AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 1996
REGISTRATION NO. 333-13483
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
COACH USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 76-0496471
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4141
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
ONE RIVERWAY, SUITE 600
HOUSTON, TEXAS 77056-1903
(888) COACH-US
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD H. KRISTINIK
CHIEF EXECUTIVE OFFICER
COACH USA, INC.
ONE RIVERWAY, SUITE 600
HOUSTON, TEXAS 77056-1903
(888) COACH-US
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
Christopher T. Jensen, Esq. Richard C. Tilghman, Jr., Esq.
Morgan, Lewis & Bockius LLP Piper & Marbury, L.L.P.
101 Park Avenue 36 S. Charles Street
New York, New York 10178 Baltimore, Maryland 21201
(212) 309-6000 (410) 576-1678
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
NOVEMBER 15, 1996
3,100,000 SHARES
COMMON STOCK
------------------------
Of the 3,100,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by Coach USA, Inc. (the "Company") and 1,100,000 shares are
being sold by certain stockholders (the "Selling Stockholders"). See
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholders. The Common Stock
is traded on the Nasdaq National Market under the symbol "TOUR." On October 4,
1996, the date of the initial filing of the Registration Statement of which this
Prospectus forms a part, the last reported sale price of the Common Stock on the
Nasdaq National Market was $32 per share. See "Price Range of Common Stock and
Dividend Policy."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 HEREOF.
------------------------
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share............................ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total(2)............................. $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses of the offering estimated at $1,000,000 payable by
the Company.
(2) The Company and certain Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an additional 465,000 shares of Common Stock
solely to cover over-allotments, if any. To the extent that the option is
exercised, the Underwriters will offer the additional shares at the Price to
Public shown above. If the option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the rights of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.
ALEX. BROWN & SONS SMITH BARNEY INC.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
[PICTURE OF MOTORCOACH]
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA AND
HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH CONTAIN RISKS AND UNCERTAINTIES. DISCUSSIONS CONTAINING SUCH
FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE INFORMATION SET FORTH UNDER THE
CAPTIONS "RISK FACTORS," "USE OF PROCEEDS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS
WELL AS IN THE PROSPECTUS GENERALLY. ACTUAL EVENTS OR RESULTS MAY DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
VARIOUS FACTORS, INCLUDING, WITHOUT LIMITATION, THE RISK FACTORS SET FORTH
HEREIN AND THE MATTERS SET FORTH IN THIS PROSPECTUS GENERALLY. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.
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 also
provides airport ground transportation, paratransit and taxicab and other
related passenger ground transportation services. The Company's services are
provided through a fleet of approximately 1,360 motorcoaches, including 295
motorcoaches provided by various transit authorities pursuant to service
contracts, and other high occupancy vehicles. The Company's taxicab and high
occupancy vehicle operations include dispatching and other services to more than
1,250 vehicles primarily owned by independent contractors.
Coach USA was founded in September 1995 to create a nationwide provider of
motorcoach and other ground transportation services. On May 17, 1996, Coach USA
acquired in separate transactions (the "Mergers") simultaneously with the
closing of its initial public offering (the "Initial Public Offering") six
motorcoach businesses (the "Founding Companies"). On August 29, 1996, the
Company acquired five additional motorcoach businesses and one taxicab service
business (the "August Acquisitions").
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
services. The motorcoach industry is highly fragmented with approximately 5,000
motorcoach operators. These companies collectively generated approximately $20
billion in revenues in 1995. The Company believes that the taxicab services
industry has a similar profile of approximately 6,000 fleet operators.
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 and passenger ground transportation 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 and other passenger ground transportation
service providers that, like the Founding Companies and the August
Acquisitions, are leaders in their regional markets.
<PAGE>
EXPANDING EXISTING MARKETS. The Company also plans to acquire
additional motorcoach and other passenger ground transportation service
providers in many 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
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.
To facilitate its acquisition strategy, the Company has registered
3,500,000 additional shares of Common Stock under the Securities Act of
1933, as amended (the "Securities Act").
ACCELERATING INTERNAL GROWTH. A key component of the Company's strategy is
to accelerate internal growth at each of the existing operations and each
subsequently acquired 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 has begun 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. 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 fleets
decide to privatize or outsource non-core operations.
CAPITALIZING ON NEW CORPORATE STRUCTURE. The Company intends to continue
to take advantage of its new corporate structure by:
CENTRALIZING ADMINISTRATIVE FUNCTIONS. The Company believes that it
will continue to have greater purchasing power, resulting in significant
cost savings in such areas as equipment and parts, tires, insurance and
financing, than the Founding Companies and August Acquisitions had
independently. The Company has begun to realize cost savings through the
consolidation of administrative functions such as employee benefits, safety
and maintenance programs and risk management.
INCREASING OPERATING EFFICIENCIES. The Company believes that there
are opportunities to eliminate redundant facilities and equipment through
coordination among the Founding Companies, the August Acquisitions and
other subsequently acquired operations. The Company also expects to
continue to benefit from cross-marketing and increased equipment
utilization that has already begun to occur among the Founding Companies
and the August Acquisitions.
<PAGE>
------------------------
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
------------------------
THE OFFERING
Common Stock offered by:
The Company........................... 2,000,000 shares
The Selling Stockholders.............. 1,100,000 shares
Common Stock to be outstanding after
this Offering......................... 15,963,991 shares(1)
Use of proceeds by the Company..........To repay debt and for working capital
and general corporate purposes,
including future acquisitions. See
"Use of Proceeds."
Nasdaq National Market symbol........... TOUR
- ------------
(1) Excludes 1,694,017 shares of Common Stock reserved for issuance upon
exercise of outstanding options and 400,581 shares reserved for future
option grants under the Company's stock option plans and 750,460 shares
reserved for issuance upon conversion of convertible debt. See "The
Company," "Management -- 1996 Long-Term Incentive Plan" and " -- 1996
Non-Employee Directors' Stock Plan."
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
Coach USA acquired, simultaneously with the closing of the Initial Public
Offering, the Founding Companies. On August 29, 1996, the Company completed the
August Acquisitions, three of which were accounted for as poolings-of-interests
(the "Pooled Companies") and three of which were accounted for as purchases
(the "Purchased Companies"). The PRO FORMA STATEMENT OF INCOME DATA below
includes the historical financial statements of the Founding Companies and the
Company (including the Pooled Companies) for all periods and the Purchased
Companies since the date of acquisition presented at historical cost, as if
these companies had always been members of the same operating group. The PRO
FORMA FOR COMPENSATION DIFFERENTIAL AND OTHER ADJUSTMENTS data below give effect
(i) to certain reductions in salaries and benefits to the owners of the Founding
Companies and the Pooled Companies which were agreed to in connection with the
Mergers and the August Acquisitions as well as a non-recurring, non-cash charge
recorded by the Company (collectively, the "Compensation Differential"); (ii)
to certain tax adjustments related to the taxation of certain Founding Companies
and Pooled Companies as S Corporations prior to the consummation of the Mergers
and the August Acquisitions; (iii) to the tax impact of the Compensation
Differential; and (iv) for 1995 and the interim periods, the conversion of debt
to equity at one of the Pooled Companies. The PRO FORMA FOR PURCHASED COMPANIES
data below also give effect to the acquisitions of the Purchased Companies as if
these acquisitions occurred on January 1, 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
----------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA:
Total revenues................... $ 134,070 $ 136,942 $ 138,311 $ 143,410 $ 161,419 $ 121,385 $ 139,085
Gross profit..................... 27,530 27,450 25,941 29,201 39,500 29,691 35,628
Operating income................. 7,041 7,810 7,093 9,006 16,551 12,277 15,363
Income before extraordinary
gain........................... 1,934 3,202 2,284 3,143 7,678 5,914 5,034
PRO FORMA FOR COMPENSATION
DIFFERENTIAL AND OTHER ADJUSTMENTS:
Total revenues................... $ 134,070 $ 136,942 $ 138,311 $ 143,410 $ 161,419 $ 121,385 $ 139,085
Gross profit..................... 27,530 27,450 25,941 29,201 39,500 29,691 35,628
Operating income................. 9,389 10,804 10,004 12,781 22,059 16,096 19,808
Income before extraordinary
gain........................... 9,425 6,970 8,430
Extraordinary gain............... -- -- 4,205
Net income....................... 9,425 6,970 12,635
Income before extraordinary gain
per share...................... $ 0.81 $ 0.60 $ 0.64
Net income per share............. 0.81 0.60 0.97
Weighted average shares(1)....... 11,643 11,643 13,083
PRO FORMA FOR PURCHASED COMPANIES:
Total revenues................... $ 197,271 $ 165,105
Gross profit..................... 52,467 46,183
Operating income................. 30,484 25,599
Income before extraordinary
gain........................... 10,816 9,337
SEPTEMBER 30, 1996
-----------------------
AS
ACTUAL ADJUSTED(2)
--------- -----------
BALANCE SHEET DATA:
Working capital (deficit)............................................................... $ (9,359) $ (9,359)
Total assets............................................................................ 247,166 247,166
Total debt, including current portion(3)................................................ 119,501 69,201
Stockholders' equity.................................................................... 53,283 103,583
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
<PAGE>
- ------------
(1) The 1995 share data include: (i) 2,165,724 shares issued by Coach USA prior
to the Initial Public Offering; (ii) 5,099,687 shares issued to the
stockholders of the Founding Companies in connection with the Mergers; (iii)
1,700,714 of the 4,140,000 shares sold in the Initial Public Offering to pay
the cash portion of the consideration for the Founding Companies; (iv)
118,142 of the 4,140,000 shares sold in the Initial Public Offering to pay
excess S Corporation distributions; (v) 2,133,541 shares issued in
connection with the acquisition of the Pooled Companies; and (vi) 425,039
shares issued in connection with the conversion of indebtedness to equity at
one of the Pooled Companies. The 1996 share data include those amounts
included in the 1995 share data plus (i) the remaining 2,321,144 of the
4,140,000 shares sold in the Initial Public Offering weighted for the four
months ended September 1996; and (ii) 279,080 shares attributable to
dilution for outstanding options to purchase Common Stock, using the
treasury stock method. See "Management -- 1996 Long-Term Incentive Plan"
and " -- 1996 Non-Employee Directors' Stock Plan."
