (as
adjusted for the stock dividend) of Common Stock at $.01 per share to various
members of management, including: Richard H. Kristinik -- 200,000 shares of
Common Stock, Lawrence K. King -- 114,000 shares of Common Stock and Douglas M.
Cerny -- 114,000 shares of Common Stock. Coach USA issued 75,000 shares of
Common Stock to a trust for the benefit of the children of Paul M. Verrochi, who
became a director of the Company upon the commencement of the Offering, and
granted options to purchase 10,000 shares of Common Stock, effective upon the
commencement of the Offering, to Messrs. Verrochi and Harter and to William J.
Lynch, who also became a director of the Company upon the commencement of the
Offering and who is an investor in Notre. In addition, Notre advanced funds in
order to effect the Mergers and the Offering and had outstanding as of March 31,
1996 advances to the Company in the aggregate amount of $2,741,000, all of which
were on a noninterest-bearing basis. Portions of Notre's advances were repaid
out of the proceeds of the Offering.
Simultaneously with the closing of the Offering, Coach USA acquired by
merger all of the issued and outstanding stock of the six Founding Companies, at
which time each Founding Company became a wholly owned subsidiary of the
Company. The aggregate consideration paid by Coach USA in the Mergers was
approximately $95.2 million, consisting of approximately $23.8 million in cash
and 5,099,687 shares of Common Stock. In addition, immediately prior to the
Mergers certain of the Founding Companies made distributions of approximately
$4.5 million, representing S Corporation earnings previously taxed to their
respective stockholders. Also, prior to the Mergers, certain of the Founding
Companies distributed to their respective stockholders approximately $4.2
million in net book value of assets and approximately $700,000 of related
liabilities.
The aggregate consideration paid by Coach USA for each of the Founding
Companies was as follows: Suburban: $26,847,684, consisting of $8,054,308 paid
in cash and 1,342,384 shares of Common Stock; Gray Line SF: $17,551,924,
consisting of $5,265,580 paid in cash and 877,596 shares of Common Stock;
Leisure: $21,517,999, consisting of $4,118,477 paid in cash and 1,242,823 shares
of Common Stock; Community: $10,331,997, consisting of $2,605,831 paid in cash
and 551,869 shares of Common Stock; Adventure: $10,598,000, consisting of
$3,179,400 paid in cash and 529,900 shares of Common Stock; and Arrow:
$8,357,995, consisting of $586,385 paid in cash and 555,115 shares of Common
Stock.
Pursuant to the agreements entered into in connection with the Mergers, the
stockholders of the Founding Companies agreed not to compete with the Company
for five years, commencing on the date of consummation of the Offering.
Prior to the Offering, each of the Founding Companies incurred indebtedness
which was personally guaranteed by its stockholders or by entities controlled by
its stockholders. At December 31, 1995, the aggregate amount of indebtedness of
these Founding Companies that
49
was subject to personal guarantees was approximately $11.6 million. The Company
repaid substantially all of such indebtedness immediately following the
consummation of the Offering and is using its best efforts to have the personal
guarantees of the balance of this indebtedness released within 120 days after
May 17, 1996. In the event that any guarantee cannot be released, the Company
has agreed to repay the balance of such indebtedness.
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain officers, directors, key employees and holders
of more than 5% of the outstanding shares of the Company, together with their
spouses and trusts for which they act as trustees, received cash and shares of
Common Stock of the Company as follows: Mr. Kuchin -- $7,267,324 and 1,211,219
shares of Common Stock; Mr. Thomas Werbe -- $2,106,232 and 351,038 shares of
Common Stock; Mr. Robert Werbe -- $526,558 and 87,760 shares of Common Stock;
Mr. Gerald Mercadante -- $3,500,699 and 1,056,400 shares of Common Stock; Mr.
Gallagher -- $934,036 and 197,810 shares of Common Stock; Mr. John Mercadante --
$2,384,550 and 397,425 shares of Common Stock; and Mr. Busskohl -- $585,892 and
550,451 shares of Common Stock.
LEASES OF FACILITIES
In connection with the Mergers, the Company assumed three leases by
Suburban of properties in South Plainfield, Hightstown and New Brunswick, New
Jersey that are owned by Mr. Sidney Kuchin and used by Suburban for its
motorcoach operations. Mr. Sidney Kuchin is Mr. Kenneth Kuchin's father and a
shareholder of Suburban. Suburban is responsible for all real estate taxes,
insurance and maintenance. The terms of the leases are through October 31, 2030
and provide for aggregate annual rentals of approximately $342,000 with periodic
10% increases every five years commencing November 1, 1998. The Company believes
that the rent for such properties does not exceed the fair market rental
thereof.