(2) Adjusted for the sale of the 2,000,000 shares of Common Stock offered by the
Company hereby and the application of the estimated net proceeds therefrom
(assuming a public offering price of $27 per share). See "Use of
Proceeds."
(3) Does not include $22,500,000 of convertible debt issued in connection with
the acquisitions of the Purchased Companies.
During the periods presented above, the Founding Companies, the Pooled
Companies and the Purchased Companies were not under common control or
management and, therefore, the data presented may not be comparable to or
indicative of post-combination results to be achieved by the Company. In
addition, the results of operations reflect a variety of tax structures (S
Corporations and C Corporations). See "Selected Pro Forma Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<PAGE>
THE COMPANY
Coach USA was founded in September 1995 to create a nationwide provider of
motorcoach and other ground transportation services. On May 17, 1996, Coach USA
acquired, simultaneously with the closing of the Initial Public Offering, the
six Founding Companies. The Founding Companies are Suburban Transit Corp. and
its affiliated entities operating out of New Jersey and New York ("Suburban"),
Grosvenor Bus Lines, Inc. operating out of San Francisco ("Gray Line SF"),
Leisure Time Tours operating out of New Jersey, New York and Philadelphia
("Leisure"), Community Bus Lines, Inc. and its affiliated entities operating
out of New Jersey ("Community"), Cape Transit Corp. doing business as
Adventure Trails and operating out of Atlantic City, New Jersey and Philadelphia
("Adventure") and Arrow Stage Lines, Inc. operating out of Phoenix, Arizona
("Arrow"). For a description of the Mergers pursuant to which these businesses
were acquired, see "Certain Transactions."
On August 29, 1996, the Company acquired the August Acquisitions. The
acquisition of three of these businesses has been accounted for under the
"poolings-of-interests" method of accounting, and the remaining three have
been accounted for under the purchase method of accounting. These six businesses
had aggregate revenues during 1995 of approximately $84 million, and one of them
had a 50% interest in a joint venture with $14 million of revenues.
AMERICAN BUS LINES, INC. -- The operations of American Bus Lines, Inc.
("American Bus") consist primarily of charter and tour business and airport
transfers to and from hotels and cruise ships in and around Miami, Florida. In
1995, American Bus had revenues of approximately $7 million derived from its
charter, tour and transfer business as well as equity earnings from its 50%
interest in a joint venture that had $14 million of revenues. The joint venture
provides paratransit services for Medicaid patients in Dade County, Florida.
CALIFORNIA CHARTER, INC. -- California Charter, Inc. ("California
Charter") provides charter and tour services in Southern California and shuttle
services to and from Los Angeles International Airport. In 1995, California
Charter had revenues of approximately $11 million.
GULF COAST TRANSPORTATION, INC. -- Gulf Coast Transportation, Inc. ("Gulf
Coast") operates out of Houston, Texas. Gulf Coast had 1995 revenues of
approximately $14 million. Gulf Coast provides special destination services from
Houston and the surrounding area to the casinos in Louisiana in addition to
charters and tours throughout southeast Texas and surrounding areas. Gulf Coast
has been doing business as "Gray Line of Houston" and is a member of the Gray
Line Worldwide association. Gray Line Worldwide's Bylaws require approval of any
transfer of control of a member, and Gulf Coast and the Company are in the
process of applying to Gray Line Worldwide for such approval.
K-T CONTRACT SERVICES, INC. -- The principal operations of K-T Contract
Services, Inc. ("K-T Services") are in and around Las Vegas, Nevada. K-T
Services had revenues in 1995 of approximately $17 million. K-T Services
provides charter and tour and airport transport services on behalf of the
convention and tour business in Las Vegas. K-T Services also makes daily runs to
and from casinos in Laughlin and State Line, Nevada and provides shuttle
services for various corporations.
TEXAS BUS LINES, INC. -- The operations of Texas Bus Lines, Inc. ("Texas
Bus") are based in Houston, Texas. Texas Bus provides charter and tour services
and transports passengers to and from the Houston airports and various locations
in and around Houston in passenger vans operating under the trade name "Airport
Express." Texas Bus also provides transit services to universities and
corporations. In 1995, Texas Bus had revenues of appproximately $9 million.
YELLOW CAB SERVICE CORPORATION -- Yellow Cab Service Corporation ("Yellow
Cab") provides dispatch and other services to the independent owner operators
and drivers of taxicabs. The majority of the taxicabs are owned by independent
drivers and the remainder are owned by Yellow Cab and leased on a daily or
weekly basis to independent contractor drivers. Yellow Cab
8
<PAGE>
utilizes a computerized dispatch system to provide point-to-point passenger
services and paratransit services to elderly and disabled persons pursuant to
contracts with local transportation authorities. Yellow Cab has operations in
Houston and Austin, Texas and Colorado Springs, Colorado. In 1995, Yellow Cab
had revenues of approximately $27 million.
In exchange for all of the outstanding shares of the Pooled Companies (Gulf
Coast, American Bus and Yellow Cab) together with certain real estate owned and
conversion of certain debt by the principals of such companies, the Company
issued 2,555,820 shares of Common Stock. In exchange for all of the outstanding
shares of the Purchased Companies, the Company paid $37 million, comprised of
$22.5 million in convertible subordinated notes (convertible into 750,460 shares
of Common Stock) and $14.5 million in cash. Total debt assumed by the Company in
connection with the August Acquisitions was $83.3 million.
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
<PAGE>
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 Initial Public Offering. Coach USA acquired the Founding Companies
simultaneously with the closing of the Initial Public Offering. Until their
acquisition by the Company, the Founding Companies and the August Acquisitions
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 historical financial results of the Founding Companies and the
August Acquisitions cover periods when the Founding Companies, the August
Acquisitions 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 and the August Acquisitions 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 continue to be
successful. See "Management."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company intends
to continue to grow primarily through the acquisition of additional motorcoach
and other passenger ground transportation 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 continue 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, the August Acquisitions or other businesses acquired in the
future will achieve anticipated revenues and earnings. See
"Business -- Strategy."
RISKS RELATED TO ACQUISITION FINANCING. The Company intends to continue 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 recently
established a $115 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
10
<PAGE>
deems acceptable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
LABOR RELATIONS. The Company currently has approximately 3,550 employees,
approximately 2,270 of whom are motorcoach drivers. Approximately 1,575 of the
Company's employees are members of various labor unions. The Company's inability
to negotiate acceptable contracts with these unions as existing agreements
expire 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 a
material 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 vehicles, the Company is exposed to claims for personal
injury or death and property damage as a result of accidents. The Company is
self-insured for the first $100,000 of losses per incident involving a
motorcoach and is self-insured for the first $250,000 of losses per incident
involving a taxicab. 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 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 to 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. 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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<PAGE>
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. On November 7,
1996, the Surface Transportation Board approved the completion of the August
Acquisitions by Coach USA. However, future acquisitions of other motorcoach
operators must be approved or exempted from the need for regulatory approval by
the Surface Transportation Board. There can be no assurance that the Company
will be able to obtain such approval or exemption with respect to future
acquisitions. 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. A number of states,
such as New Jersey, Nevada 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. Similarly, the
Company's taxicab service operations are regulated primarily at the local
municipality level. Local regulations applicable to taxicab services focus on
the entry of new operators into the marketplace and the aggregate number of
vehicles which will have authority to operate as well as the fares that can be
charged for providing transportation services via taxicabs. These regulations
may limit the Company's ability to expand the size of its taxicab fleet. 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 and ground
passenger transportation services 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 Company's operating 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."
SUBSTANTIAL COMPETITION. The motorcoach and ground transportation industry
is highly competitive, fragmented and subject to rapid change, particularly with
regard to recreational and
12
<PAGE>
excursion services and commuter and transit services. There are numerous other
companies that provide these services. 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 is
made up of smaller regional or local 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."
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 and the August Acquisitions. 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 operating subsidiary has entered into an employment
agreement with each of the Company's executive officers and key managers, there
can be no assurance that any individual will continue in his present capacity
with the Company or operating subsidiary 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, will beneficially own
approximately 28.3% of the outstanding shares of Common Stock after giving
effect to this Offering (assuming no exercise of the Underwriters'
over-allotment option). 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 and Selling
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 Initial Public Offering, all of which are freely tradable unless held by
affiliates of the Company, as will be the 3,100,000 shares offered by this
Prospectus. In connection with the August Acquisitions, the Company issued an
additional 2,558,580 shares of its Common Stock, none of which has been
registered under the Securities Act. In addition, simultaneously with the
closing of the Initial Public 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 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 sell, transfer or otherwise dispose of any of these shares for two
years following the consummation of the Initial Public 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 Initial Public 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 has 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 registration rights with respect to these shares and
have agreed with Coach USA to the same two-year restriction on dispositions
described above. The 1,304,876 shares of Common Stock issued in connection with
the August Acquisitions (as well as 750,460 shares issuable upon conversion of
debt) which have
13
<PAGE>
not been registered under the Securities Act 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. There are no demand or piggyback
registration rights associated with these shares. The Company has registered an
additional 3,500,000 shares of its Common Stock under the Securities Act for use
as consideration for future acquisitions. Upon issuance thereof, these shares
will generally be freely tradable unless the resale thereof is contractually
restricted or unless the shares are held by parties to the acquisition or
affiliates thereof, other than the issuer, in which case they may be sold
pursuant to Rule 145 under the Securities Act. The piggyback registration rights
described above do 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
and Selling Stockholders" and "Description of Capital Stock."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has traded on the Nasdaq National Market since
May 14, 1996. The following table sets forth the high and low last sale prices
for the Common Stock for the period from May 14, 1996, the date of the Initial
Public Offering.
HIGH LOW
---- ----
1996
Second quarter (from May 14)......... $22 3/4 $ 175/8
Third quarter........................ 27 1/2 18
Fourth quarter (through November
14)................................ 32 26
At September 30, 1996, there were approximately 109 stockholders of record
of the Company's Common Stock. On November 14, 1996, the last reported sale
price of the Common Stock on the Nasdaq National Market was $28 1/8 per share.
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 revolving credit
facility 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.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
estimated offering expenses, are estimated to be approximately $50.3 million
(approximately $51.3 million if the Underwriters' over-allotment option is
exercised in full), assuming a public offering price of $27 per share. The
Company will not receive any proceeds from the sale of shares of Common Stock by
the Selling Stockholders.
The Company intends to use the net proceeds of this Offering to repay
indebtedness outstanding under its revolving credit facility and for working
capital and general corporate purposes, including future acquisitions. The
indebtedness under the revolving credit facility bears interest at a variable
rate (7.23% as of November 12, 1996) based on LIBOR or the agent bank's base
rate. The outstanding balance under the revolving credit and other outside
credit facilities was approximately $122.1 million as of November 12, 1996.
14
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and capitalization at September 30, 1996 for Coach USA and as
adjusted for the issuance of the 2,000,000 shares of Common Stock by the Company
(assuming a public offering price of $27). This table should be read in
conjunction with the Coach USA, Inc. and Subsidiaries Consolidated Financial
Statements and the related notes thereto included elsewhere in this Prospectus.
SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
Current maturities of long-term
obligations(1)........................ $ 3,773 $ 3,773
Current maturities of convertible
debt.................................. 4,000 4,000
========= ===========
Long-term obligations, less current
maturities(1)......................... $ 115,728 $ 65,428
Long-term convertible debt.............. 18,500 18,500
--------- -----------
Stockholders' equity:
Preferred Stock: $0.01 par value,
500,000 shares authorized; none
issued or outstanding............ -- --
Common Stock: $0.01 par value,
30,000,000 shares authorized;
13,963,991 shares issued and
outstanding, and 15,963,991
shares issued and outstanding, as
adjusted......................... 140 160
Additional paid-in capital......... 51,085 101,385
Retained earnings.................. 2,058 2,058
--------- -----------
Total stockholders' equity... 53,283 103,583
--------- -----------
Total capitalization....... $ 195,284 $ 195,284
========= ===========
- ------------
(1) For a description of the Company's long-term obligations, see Note 8 of
Notes to Coach USA, Inc. and Subsidiaries Consolidated Financial Statements.
15
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
Coach USA acquired, simultaneously with the closing of the Initial Public
Offering, the Founding Companies. On August 29, 1996, the Company completed the
August Acquisitions, three of which were accounted for as poolings-of-interests
and three of which were accounted for as purchases. The PRO FORMA STATEMENT OF
INCOME DATA and PRO FORMA BALANCE SHEET DATA below include the historical
financial statements of each of the Founding Companies and the Company
(including the Pooled Companies) for all periods and the Purchased Companies
since the date of acquisition presented at historical cost, as if these
companies had always been members of the same operating group. The PRO FORMA FOR
COMPENSATION DIFFERENTIAL AND OTHER ADJUSTMENTS data below give effect (i) to
certain reductions in salaries and benefits to the owners of the Founding
Companies and the Pooled Companies which were agreed to in connection with the
Mergers and the August Acquisitions as well as a non-recurring, non-cash charge
recorded by the Company (collectively, the "Compensation Differential"); (ii)
to certain tax adjustments related to the taxation of certain Founding Companies
and Pooled Companies as S Corporations prior to the consummation of the Mergers
and the August Acquisitions; (iii) to the tax impact of the Compensation
Differential in each period; and (iv) for 1995 and the interim periods, to the
conversion of debt to equity at one of the Pooled Companies. The PRO FORMA FOR
PURCHASED COMPANIES data below also give effect to the acquisitions of the
Purchased Companies as if those acquisitions occurred on January 1, 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA:
Total revenues................... $ 134,070 $ 136,942 $ 138,311 $ 143,410 $ 161,419 $ 121,385 $ 139,085
Operating expenses............... 106,540 109,492 112,370 114,209 121,919 91,694 103,457
Gross profit..................... 27,530 27,450 25,941 29,201 39,500 29,691 35,628
General and administrative
expenses....................... 20,489 19,640 18,848 20,195 22,949 17,414 20,265
Operating income................. 7,041 7,810 7,093 9,006 16,551 12,277 15,363
Income before extraordinary
gain........................... 1,934 3,202 2,284 3,143 7,678 5,914 5,034
PRO FORMA FOR COMPENSATION
DIFFERENTIAL AND OTHER ADJUSTMENTS:
Total revenues................... $ 134,070 $ 136,942 $ 138,311 $ 143,410 $ 161,419 $ 121,385 $ 139,085
Operating expenses............... 106,540 109,492 112,370 114,209 121,919 91,964 103,457
Gross profit..................... 27,530 27,450 25,941 29,201 39,500 29,691 35,628
General and administrative
expenses....................... 18,141 16,646 15,937 16,420 17,441 13,595 15,820
Operating income................. 9,389 10,804 10,004 12,781 22,059 16,096 19,808
Income before extraordinary
gain........................... 9,425 6,970 8,430
Extraordinary gain............... -- -- 4,205
Net income....................... 9,425 6,970 12,635
Income before extraordinary gain
per share...................... $ 0.81 $ 0.60 $ 0.64
Net income per share............. 0.81 0.60 0.97
Weighted average shares(1)....... 11,643 11,643 13,083
PRO FORMA FOR PURCHASED COMPANIES:
Total revenues................... $ 197,271 $ 165,105
Operating expenses............... 144,804 118,922
Gross profit..................... 52,467 46,183
General and administrative
expenses....................... 21,271 20,584
Operating income................. 30,484 25,599
Income before extraordinary
gain........................... 10,816 9,337
PRO FORMA BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital (deficit)........ $ (7,346) $ (8,012) $ (7,117) $ (7,628) $ (8,808) $ (9,359)
Total assets..................... 107,794 109,245 107,384 118,255 139,767 247,166
Total debt, including current
portion........................ 72,587 66,680 59,898 67,995 81,980 119,501(2)
Stockholders' equity............. 9,877 10,254 12,913 15,512 20,093 53,283
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
16
<PAGE>
- ------------
(1) The 1995 share data include: (i) 2,165,724 shares issued by Coach USA prior
to the Initial Public Offering; (ii) 5,099,687 shares issued to the
stockholders of the Founding Companies in connection with the Mergers; (iii)
1,700,714 of the 4,140,000 shares sold in the Initial Public Offering to pay
the cash portion of the consideration for the Founding Companies; (iv)
118,142 of the 4,140,000 shares sold in the Initial Public Offering to pay
excess S Corporation distributions; (v) 2,133,541 shares issued in
connection with the acquisition of the Pooled Companies; and (vi) 425,039
shares issued in connection with the conversion of the indebtedness to
equity at one of the Pooled Companies. The 1996 share data include those
amounts included in the 1995 share data plus (i) the remaining 2,321,144 of
the 4,140,000 shares sold in the Initial Public Offering weighted for the
four months ended September 1996; and (ii) 279,080 shares attributable to
dilution for outstanding options to purchase Common Stock, using the
treasury stock method. See "Management -- 1996 Long-Term Incentive Plan"
and " -- 1996 Non-Employee Directors' Stock Plan."