In connection with the Mergers, the Company assumed leases by Community of
properties in Passaic, New Jersey used by Community in its motorcoach operations
that are owned by companies controlled by Mr. Frank P. Gallagher and members of
his family. Community is responsible for all real estate taxes, insurance and
maintenance. The terms of the leases are for five years and provide for five one
year extensions in favor of the Company. The leases commenced January 1, 1996
and provide for aggregate annual rentals of approximately $195,000. The Company
believes that the rent for such properties does not exceed the fair market
rental thereof.
Coach USA has adopted a policy that, wherever possible, it will not own any
real property. Therefore, Coach has required the two Founding Companies
described below that owned real property to transfer such real property to their
stockholders or to entities controlled by their stockholders prior to the
Mergers. Accordingly, two properties previously owned by Leisure and used for
its motorcoach operations with a net book value of $1,879,000 as of December 31,
1995 were distributed, without payment of consideration to Leisure or Coach USA,
to an entity controlled by the stockholders thereof, including Mr. Gerald
Mercadante, prior to the Mergers and then leased to the Company. These leases
were negotiated between the General Counsel of Coach USA and counsel for
Leisure. These leases have terms of five years and 10 years, respectively, with
an option in favor of the Company to extend the leases for five or 10 years at
the end of the original lease period, and provide for aggregate annual rentals
of approximately $77,000. Leisure will be responsible for all real estate taxes,
insurance and maintenance. See the Pro Forma Combined Financial Statements of
the Company.
Certain properties owned by Arrow with a net book value of $1,412,000 as of
September 30, 1995 were distributed, without payment of consideration to Arrow
or Coach USA, to the stockholders thereof, including trusts for which Mr.
Charles Busskohl acts as a trustee, prior to the Mergers and then leased to the
Company. These leases were negotiated between the General
50
Counsel of Coach USA and counsel for Arrow and are for a term of five years with
five renewal options for five years and provide for aggregate annual rentals of
approximately $76,000. Arrow will be responsible for all real estate taxes,
insurance and maintenance. See the Pro Forma Combined Financial Statements of
the Company.
Because Coach USA does not want to own any real property, it did not value
the properties distributed to the stockholders of Leisure and Arrow or take any
such value into account when negotiating the consideration to be paid for those
Founding Companies. The rent paid by Coach USA on the leases back to it of such
properties was negotiated as described above based on the historical cost to
Leisure and Arrow of having those properties in their respective businesses and
is believed by Coach USA not to exceed the fair market rental thereof.
OTHER TRANSACTIONS
Gray Line SF owed Grosvenor Properties, Ltd., a company owned by Mr. Robert
K. Werbe and his brother, approximately $1,552,000 as of October 31, 1994 and
approximately $300,000 as of October 31, 1995. This loan bore interest at the
prime rate plus 1% and was to mature in October 2000. Gray Line SF owed Mr.
Robert K. Werbe approximately $256,000 as of October 31, 1994, and Mr. Robert K.
Werbe owed Gray Line SF approximately $225,000 and $229,000 as of October 31,
1994 and 1995, respectively. These were unsecured, noninterest-bearing and
payable upon demand.
Community owed Ms. Alice Gallagher, a shareholder of Community,
approximately $132,000 and $171,000 as of December 31, 1994 and 1995,
respectively. These loans were unsecured, bore interest at 10.5% and were
payable in monthly installments of approximately $12,000.
Adventure owed Mr. John Mercadante and his sister approximately $315,000 as
of December 31, 1994 and 1995, respectively. These loans were unsecured,
noninterest-bearing and payable upon demand.
Suburban had outstanding accounts receivable from Mr. Kenneth Kuchin
totaling $194,000 and Sidney Kutchin totaling $458,000 as of December 31, 1995.
These receivables were unsecured, noninterest-bearing and payable on demand.
All of the loans to and from the Founding Companies described in this
section were repaid in connection with the Mergers and the Offering.
The Company has negotiated 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
payable to Exel is 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. Verrochi, who
became a director of the Company upon the commencement of the Offering, is a
principal of Exel.