(2) Does not include $22,500,000 of convertible debt issued in connection with
the acquisitions of the Purchased Companies.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Coach USA was founded in September 1995 to create a nationwide provider of
motorcoach and other ground transportation services. On May 17, 1996, Coach USA
acquired, simultaneously with the closing of the Initial Public Offering, the
six Founding Companies. The Founding Companies are Suburban, Gray Line SF,
Leisure, Community, Adventure and Arrow. On August 29, 1996, the Company
acquired the August Acquisitions. The acquisition of three of these businesses
has been accounted for under the pooling-of-interests method of accounting and
the remaining three have been accounted for under the purchase method of
accounting. As a result, the pro forma financial statements, including the pro
forma results discussed below, include the historical financial statements of
each of the Founding Companies and the Company (including the Pooled Companies)
for all periods persented at historical cost, as if these companies had always
been members of the same operating group and give effect to (i) the Compensation
Differential; (ii) certain tax adjustments related to the taxation of certain
Founding Companies and Pooled Companies as S Corporations prior to the
consummation of the Mergers and the August Acquisitions; and (iii) the tax
impact of the Compensation Differential in each period.
The Company has begun to realize savings by consolidating certain general
administrative and purchasing functions and reducing insurance expenses. In
addition, the Company has begun to realize savings from: (i) the reduction in
interest expense related to the payment of a portion of the Founding Companies'
and August Acquisitions' debt; and (ii) its ability to borrow at lower interest
rates than the Founding Companies and the August Acquisitions. These savings are
being partially offset by the costs of being a public company and the
incremental increase in costs related to the Company's new corporate management.
Neither these savings nor the costs associated therewith have been included in
the pro forma financial information discussed below. As a result, historical pro
forma results may not be comparable to, or indicative of, future performance.
The Company's motorcoach revenues are derived from fares charged to
individual passengers and fees charged under contracts to provide motorcoach
services. Taxicab operation revenues are derived from fees and other services
charged to independent taxicab operators. Operating expenses consist primarily
of salaries and benefits for motorcoach drivers and mechanics, depreciation,
maintenance, fuel, oil, insurance and commissions to agents. General and
administrative expenses consist primarily of compensation and related benefits
to the owners and certain key employees of the Founding Companies and the Pooled
Companies, administrative salaries and benefits, marketing, communications and
professional fees.
PRO FORMA RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO
SEPTEMBER 30, 1996
Total revenues increased $17.7 million, or 14.6%, to $139.1 million for the
nine months ended September 30, 1996. The increase in revenues was largely due
to an increase in taxicab service revenues of $6.2 million, primarily
attributable to the acquisition of Yellow Cab Austin in July 1995 and to an
increase of $6.1 million in special destination services revenues in the nine
months ended September 30, 1996 as compared to the same period in 1995. In
addition, revenues from the Purchased Companies totaled $3.8 million since their
acquisition.
Operating expenses increased 12.9% to $103.5 million for the nine months
ended September 30, 1996. The increase in operating expenses was largely due to
a combined increase of $2.1 million at all of the locations attributable to
higher fuel costs of approximately $1.1 million and additional consumption of
approximately $1.0 million consistent with the Company's increased operations.
The remaining increase was consistent with increased operations throughout the
Company at all locations.
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<PAGE>
General and administrative expenses, after elimination of the Compensation
Differential, increased $2.2 million, or 16.2%, from $13.6 million to $15.8
million as compared to the nine months ended September 30, 1995. The increase in
general and administrative expenses was largely due to an increase of $0.7
million related to the establishment of the corporate management group required
to execute the acquisition program and to manage the consolidated group of
companies, the overall increase in operations and $0.3 million of costs
associated with the acquisitions of the Pooled Companies.
Interest expense increased $1.2 million as compared to the nine months
ended September 30, 1995 due to the higher level of debt related to additional
equipment, partially offset by the repayment of debt through the use of proceeds
of the Initial Public Offering and due to lower rates from the Company's new
credit facility.
Pro forma net income (before giving effect to the extraordinary gain),
which has been adjusted for the Compensation Differential and the pro forma
provision for taxes, increased during the nine months ended September 30, 1996
as compared to the nine months ended September 30, 1995 primarily due to
continued revenue growth and the effects of increased purchasing power.
The extraordinary gain recorded in the nine months ended September 1996 was
recognized in connection with the mergers of the Pooled Companies with Coach USA
in August 1996. Obligations due to stockholders of $17.2 million were retired in
exchange for shares of Coach USA Common Stock. The transactions resulted in an
extraordinary gain on early extinguishment of debt of approximately $4.2
million, net of taxes, representing the excess of the recorded value of the
obligations exchanged over the market value of the Coach USA Common Stock.
PRO FORMA RESULTS FOR 1994 COMPARED TO 1995
Total revenues increased $18.0 million, or 12.6%, from $143.4 million in
1994 to $161.4 million in 1995. The increase was largely due to an increase in
motorcoach charter and special destination revenues of $6.6 million, primarily
attributable to increased service to the Louisiana casinos, an increase in
motorcoach transit revenues of $4.7 million, primarily attributable to
additional transit contracts in Northern California, and an increase in taxicab
service revenues of $2.9 million, primarily attributable to the purchase of
additional taxicab operations in Austin, Texas in July 1995.
Operating expenses increased $7.7 million, or 6.7%, from $114.2 million in
1994 to $121.9 million in 1995, but declined as a percentage of revenues from
79.6% in 1994 to 75.5% in 1995. The dollar increase was largely due to an
increase in operating expenses of $3.8 million, primarily attributable to
increased service to the Louisiana casinos, and an increase in Northern
California operating expenses of $3.6 million, primarily attributable to the
increase in transit services. These increases were partially offset by a $2.2
million reduction in operating expenses primarily due to a decision not to renew
a municipal contract in the Northeast, and lower salaries, wages and related
benefits from favorable revisions of a collective bargaining agreement.
General and administrative expenses, after elimination of the Compensation
Differential, increased $1.0 million, or 6.1%, from $16.4 million in 1994 to
$17.4 million in 1995. This increase was consistent with the increase in
revenues.
Interest and other expense increased $1.7 million, or 32.7%, from $5.2
million in 1994 to $6.9 million in 1995. The increase was largely due to higher
levels of debt during 1995 as a result of equipment purchases.
Net income, adjusted for the Compensation Differential and taxes, increased
$4.2 million, from $4.5 million in 1994 to $8.7 million in 1995, and represented
3.1% of revenues in 1994 compared to 5.4% of revenues in 1995.
19
<PAGE>
PRO FORMA RESULTS FOR 1993 COMPARED TO 1994
Total revenues increased $5.1 million, or 3.7%, from $138.3 million in 1993
to $143.4 million in 1994. The increase included an increase in motorcoach
charter and special destination revenues of $2.7 million, primarily attributable
to increased service to the Louisiana casinos, an increase in Northern
California transit revenues of $2.4 million, primarily attributable to the
start-up of additional transit and commuter operations, and an increase in
motorcoach outsourcing contract revenues of $1.5 million, primarily attributable
to expanded Atlantic City casino employee shuttle contracts. These increases
were partially offset by a decrease in Northeast transit revenues of $1.9
million, primarily attributable to the loss of one municipal contract and the
decision to discontinue a low margin municipal contract during 1994, and a
decrease in taxicab service revenues of $1.1 million.
Operating expenses increased $1.8 million, or 1.6%, from $112.4 million in
1993 to $114.2 million in 1994, but declined as a percentage of revenues from
81.3% in 1993 to 79.6% in 1994. The dollar increase was largely due to an
increase in motorcoach operating expenses of $2.4 million, primarily
attributable to additional fleet, employee and other costs associated with new
transit and commuter contracts in Northern California, an increase in motorcoach
operating expenses of $2.0 million, primarily attributable to the increase in
service to the Louisiana casinos, and an increase in Northeast motorcoach
operating expenses of $1.5 million, primarily attributable to an increase in the
motorcoach fleet, related maintenance, depreciation and employee expenses as a
result of higher operating activity. These increases were partially offset by a
decrease in taxicab service operating expenses of $2.6 million, primarily
attributable to a cost reduction program, and a decrease in Northeast transit
operating expenses of $1.4 million, primarily attributable to the loss of one
municipal contract and the decision to discontinue a low margin municipal
contract during 1994.
General and administrative expenses, after elimination of the Compensation
Differential, increased $0.7 million, or 4.5%, from $15.7 million in 1993 to
$16.4 million in 1994. The increase was generally consistent within the increase
in the Company's operating activities.
Interest and other expense increased $0.6 million, or 13.0%, from $4.6
million in 1993 to $5.2 million in 1994. The increase was largely due to higher
levels of debt during 1994 as a result of motorcoach purchases.
Net income, adjusted for the Compensation Differential and taxes, increased
$0.5 million, from $4.0 million in 1994 to $4.5 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by pro forma operating activities (without giving effect
to the Compensation Differential) was $13.1 million, $11.9 million, $14.3
million and $10.1 million for 1993, 1994, 1995 and the nine months ended
September 30, 1996, respectively.
Cash used in pro forma investing activities was $5.0 million, $12.7 million
$21.3 million and $36.4 million for 1993, 1994, 1995 and the nine months ended
September 30, 1996, respectively. Cash used in pro forma investing activities
was primarily for additions and replacements of motorcoaches and for expansion
of facilities, and the $14.5 million of cash consideration paid for the
Purchased Companies, net of sales of property and equipment and cash acquired
from the Purchased Companies.
Cash used in pro forma financing activities was $7.9 million in 1993. Cash
provided by pro forma financing activities was $1.6 million, $7.4 million and
$25.0 million for 1994, 1995 and the nine months ended September 30, 1996,
respectively. Cash provided by pro forma financing activities for 1995 was
primarily attributable to the issuance of $10.5 million of long term
obligations, net of repayments, partially offset by $3.1 million in dividends
paid to the former owners of the Founding Companies and Pooled Companies. Cash
provided by pro forma
20
<PAGE>
financing activities of $25.0 million for the nine months ended September 30,
1996 was primarily attributable to $48.1 million from the Initial Public
Offering partially offset by $23.8 million paid to the former owners of the
Founding Companies, $4.0 million of net proceeds from long-term obligations and
$5.0 million in dividends paid to the former owners of the Founding Companies.
Cash and cash equivalents increased $0.2 million for 1993. Cash and cash
equivalents increased $0.8 million and $0.3 million for 1994 and 1995,
respectively. For the nine months ended September 30, 1996, cash and cash
equivalents decreased $1.3 million.
Capital expenditures during 1993, 1994 and 1995 and the nine months ended
September 30, 1996 were $5.0 million, $12.5 million, $21.0 million and $26.5
million, respectively. These expenditures were primarily for motorcoaches and
other vehicles, net of trade-ins, and were principally financed with debt and
cash flows from operations. The Company currently has no material commitments to
purchase additional motorcoaches or other vehicles. However, the Company expects
that it will continue to replace vehicles within its fleet. The Company expects
to finance additional vehicle purchases primarily from cash flows from
operations supplemented, as necessary, with borrowings under its revolving
credit facility.
On May 17, 1996, the Company completed the Initial Public Offering of
4,140,000 shares of Common Stock, resulting in net proceeds of approximately
$48.1 million. The net proceeds were used to pay the cash portion of the
purchase price for the Founding Companies and to repay indebtedness assumed by
the Company in the Mergers.
In May 1996, the Company entered into a $30 million revolving credit
agreement with one bank. This credit facility was primarily utilized to
refinance most of the indebtedness of the Founding Companies not repaid from the
net proceeds of the Initial Public Offering.
In August 1996, the Company amended and restated the $30 million credit
agreement. The credit agreement, as amended, provides for a revolving credit
facility of $115 million through a syndicate of eight banks, and limits the
Company to other borrowings of $15 million (other than fully subordinated debt)
outside the credit facility. The facility is unsecured and matures in August
1999. Interest on outstanding borrowings is charged, at the Company's option, at
the banks' prime rate plus up to 1.0% or the London Interbank Offered Rate
("LIBOR") plus 1.0% to 2.25%, both as determined by the ratio of the Company's
funded debt to cash flow (as defined). Under the terms of the credit agreement,
the Company must maintain certain minimum financial ratios. The credit agreement
prohibits the payment of cash dividends. As of November 12, 1996, the Company
had a total of $122.1 million outstanding under the revolving and other outside
credit facilities and had utilized $4.9 million of the facility for letters of
credit securing certain insurance obligations and performance bonds, resulting
in a borrowing availability of $3.0 million under the revolving credit facility.
The Company is presently negotiating with its bank group to increase the credit
facility.
In September 1996, the Company entered into an interest rate cap agreement
with a bank. The agreement has a term of one year and a notional amount of $50
million. The agreement provides that if the 90 day LIBOR rate exceeds 6.5%, the
bank will pay to the Company the difference between such rate and 6.5%. As of
November 12, 1996, the 90 day LIBOR rate was 5.5%. The cost of the agreement is
being amortized over its term.
In exchange for all outstanding shares of stock of the Pooled Companies
together with certain real estate owned and conversion of certain debt by the
principals of such companies, the Company issued 2,558,580 shares of Common
Stock. In exchange for all outstanding shares of stock of the Purchased
Companies, the Company paid $37 million, comprised of $22.5 million in 5%
convertible subordinated notes (convertible into 750,460 shares of Common Stock)
and $14.5 million in cash. Total debt assumed by the Company in connection with
the August Acquisitions was $83.3 million.
21
<PAGE>
Management believes that the Company's revolving credit facility, its cash
flows from operations, the net proceeds of this Offering and shares of Common
Stock available under its shelf registration statement will provide sufficient
liquidity to execute the Company's acquisition and internal growth plans for
approximately the next 12 months. Should the Company accelerate its acquisition
program, the Company may need to seek additional financing through the public or
private sale of equity or debt securities. There can be no assurance that the
Company could secure such financing if and when it is needed or on terms the
Company deems acceptable.
RESULTS OF OPERATIONS -- FOUNDING COMPANIES
The following selected historical financial information for the individual
Founding Companies is derived from the respective financial statements of the
individual Founding Companies included elsewhere herein. The interim financial
statements of the Founding Companies include all adjustments the Company
considers necessary for a fair presentation of the results of operations and
cash flows of those companies for those periods. Pro forma net income (loss) for
each of the Founding Companies 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. The following discussion should be
read in conjunction with the separate Founding Company financial statements and
notes thereto appearing elsewhere in this Prospectus. As required by accounting
principles, the 1996 interim period for each of the Founding Companies reflects
results of operations only through the effective date of acquisition thereof by
Coach USA (May 31, 1996).
RESULTS OF OPERATIONS -- SUBURBAN
<TABLE>
<CAPTION>
FIVE
SIX MONTHS MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
---------------------------------- JUNE 30, MAY 31,
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 32,274 $ 30,427 $ 29,752 $ 13,742 $ 11,520
Operating expenses.............. 28,903 27,526 25,322 12,038 10,648
Gross profit.................... 3,371 2,901 4,430 1,704 872
General and administrative
expenses..................... 2,417 2,283 2,563 1,333 1,052
Interest and other expense,
net.......................... 175 147 213 148 158
Net income (loss)............... 520 343 1,231 176 (338)
Pro forma net income (loss)..... 795 658 1,512 330 (115)
</TABLE>
INTERIM RESULTS -- SUBURBAN
Revenues for the five months ended May 31, 1996 remained at a relatively
constant pace compared with the six months ended June 30, 1995. As a percentage
of revenues, operating expenses for the five months ended May 31, 1996 increased
4.6% as compared to the six months ended June 30, 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 in pace between the periods. Interest expense
increased $50,000 during the five months ended May 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.
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.
22
<PAGE>
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.
23
<PAGE>
RESULTS OF OPERATIONS -- GRAY LINE SF
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
---------------------------------- JUNE 30, MAY 31,
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
GRAY LINE SF:
Revenues........................ $ 22,122 $ 24,487 $ 29,235 $ 12,811 $10,881
Operating expenses.............. 16,590 18,990 22,627 10,225 9,021
Gross profit.................... 5,532 5,497 6,608 2,586 1,860
General and administrative
expenses..................... 4,129 3,794 4,722 2,307 1,861
Interest and other expense,
net.......................... 228 323 430 302 210
Net income (loss)............... 672 924 1,074 3 (156)
Pro forma net income (loss)..... 735 867 1,085 94 (20)
</TABLE>
INTERIM RESULTS -- GRAY LINE SF
Revenues for the five months ended May 31, 1996 increased in pace by
approximately 7% as compared to the six months ended June 30, 1995. This
increase was due to an increase in the level of municipal contract service.
Operating expenses for the five months ended May 31, 1996 increased by an
approximately 9% pace as compared to the six months ended June 30, 1995,
primarily due to higher fuel costs and increased operations. General and
administrative expenses for the five months ended May 31, 1996 remained constant
in pace as compared to the six months ended June 30, 1995. Interest expense
decreased slightly during the five months ended May 31, 1996 as compared to the
first six months of 1995 due to lower levels of average debt outstanding.
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
24
<PAGE>
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.
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.
RESULTS OF OPERATIONS -- LEISURE
<TABLE>
<CAPTION>
FIVE
SIX MONTHS MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
---------------------------------- JUNE 30, MAY 31,
1993 1994 1995 1995 1996
---------- ---------- ---------- ----------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LEISURE:
Revenues........................ $ 17,534 $ 17,694 $ 18,992 $ 8,949 $8,220
Operating expenses.............. 15,497 14,139 14,577 7,191 6,419
Gross profit.................... 2,037 3,555 4,415 1,758 1,801
General and administrative
expenses..................... 2,128 1,934 1,895 893 828
Interest and other expense,
net.......................... 313 184 132 114 182
Net income (loss)............... (372) 1,298 2,163 680 725
Pro forma net income (loss)..... (127) 963 1,577 485 494
</TABLE>
INTERIM RESULTS -- LEISURE
Revenues for the five months ended May 31, 1996 increased at a pace of
approximately 15% as compared to the six months ended June 30, 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 in the first three months of the year. Operating expenses for the
five months ended May 31, 1996 increased at a pace of 10% as compared to the six
months ended June 30, 1995, primarily due to increased operating, fuel and
maintenance costs. General and administrative expenses remained relatively
constant in pace between the periods. Interest expense increased
25
<PAGE>
by $54,000 during the five months ended May 31, 1996 as compared to June 30,
1995, due to higher levels of debt outstanding from additional motorcoaches
purchased with borrowed funds.
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% 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.