COMPANY POLICY
In the future, any transactions with officers, directors and holders of
more than 5% of the Common Stock will be approved by a majority of the Board of
Directors, including a majority of the disinterested members of the Board of
Directors.
51
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of July 16, 1996
regarding the beneficial ownership of the Common Stock of the Company by (i)
each person known to beneficially own more than 5% of the outstanding shares of
Common Stock; (ii) each of the Company's directors; (iii) each named executive
officer; and (iv) all executive officers and directors as a group. All persons
listed have an address c/o the Company's principal executive offices and have
sole voting and investment power with respect to their shares unless otherwise
indicated.
SHARES BENEFICIALLY
OWNED
----------------------
NAME NUMBER PERCENT
- ------------------------------------- --------- -------
Richard H. Kristinik(1).............. 200,000 1.8%
Kenneth Kuchin(2).................... 1,211,219 10.6
John Mercadante, Jr.(3).............. 397,425 3.5
Douglas M. Cerny(4).................. 114,000 1.0
Frank P. Gallagher(5)................ 197,810 1.7
Lawrence K. King(4).................. 114,000 1.0
Gerald Mercadante(6)................. 1,056,400 9.3
Charles D. Busskohl(7)............... 550,451 4.8
Steven S. Harter(8).................. 368,095 3.2
William J. Lynch(9).................. 33,468 0.3
Paul M. Verrochi(10)................. 85,000 0.7
Thomas A. Werbe(11).................. 351,038 3.1
All executive officers and directors
as a group
(12 persons)....................... 4,678,906 40.9
- ------------
(1) These shares are held by the Kristinik Family Partnership, of which Mr.
Kristinik is a general partner. Does not include 200,000 shares which may
be acquired upon the exercise of options not exercisable within 60 days.
(2) Includes 383,299 shares held by a trust for the benefit of Mr. Kuchin's
sister for which Mr. Kuchin is a trustee, as to which shares Mr. Kuchin
disclaims beneficial ownership.
(3) Includes 137,774 shares held by Mr. Mercadante's spouse, as to which shares
Mr. Mercadante disclaims beneficial ownership.
(4) Does not include 100,000 shares which may be acquired upon the exercise of
options not exercisable within 60 days.
(5) Includes 90,885 shares held by Mr. Gallagher's spouse, as to which shares
Mr. Gallagher disclaims beneficial ownership, and 16,039 shares held in a
trust for the benefit of Mr. Gallagher's daughter for which Mr. Gallagher
is a trustee.
(6) Includes 186,423 shares held by Mr. Mercadante's spouse, as to which shares
Mr. Mercadante disclaims beneficial ownership.
(7) These shares are held by two family trusts for which Mr. Busskohl is a
trustee.
(8) Includes 10,000 shares which may be issued upon exercise of options granted
under the Directors' Plan effective as of the commencement of the Offering
and 53,714 shares held by the Victoria Harter & Phyllis Spisak Educational
Trust, of which Mr. Harter's minor children are beneficiaries, as to which
shares Mr. Harter disclaims beneficial ownership.
(9) Includes 10,000 shares which may be acquired upon exercise of options
granted under the Directors' Plan effective as of the commencement of the
Offering.
(10) Includes 10,000 shares which may be acquired upon exercise of options
granted under the Directors' Plan effective as of the commencement of the
Offering and 75,000 shares held in a trust, for the benefit of Mr.
Verrochi's children, as to which shares Mr. Verrochi disclaims beneficial
ownership.
(11) These shares are held by the Robert K. Werbe Grantor Retained Annuity Trust
for which Mr. Thomas Werbe is a trustee.
52
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, par value $.01 per share, and 500,000 shares of preferred stock,
par value $.01 per share (the "Preferred Stock"). Without giving effect to the
issuance of shares as contemplated by this Prospectus, the Company has
outstanding 11,405,411 shares of Common Stock and no shares of Preferred Stock.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share
held on all matters voted upon by stockholders, including the election of
directors.
Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of the Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. Holders of Common Stock are entitled to share ratably in the
net assets of the Company upon liquidation after payment or provision for all
liabilities and any preferential liquidation rights of any Preferred Stock then
outstanding. The holders of Common Stock have no preemptive rights to purchase
shares of stock of the Company. Shares of Common Stock are not subject to any
redemption provisions and are not convertible into any other securities of the
Company. All outstanding shares of Common Stock are, and the shares of Common
Stock to be issued pursuant to this Prospectus will be upon payment therefor,
fully paid and non-assessable.