26
<PAGE>
RESULTS OF OPERATIONS -- COMMUNITY
<TABLE>
<CAPTION>
FIVE
SIX MONTHS MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
---------------------------------- JUNE 30, MAY 31,
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMMUNITY:
Revenues........................ $ 13,179 $ 14,106 $ 13,807 $ 6,598 $ 5,466
Operating expenses.............. 11,057 12,228 11,680 5,644 4,687
Gross profit.................... 2,122 1,878 2,127 954 779
General and administrative
expenses..................... 1,760 1,999 2,193 1,063 668
Interest and other expense,
net.......................... 258 239 173 131 70
Net income (loss)............... 103 (262) (62) (151) 24
Pro forma net income............ 538 415 718 209 107
</TABLE>
INTERIM RESULTS -- COMMUNITY
Revenues for the five months ended May 31, 1996 remained relatively
constant in pace with the six months ended June 30, 1995. Operating expenses
also remained relatively constant in pace for the five months ended May 31, 1996
as compared to the six months ended June 30, 1995 as lower overall operating
costs were offset by higher fuel costs. General and administrative expenses
remained at a relatively constant pace between the periods.
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.
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.
27
<PAGE>
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.
RESULTS OF OPERATIONS -- ADVENTURE
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
--------------------------------- JUNE 30, MAY 31,
1993 1994 1995 1995 1996
--------- ---------- ---------- ---------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ADVENTURE:
Revenues........................ $ 8,494 $ 10,001 $ 11,053 $5,239 $ 4,392
Operating expenses.............. 6,665 8,457 8,241 4,126 3,592
Gross profit.................... 1,829 1,544 2,812 1,113 800
General and administrative
expenses..................... 840 968 1,089 517 516
Interest and other expense,
net.......................... 626 641 928 382 309
Net income (loss)............... 328 (58) 719 194 (23)
Pro forma net income (loss)..... 255 12 537 162 (5)
</TABLE>
INTERIM RESULTS -- ADVENTURE
Revenues for the five months ended May 31, 1996 increased in pace by
approximately 5% as compared to the six months ended June 30, 1995. The increase
in revenues was primarily the result of increased charter revenues somewhat
offset by a decrease in revenues in the first two months of 1996 because of
unusual winter weather conditions that limited the ability of motorcoaches to
operate. Operating expenses for the five months ended May 31, 1996 increased at
a pace of 6% relative to the six months ended June 30, 1995, primarily as a
result of increased operations and fuel costs. General and administrative
expenses remained at a relatively constant pace between the periods. Interest
expense remained relatively constant between the periods.
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
expenses 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.
28
<PAGE>
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 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.
RESULTS OF OPERATIONS -- ARROW
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
--------------------------------- JUNE 30, MAY 31,
1993 1994 1995 1995 1996
--------- ---------- ---------- ---------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ARROW:
Revenues........................ $ 9,469 $ 10,039 $ 10,650 $5,317 $ 4,459
Operating expenses.............. 6,655 6,957 7,222 3,540 2,558
Gross profit.................... 2,814 3,082 3,428 1,777 1,901
General and administrative
expenses..................... 1,216 1,493 1,751 889 675
Interest and other expense,
net.......................... 501 534 658 389 430
Net income...................... 1,097 1,055 1,019 499 796
Pro forma net income............ 677 653 620 305 477
</TABLE>
INTERIM RESULTS -- ARROW
Revenues for the five months ended May 31, 1996 increased in pace by over
7% as compared to the six months ended June 30, 1995. The increase in revenues
was primarily due to increased charter business in the months of April and May,
partially offset by reduced charter revenues resulting from winter weather
conditions that produced less snow in the Southwest and less favorable ski
conditions. Operating expenses for the five months ended May 31, 1996 decreased
29
<PAGE>
slightly in pace as compared to the six months ended June 30, 1995, primarily
due to reduced maintenance costs. General and administrative expenses remained
relatively constant in pace between the periods. Interest expense increased $0.1
million during the five months ended May 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.
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 $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.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated financial information represents the operations
of the Pooled Companies for all periods presented and the Founding Companies and
Coach USA for the four months ended September 1996 and the Purchased Companies
for the month of September 1996. This financial information has been derived
from the Consolidated Financial Statements of Coach USA included elsewhere in
this Prospectus. The selected financial information for the interim periods
includes all adjustments the Company considers necessary for a fair presentation
of the results of operations for such periods. Pro forma net income (loss) gives
effect to (i) the Compensation Differential; (ii) certain tax adjustments
related to the taxation of certain Founding Companies as S Corporations prior to
the consummation of the Mergers; and (iii) the tax impact of the Compensation
Differential in each period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
----------------------------------------------------- ---------------------
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..................... $ 41,417 $ 40,014 $ 35,239 $ 36,656 $ 47,930 $ 34,708 $ 94,147
Gross profit....................... 11,235 10,100 8,236 10,744 15,336 10,932 27,615
Operating income................... 2,328 2,354 1,878 3,020 6,600 4,322 15,126
Income (loss) before extraordinary
gain............................. (90) (177) (64) (157) 1,534 1,036 6,059
PRO FORMA:
Operating income................... 3,318 3,671 2,953 4,737 8,901 5,992 16,932
Net income......................... 611 643 988 979 2,624 2,379 11,674
BALANCE SHEET DATA:
Working capital (deficit).......... (3,730) (5,160) (5,152) (4,229) (3,597) (2,567) (9,359)
Total assets....................... 41,700 40,631 38,928 43,414 60,404 50,688 247,166
Total debt, including current
portion.......................... 35,736 34,111 29,885 36,112 48,866 41,035 119,501
Stockholders' equity............... (6,557) (7,181) (6,054) (6,129) (4,620) (5,118) 53,283
</TABLE>
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.
31
<PAGE>
BUSINESS
The Company is the largest provider of motorcoach charter, tour and
sighteseeing services and one of the five largest non-municipal providers of
commuter and transit motorcoach services in the United States. The Company also
provides airport ground transportation, paratransit and other related passenger
ground transportation services. The Company's services are provided through a
fleet of approximately 1,360 motorcoaches, including 295 motorcoaches provided
by various transit authorities pursuant to service contracts, as well as various
other high occupancy vehicles. The Company's charter and tour fleet features
luxury, European style motorcoaches with plush seats, televisions, VCRs and
other amenities. The Company's taxicab and high occupancy vehicle services
include dispatching and vehicle sales, leasing and financing for more than 1,250
vehicles, primarily owned by independent contractor drivers.
Coach USA was founded in September 1995 to create a nationwide provider of
motorcoach and other ground transportation services and conducted no operations
prior to the Initial Public Offering. Coach USA acquired, simultaneously with
the closing of the Initial Public Offering, the six Founding Companies. On
August 29, 1996, the Company acquired five additional motor coach businesses and
one taxicab service business.
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 motorcoach industry is highly fragmented with approximately 5,000
motorcoach operators. These companies collectively generated approximately $20
billion in revenues in 1995. The Company believes that the taxicab services
industry has a similar profile of approximately 6,000 fleet operators.
The Company believes that there will be increasing demand for recreation
and excursion services, commuter and transit motorcoach services and airport
related 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 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
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<PAGE>
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 or other modes of ground
transportation, 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, vans and other high occupancy vehicles can alleviate much of
this congestion and address the shortage of convenient parking at many airports.
In addition, taxicab service is an integral part of passenger ground
transportation to and from most major airports.
BUSINESS STRATEGY
The Company's objective is to be the largest provider of regional and local
motorcoach and passenger ground transportation 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 and other passenger ground transportation
service providers that, like the Founding Companies and the August
Acquisitions, are leaders in their regional markets.
EXPANDING EXISTING MARKETS. The Company also plans to acquire
additional motorcoach and other passenger ground transportation service
providers in many 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
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 existing operations and each
subsequently acquired 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 has begun 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. 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 fleets
decide to privatize or outsource non-core operations.
CAPITALIZING ON NEW CORPORATE STRUCTURE. The Company intends to continue
to take advantage of its new corporate structure by:
33
<PAGE>
CENTRALIZING ADMINISTRATIVE FUNCTIONS. The Company believes that it
will continue to have greater purchasing power, resulting in significant
cost savings in such areas as equipment and parts, tires, insurance and
financing, than the Founding Companies and August Acquisitions had
independently. The Company has begun to realize cost savings through the
consolidation of administrative functions such as employee benefits, safety
and maintenance programs and risk management.
INCREASING OPERATING EFFICIENCIES. The Company believes that there
are opportunities to eliminate redundant facilities and equipment through
coordination among the Founding Companies, the August Acquisitions and
other subsequently acquired operations. Additionally, the Company expects
to continue to benefit from cross-marketing and increased equipment
utilization that has already occurred among the Founding Companies and the
August Acquisitions.
ACQUISITION STRATEGY
The Company believes that there are many attractive acquisition candidates
in the motorcoach and passenger ground transportation services industry because
of the highly fragmented nature of the industry, industry participants' need for
capital and their owners' desire for liquidity. The Company will continue to
pursue an aggressive acquisition program to consolidate and enhance its position
in its current markets and to acquire operations in new markets.
As with the August Acquisitions, a "primary acquisition" is 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 and each of the August Acquisitions, 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 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, as in each of the Founding Companies and the August Acquisitions,
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 and
passenger ground transportation services industry and individual businesses
within the industry and believes it is well positioned to continue implementing
its acquisition program. Several of the principals of the Founding Companies and
the August Acquisitions have leadership roles in both
34
<PAGE>
national and regional motorcoach and taxicab service trade associations, which
has allowed these principals to become personally acquainted with operators of
motorcoach and passenger ground transportation services 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 from local and regional operators. The
Company currently has no binding agreements to effect any additional
acquisition.
As consideration for future acquisitions, the Company intends to use
various combinations of Common Stock and cash and, possibly, notes. The Company
has registered under the Securities Act 3,500,000 shares of Common Stock to be
used in connection with future acquisitions.
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 motorcoach 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.
The Company's taxicab service revenues are derived primarily from services
provided to independent contractors that own or lease and operate taxicabs under
one of the Company's trade names. The independent contractor drivers pay a
weekly or daily fee in advance to the Company for dispatching, use and
maintenance of taxicab equipment, liability insurance coverage, use of operating
rights, charge account and other services. The independent contractor collects
and retains the fares from the passenger. Fares charged to passengers are
subject to municipal or state regulatory approval.
MOTORCOACH SERVICES
The Company's motorcoaches are either owned by the Company or leased under
long-term leases, pursuant to which the Company is responsible for all
maintenance, insurance and upkeep. The majority of the Company's motorcoach
drivers are employees of the Company with the remainder provided pursuant to a
leasing arrangement. In certain of the motorcoach operations, the drivers are
independent contractors.
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. In some instances, the Company organizes its own tours
and markets them on a per passenger basis.
35
<PAGE>
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. The Company uses a network of hotel lobby ticket counters,
hotel concierges and travel agents to sell the Company's sightseeing tours.
AIRPORT SERVICE. The Company picks up passengers at airports in Atlantic
City, Houston, Las Vegas, Los Angeles, Miami and Philadelphia and transports
them to and from their hotel, casino, cruise ship or convention site. The
Company provides passenger ground transportation services into, from and between
airports in certain cities in which the Company has operations using
motorcoaches and other high occupancy vehicles. This service is provided on
either a fixed schedule or on demand service basis. In fixed schedule services,
the Company provides regular pick-up and drop-off services while fixed fee
services can be arranged through computerized reservations systems or through
purchase at a service desk at the airport. Taxicab service operations are an
integral part of the passenger ground transportation services to and from the
airports in the cities in which the Company operates.
SPECIALIZED DESTINATION ROUTE. The Company provides specialized
destination route services, including daily scheduled service to casinos in New
Jersey, Louisiana and Nevada. 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. 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,
principally from various points in New Jersey to New York City.
OUTSOURCING CONTRACTS. The Company has agreements with various
corporations, institutions and government entities to provide motorcoaches,
drivers and equipment for their employees and customers. The Company contracts
with the customer to provide the schedule of service required by the customer,
sometimes 24 hours per day.
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.
PARATRANSIT SERVICES. The Company has contracts with agencies of various
counties that are responsible for coordinating the non-emergency transportation
of medical aid patients. Following delivery to the Company of patient
reservation schedules, the Company provides the scheduled service,usually
through use of independent contractor drivers, and invoices the county
organization for services provided. These contracts are generally on a
multi-year basis and require the Company to meet certain performance standards.
36
<PAGE>
TAXICAB SERVICES
The majority of the Company's taxicabs are owned by independent contractor
drivers, with the remainder being owned by the Company and leased on a daily or
weekly basis to independent contractor drivers. None of the taxicab drivers is
an employee of the Company. In addition to the weekly fee paid by the drivers to
the Company for dispatching and other support services, the Company derives
revenues through vehicle sales and financing services to drivers, maintenance,
parts and labor provided to drivers and vehicle mini-billboard advertising.
RADIO DISPATCHED SERVICES. Radio dispatched services are provided
primarily on a call-in basis. When the request is made for taxicab service, the
closest available taxicab is notified through the Company's computer dispatching
system. An independent contractor driver of the identified vehicle accepts the
trip and picks up the customer.
AIRPORT SERVICES. Taxicab services are provided to passengers going to and
coming from the airports in the municipalities in which the Company provides
taxicab services. Most services provided to passengers coming from the airports
are provided on a demand basis as passengers depart the airport and summon a
taxicab at the airport cab station.
PARATRANSIT SERVICES. Pursuant to contracts with local transit
authorities, the Company provides on demand transportation services for disabled
and other persons that are in need of transportation services. These contracts
are generally on a multi-year basis and require the Company to meet certain
performance standards.
SALES AND MARKETING
The Company has a broad customer base. No single customer of the Company
accounted for more than 10% of pro forma revenues in 1995. Management at the
Company's operating locations 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 motorcoach operations also has a sales
staff that focuses primarily on obtaining specific charter and tour business.
The principal means of marketing charter and tour services has been in
telephone directories and through direct mail or personal contact with customers
included in each operating location's data bases, which include civic groups,
schools and domestic and foreign tour organizers and travel agencies. The
Company uses ticket counters in hotel lobbies and concierges to market and
promote sightseeing services.
The Company's specialized destination route services to casinos in New
Jersey, Connecticut, Nevada and Louisiana are promoted primarily by individual
casinos. These casinos will either pay the Company for the transportation or
provide incentives to passengers transported by the Company to the casino. 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 domestic
and international travel and tour 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
and paratransit 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
37
<PAGE>
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.
The Company's taxicab service operations utilize the yellow pages,
billboards and signs on the taxicabs as the primary means of marketing services.
Paratransit contracts are obtained through a competitive bidding process.
OPERATIONS
All aspects of the Company's daily motorcoach and passenger ground
transportation services 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 and 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. Computerized dispatch services are an integral part of the
daily support services provided to the independent contractor drivers.
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 are made at the operating location level. At the same time, the
Company has begun to centralize and maintain certain administrative support
activities. The Company believes that by continuing to remove the burden and
attention-diverting responsibility of administrative and support functions, the
management of the Founding Companies, the August Acquisitions and any other
acquired businesses will be able to focus on pursuing new business opportunities
and improving equipment utilization and yields.
The Company has initiated and believes there will continue to be
opportunities to increase equipment utilization by coordination among the
various operating locations. 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 Company operates approximately 1,360 motorcoaches and other high
occupancy vehicles. Approximately 190 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
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addition, approximately 100 other motorcoaches have been provided by certain
transit authorities to the Company to operate for the normal useful operating
lives thereof, and these motorcoaches must only be returned to such transit
authorities if the 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 five 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. A majority of the Company's current fleet of motorcoaches
are 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 Firestone, with the lease payments based on mileage driven on the tires.
The Company's taxicab service operations provide dispatch and related
services to a fleet of over 1,250 vehicles, of which approximately 860 are owned
and operated by independent contractor drivers and the remainder of which are
owned by the Company and leased on a daily or weekly basis to independent
contractor drivers. The Company offers full service maintenance and repairs on
vehicles owned by the independent contractor drivers and provides maintenance on
the vehicles owned by the Company. The computerized dispatch systems used to
provide efficient service to customers was installed at a cost of $4.3 million.
MAINTENANCE
Each of the Company's motorcoach operating locations 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 primarily performed at various maintenance
facilities operated by the Company. 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 operating
locations. 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. It also may be possible to close some maintenance facilities
in areas where there will be multiple maintenance facilities.
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 operating locations could because of the increased
negotiating power of the Company. 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 has entered into a leasing agreement for tires on terms
more favorable than previously available to the Founding Companies and the
August Acquisitions individually.
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FACILITIES
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. The Company owns four of the facilities on which motorcoach or taxicab
operations are located. The remaining facilities are leased, including some from
related parties. See "Certain Transactions -- Leases of Facilities." The
Company believes that its facilities are adequate for its current needs.
The Company leases its executive and administrative offices in Houston,
Texas.
DRIVERS AND OTHER PERSONNEL
The Company currently has approximately 3,550 employees, of whom
approximately 2,270 are motorcoach drivers and approximately 615 are maintenance
personnel. The balance includes administrative personnel, sales personnel,
customer service personnel, fleet managers, dispatchers and safety and training
personnel. Of these employees, approximately 2,870 are full-time employees. The
Company's taxicab and paratransit services are provided through independent
contractor drivers that are not employees of the Company.
The Company has established motorcoach driver retention programs which seek
to maintain a sufficient number of qualified drivers to handle passenger
service. Each operating location historically had relatively minimal driver
turnover among full-time drivers other than for sightseeing and tour services,
where the need for motorcoach drivers varies seasonally. Safety and
dependability of drivers are critical to the Company's operations. Motorcoach
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. Taxicab drivers are subject
to laws and regulations governing driving records, appearance and presentation
which are monitored by local municipalities.
Several different unions represent approximately 1,575 employees of the
Company, of whom approximately 1,350 are motorcoach 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 and the
August Acquisitions have not experienced any work stoppages and the Company
believes that relationships with union representatives and union employees are
satisfactory.
SAFETY
The Company is dedicated to safe operations. The Company vigorously adheres
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 Company maintains drug and alcohol testing programs
for its motorcoach drivers in conformity with FHWA and comparable state
requirements. The Company also addresses accidents and other incidents and takes
follow-up steps intended to reduce the risk of repeat accidents and incidents.
The Company employs safety specialists and maintains safety programs
designed to meet the specific needs of the operating location, including field
spotters and riders who assess motorcoach driver performance. In addition, the
Company employs specialists to perform compliance checks and conduct safety
tests throughout the operations. The Company conducts 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.