The Board of Directors is classified into three classes as nearly equal in
number as possible, with the term of each class expiring on a staggered basis.
See "Management -- Board of Directors." The classification of the Board of
Directors may make it more difficult to change the composition of the Board of
Directors and thereby may discourage or make more difficult an attempt by a
person or group to obtain control of the Company. Cumulative voting for the
election of directors is not permitted, enabling holders of a majority of the
outstanding Common Stock to elect all members of the class of directors whose
terms are then expiring. Any director, or the entire Board of Directors, may be
removed by the stockholders at any time, with cause, by the affirmative vote of
the holders of a majority of the outstanding shares of the Company entitled to
vote for the election of directors.
The Common Stock trades on the Nasdaq National Market under the symbol
"TOUR."
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board
53
of Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.
54
SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 11,405,411 shares of Common Stock. The
4,140,000 shares sold in the Offering are freely tradeable without restriction
unless acquired by affiliates of the Company. None of the remaining 7,265,411
outstanding shares of Common Stock have been registered under the Securities
Act, which means that they may be resold publicly only upon registration under
the Securities Act or in compliance with an exemption from the registration
requirements of the Securities Act, including the exemption provided by Rule 144
thereunder.
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of the acquisition of restricted shares of
Common Stock from either the Company or any affiliate of the Company, the
acquiror or subsequent holder thereof may sell, within any three-month period
commencing 90 days after the date of the Prospectus relating to the Offering, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the Common Stock, or the average weekly trading volume of the Common
Stock on the Nasdaq National Market during the four calendar weeks preceding the
date on which notice of the proposed sale is sent to the Commission. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. If three years have elapsed since the later of the date of the
acquisition of restricted shares of Common Stock from the Company or any
affiliate of the Company, a person who is not deemed to have been an affiliate
of the Company at any time for 90 days preceding a sale would be entitled to
sell such shares under Rule 144 without regard to the volume limitations, manner
of sale provisions or notice requirements.
The Company and its officers, directors and certain stockholders who
beneficially owned 5,623,695 shares in the aggregate as of May 17, 1996 have
agreed not to sell or otherwise dispose of any shares of Common Stock for a
period ending on November 10, 1996 without the prior written consent of Alex.
Brown & Sons Incorporated, except that the Company may issue Common Stock in
connection with acquisitions or in connection with its 1996 Long-Term Incentive
Plan and its 1996 Non-Employee Directors' Stock Plan (the "Plans"). In addition,
the former stockholders of the Founding Companies and the Company's officers,
certain directors and certain stockholders have agreed with the Company that
they will not sell any of their shares for a period of two years after May 17,
1996. If the two-year "holding" period for restricted securities under Rule 144
described above is reduced by the Commission, this two-year restriction on sales
of Common Stock will be correspondingly reduced. These stockholders, however,
have the right, in the event the Company proposes to register under the
Securities Act any Common Stock for its own account or for the account of
others, subject to certain exceptions, to require the Company to include their
shares in the registration, subject to the right of any managing underwriter of
any such offering to exclude some or all of the shares for marketing reasons. In
addition, certain of such stockholders have certain limited demand registration
rights to require the Company to register shares held by them after May 17,
1998.
The 3,500,000 shares of its Common Stock being offered by this Prospectus
will, upon registration thereof, be freely tradeable in general. In some
instances, however, the Company may contractually restrict the sale of shares
issued in connection with future acquisitions. The piggyback registration rights
described above do not apply to the Registration Statement of which this
Prospectus is a part. Sales, or the availability for sale of, substantial
amounts of the Common Stock in the public market could adversely affect
prevailing market prices and the ability of the Company to raise equity capital
in the future.
55
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Morgan, Lewis & Bockius LLP,
New York, New York.
EXPERTS
The audited financial statements included elsewhere in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza Building,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and its regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained from the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
The Company has filed with the Commission, Washington, D.C., a Registration
Statement on Form S-1 under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and such Common Stock, reference
is made to such Registration Statement and exhibits. A copy of the Registration
Statement on file with the Commission may be obtained from the Commission's
principal office in Washington, D.C. upon payment of the fees prescribed by the
Commission. The Commission maintains an Internet web site that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission. The address of that site is
http://www.sec.gov.
The Company's Common Stock is listed on the Nasdaq National Market. Proxy
statements and other information concerning the Company can also be inspected at
the offices of the Nasdaq National Market, 1735 K Street, Washington, D.C.
20006.
56
INDEX TO FINANCIAL STATEMENTS
PAGE
----
COACH USA, INC. PRO FORMA COMBINED
Introduction to Unaudited Pro Forma Combined Financial Statements.. F-3
Pro Forma Combined Balance Sheet (unaudited)....................... F-4
Notes to Pro Forma Combined Balance Sheet (unaudited).............. F-5
Pro Forma Combined Statement of Income (unaudited)................. F-6
Notes to Pro Forma Combined Statement of Income (unaudited)........ F-7
THE COMBINED FOUNDING COMPANIES
Report of Independent Public Accountants........................... F-8
Combined Balance Sheets............................................ F-9
Combined Statements of Income...................................... F-10
Combined Statements of Stockholders' Equity........................ F-11
Combined Statements of Cash Flows.................................. F-12
Notes to Combined Financial Statements............................. F-13
COACH USA, INC.
Report of Independent Public Accountants........................... F-27
Balance Sheet...................................................... F-28
Statements of Income............................................... F-29
Notes to Financial Statements...................................... F-30
SUBURBAN TRANSIT CORP. AND RELATED
COMPANIES
Report of Independent Public Accountants........................... F-32
Combined Balance Sheets............................................ F-33
Combined Statements of Income...................................... F-34
Combined Statements of Stockholders' Equity........................ F-35
Combined Statements of Cash Flows.................................. F-36
Notes to Combined Financial Statements............................. F-37
GROSVENOR BUS LINES, INC. AND
SUBSIDIARIES (OPERATING AS GRAY
LINE OF SAN FRANCISCO)
Report of Independent Public Accountants........................... F-45
Consolidated Balance Sheets........................................ F-46
Consolidated Statements of Income.................................. F-47
Consolidated Statements of Stockholders' Equity.................... F-48
Consolidated Statements of Cash Flows.............................. F-49
Notes to Consolidated Financial Statements......................... F-50
LEISURE TIME TOURS
Report of Independent Public Accountants........................... F-58
Balance Sheets..................................................... F-59
Statements of Income............................................... F-60
Statements of Stockholders' Equity................................. F-61
Statements of Cash Flows........................................... F-62
Notes to Financial Statements...................................... F-63
F-1
PAGE
----
COMMUNITY BUS LINES, INC. AND RELATED
COMPANIES
Report of Independent Public Accountants........................... F-70
Combined Balance Sheets............................................ F-71
Combined Statements of Income...................................... F-72
Combined Statements of Stockholders' Equity........................ F-73
Combined Statements of Cash Flows.................................. F-74
Notes to Combined Financial Statements............................. F-75
CAPE TRANSIT CORP. (OPERATING AS
ADVENTURE TRAILS)
Report of Independent Public Accountants........................... F-82
Balance Sheets..................................................... F-83
Statements of Income............................................... F-84
Statements of Stockholders' Equity................................. F-85
Statements of Cash Flows........................................... F-86
Notes to Financial Statements...................................... F-87
ARROW STAGE LINES, INC.
Report of Independent Public Accountants........................... F-94
Balance Sheets..................................................... F-95
Statements of Income............................................... F-96
Statements of Stockholders' Equity................................. F-97
Statements of Cash Flows........................................... F-98
Notes to Financial Statements...................................... F-99
F-2
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 Prospectus 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. See "Risk
Factors" included elsewhere herein.
F-3
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.
F-4
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.
F-5
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> <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.
F-6
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.
F-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coach USA, Inc.
We have audited the accompanying combined balance sheets of the Combined
Founding Companies (Note 1) as of December 31, 1994 and 1995, and the related
combined statements of income, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Combined Founding Companies as of December 31, 1994 and 1995, and the results of
their combined operations and their combined cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 29, 1996
F-8
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.
F-9
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.
F-10
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> <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.
F-11
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.
F-12
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,
F-13
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
F-14
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
F-15
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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
F-16
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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
F-17
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
F-18
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
F-19
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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
========== ==========
F-20
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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
==========
F-21
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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
F-22
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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
F-23
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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
========== ==========
F-24
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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> <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
F-25
THE COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
F-26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coach USA, Inc.
We have audited the accompanying balance sheet of Coach USA, Inc. (a
Delaware corporation) as of December 31, 1995. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Coach USA, Inc. as of December 31,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas,
March 21, 1996
F-27
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.
F-28
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.
F-29
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
F-30
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, 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.
F-31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Suburban Transit Corp.
We have audited the accompanying combined balance sheets of Suburban
Transit Corp. (a New Jersey corporation) and related companies as of December
31, 1994 and 1995, and the related combined statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Suburban
Transit Corp. and related companies as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 29, 1996
F-32
SUBURBAN TRANSIT CORP. 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....... $ 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.
F-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.
F-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.
F-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.
F-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.
F-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.
F-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
=========
F-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.
F-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.
F-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
F-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
========= =========
F-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.
F-44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Grosvenor Bus Lines, Inc.:
We have audited the accompanying consolidated balance sheets of Grosvenor
Bus Lines, Inc. (a California corporation), and subsidiaries as of October 31,
1994 and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended October
31, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Grosvenor Bus Lines, Inc., and subsidiaries as of October 31, 1994 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended October 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 29, 1996
F-45
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.
F-46
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.
F-47
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.
F-48
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.
F-49
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.
F-50
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:
ESTIMATED OCTOBER 31
USEFUL LIVES ----------------------
(YEARS) 1994 1995
------------ ---------- ----------
(IN THOUSANDS)
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
========== ==========
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.
F-51
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.
F-52
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.
F-53
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.
F-54
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.
F-55
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
========= =========
F-56
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.
F-57
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Leisure Time Tours:
We have audited the accompanying balance sheets of Leisure Time Tours (a
New Jersey corporation) as of December 31, 1994 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Leisure Time Tours as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 29, 1996
F-58
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.
F-59
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.
F-60
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.
F-61
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.
F-62
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.
F-63
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.
F-64
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.
F-65
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
========= =========
F-66
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
F-67
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
========= =========
F-68
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.
F-69
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Community Bus Lines, Inc.:
We have audited the accompanying combined balance sheets of Community Bus
Lines, Inc. (a New Jersey corporation), and related companies as of December 31,
1994 and 1995, and the related combined statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Community
Bus Lines, Inc., and related companies, as of December 31, 1994 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 29, 1996
F-70
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.
F-71
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.
F-72
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.
F-73
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.
F-74
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.
F-75
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.
F-76
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.
F-77
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)
========= =========
F-78
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
F-79
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.
F-80
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.
F-81
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cape Transit Corp.:
We have audited the accompanying balance sheets of Cape Transit Corp. (a
New Jersey corporation) as of December 31, 1994 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cape Transit Corp. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 29, 1996
F-82
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.
F-83
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.
F-84
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
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......... 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
====== ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
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.
F-86
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.
F-87
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
========= =========
F-88
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
========== ==========
F-89
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, future principal payments of long-term obligations
and minimum lease payments under capital lease obligations are as follows:
LONG-TERM CAPITAL LEASE
OBLIGATIONS OBLIGATIONS
------------ -------------
(IN THOUSANDS)
Year ending December 31 --
1996...................... $ 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
F-90
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
=========
F-91
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
========= =========
F-92
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-93
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Arrow Stage Lines, Inc.:
We have audited the accompanying balance sheets of Arrow Stage Lines, Inc.
(a Nebraska corporation), as of September 30, 1994 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Arrow Stage Lines, Inc., as
of September 30, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 29, 1996
F-94
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.
F-95
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.
F-96
ARROW STAGE LINES, INC.
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 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
====== ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
ARROW STAGE LINES, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH
YEAR ENDED SEPTEMBER 30 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.
F-98
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.
F-99
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
========== ==========
F-100
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
========== ==========
F-101
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-102
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-103
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-104
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-105
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ........................................................ 3
The Company ............................................................... 7
Risk Factors .............................................................. 10
Price Range of Common Stock ............................................... 14
Dividend Policy ........................................................... 14
Selected Combined Founding Companies'
Financial Data .......................................................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ........................................................... 18
Business .................................................................. 31
Management ................................................................ 44
Certain Transactions ...................................................... 49
Principal Stockholders .................................................... 52
Description of Capital Stock .............................................. 53
Shares Eligible for Future Sale ........................................... 55
Legal Matters ............................................................. 56
Experts ................................................................... 56
Additional Information .................................................... 56
Index to Financial Statements ............................................. F-1
------------------------
3,500,000 SHARES
COACH USA, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
July 16, 1996