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RISK MANAGEMENT AND INSURANCE
The primary risks in the Company's operations are bodily injury and
property damage to third parties and workers' compensation. The Company
maintains insurance against these risks in amounts which it considers sufficient
and is subject to liability to the extent of a $100,000 deductible per incident
involving a motorcoach under each policy and is self-insured for the first
$250,000 of losses per incident involving a taxicab. The workers' compensation
policies in the states where most of the Company's employees are located provide
coverage in excess of a $100,000 deductible per incident. The Company insures
against the risk of physical damage or loss to its own motorcoach equipment,
subject to a $25,000 deductible per incident.
FUEL AVAILABILITY AND COST
Each motorcoach operating location purchases fuel in bulk and stores it at
its facility. 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 Company as a whole 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 and ground transportation 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 and
taxicab and luxury sedan vehicles, rent-a-car companies 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 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 competes for acquisition candidates. The Company believes that
its decentralized management philosophy and operating strategies will make it an
attractive acquiror to other motorcoach and ground transportation companies.
However, no assurance can be given that the Company's acquisition program will
continue to 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
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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. Most of the
Founding Companies and August Acquisitions held authority issued by the ICC
prior to December 31, 1995, and, accordingly, were deemed registered with the
FHWA and are 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
multi-state 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 high occupancy 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 and August Acquisitions 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.
Certain states in which the Company operates, such as New Jersey, Nevada
and Pennsylvania, have a comprehensive regulatory scheme in connection with the
operation of high occupancy vehicles and with respect to the safety of operation
and equipment. Although some of the regulatory restrictions of these states have
been preempted by federal legislation, as described above, these states still
maintain strong regulatory control over wholly intrastate routes. Because
certain operations of the Company have been granted authority to provide
commuter service and scheduled intrastate service, the Company has a competitive
advantage.
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However, there can be no assurance that these states will maintain their current
regulatory postures, and any reduction in regulation of motorcoach operators
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
Founding Companies and their affiliates that are regulated by the STB, and the
exemption was granted and became effective on May 3, 1996. The Company filed a
similar petition with the STB seeking an exemption in connection with the
acquisition of five motorcoach businesses that are part of the August
Acquisitions, and the exemption was granted and became effective on November 7,
1996.
The Company's taxicab service operations are regulated at the state and
local level. Local regulations focus on the number of vehicles that are
authorized to provide taxicab services and whether new entries into the local
marketplace will be granted authority to do business. These regulatory
authorities also set and periodically review the maximum fares that can be
charged to passengers.
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 Company's facilities. At certain locations, the Company has had to remediate
these spills and releases at a significant cost to the Company. 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 Company facilities. With respect to unknown pre-existing
contamination at a facility, each of the stockholders of the applicable Founding
Company or August Acquisition has agreed to indemnify the Company (up to the
amount of consideration such stockholder received, after satisfaction of a
threshold payable by the Company, which varies depending on the transaction) for
liabilities in connection with such contamination. If and to the extent that any
stockholder of a Founding Company or August Acquisition had actual knowledge of
a spill or release and did not disclose it to the Company, 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 and August Acquisitions have disclosed that from time
to time they have spilled or released certain hazardous substances in the course
of operating their businesses.
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
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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 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 has begun to initiate the implementation of 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 operations of the Company (or other operations 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, commuter
or paratransit services 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.
From time to time, the Company 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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of September 1, 1996
concerning the Company's directors, executive officers and certain key
employees.
NAME AGE POSITION
- ------------------------------------ --- -------------------------------------
Richard H. Kristinik................ 57 Chairman of the Board and Chief
Executive Officer
John Mercadante, Jr................. 52 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.................. 53 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................... 50 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.................... 34 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)................ 41 Vice President and Treasurer
Steven T. Zellers(1)................ 36 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. has been President and Chief Operating Officer and a
director of the Company since the Initial Public Offering. 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 has been Vice Chairman of the Board and Senior Vice
President -- Northeast Region of the Company since the Initial Public Offering.
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
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1995 and January 1996, Mr. Cerny provided operational support in the transition
of operations to 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 has been a Senior Vice President -- Corporate
Development and a director of the Company since the Initial Public Offering. 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
September 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 has been a Senior Vice President -- Northeast Region
Operations and a director of the Company since the Initial Public Offering. Mr.
Mercadante co-founded Leisure in 1970 and has been President and Chief Executive
Officer of Leisure since 1980.
Charles D. Busskohl has been a director of the Company since the Initial
Public Offering. 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 has been a director of the Company since the Initial
Public Offering. 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., an environmental services company,
and is an investor in Notre Capital Ventures II, L.L.C.
Paul M. Verrochi has been a director of the Company since the Initial
Public Offering. 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., and since March 1996, he has been a Principal
of Exel Motorcoach Partners, LLC, privately-held investment firms 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 has been a director of the Company since the Initial Public
Offering. Mr. Werbe is the President of Gray Line SF and has been a director of
Gray Line SF for more than five years.
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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
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
do not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries receives 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 is automatically granted 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 Initial Public 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.
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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, 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
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<PAGE>
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.
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 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 Initial Public Offering, NQSOs to purchase a total
of 510,000 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
654,517 shares were granted to the employees of the Founding Companies. The
grants of all of the foregoing options were effective as of the Initial Public
Offering and each has an exercise price equal to $14 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.
The Company has outstanding NQSOs to purchase a total of 1,694,017 shares
of Common Stock as follows: (i) 1,164,517 shares of Common Stock at $14 per
share granted in May 1996; and (ii) 494,500 shares of Common Stock at $23.75 per
share and 35,000 shares of Common Stock at $26.75 per share granted in August
1996.
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 Initial Public
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 Initial Public 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
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<PAGE>
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 Initial
Public Offering, have an exercise price equal to $14 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 addition,
the Directors' Plan permits non-employee directors to elect to receive, in lieu
of cash directors' fees, shares or credits representing "deferred shares" that
may be settled 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 Initial Public
Offering, and granted options to purchase 10,000 shares of Common Stock,
effective upon the commencement of the Initial Public Offering, to Messrs.
Verrochi and Harter and to William J. Lynch, who also became a director of the
Company upon the commencement of the Initial Public Offering and who is an
investor in Notre. In addition, Notre advanced funds in order to effect the
Mergers and the Initial Public 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 Initial Public Offering.
Simultaneously with the closing of the Initial Public 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.
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 Initial Public
Offering.
Prior to the Initial Public 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 was subject to personal
guarantees was approximately $11.6 million. The Company repaid
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<PAGE>
substantially all of such indebtedness immediately following the consummation of
the Initial Public Offering and has assumed all remaining payment obligations.
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain executive 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
former 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 is responsible for all real estate taxes,
insurance and maintenance. See the Pro Forma Financial Statements of the Company
and the notes thereto.
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 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
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is responsible for all real estate taxes, insurance and maintenance. See the Pro
Forma Financial Statements of the Company and the notes thereto.
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 Initial Public
Offering.
George D. Kamins, a beneficial owner of more than 5% of the Company's
Common Stock, owed Yellow Cab $303,000 as of August 29, 1996. This advance was
offset against accrued interest payable to him in connection with the August
Acquisitions. Approximately $8.1 million of Yellow Cab's indebtedness was
subject to Mr. Kamins' personal guarantee. This indebtedness was repaid by the
Company in connection with the August Acquisitions.
The Company has negotiated agreements with Exel Holdings, Ltd. and Exel
Motorcoach Partners LLC (collectively referred to as "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 Initial Public Offering, is a
principal of Exel. In connection with the acquisition of American Bus, the
Company paid Exel a commission of $213,600, based on the formula outlined above.
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.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of November 1, 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; (iv) all executive officers and directors as a group; and (v) each of
the Selling Stockholders. All persons listed have an address in care of the
Company's principal executive offices and have sole voting and investment power
with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING SHARES OWNED AFTER OFFERING OVER-
--------------------- BEING --------------------- ALLOTMENT
NAME NUMBER PERCENT OFFERED NUMBER PERCENT OPTION
- ------------------------------------- ----------- ------- ------------ ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard H. Kristinik(1).............. 200,000 1.4% 0 200,000 1.2% 0
Kenneth Kuchin(2).................... 1,211,219 8.7 0 1,211,219 7.6 96,000
John Mercadante, Jr.(3).............. 397,425 2.8 0 397,425 2.5 0
Douglas M. Cerny(4).................. 114,000 * 20,000 94,000 * 0
Frank P. Gallagher(5)................ 197,810 1.4 0 197,810 1.2 0
Lawrence K. King(4).................. 114,000 * 0 114,000 * 0
Gerald Mercadante(6)................. 1,056,400 7.6 0 1,056,400 6.6 0
Charles D. Busskohl(7)............... 550,451 3.9 137,310 413,141 2.6 0
Steven S. Harter(8).................. 368,095 2.6 0 360,895 2.3 0
William J. Lynch(9).................. 33,468 * 0 33,468 * 0
Paul M. Verrochi(10)................. 85,000 * 0 85,000 * 0
Thomas A. Werbe(11).................. 351,038 2.5 0 351,038 2.2 25,000
George D. Kamins..................... 1,229,854 8.8 307,463 922,391 5.8 46,119
Rogers Investments, Ltd.............. 490,580 3.5 197,000 293,580 1.8 0
Norton M. Segal Trust................ 240,960 1.7 118,070 122,890 * 0
Louis Cicerone....................... 237,210 1.7 116,233 120,977 * 0
Joseph Chernow....................... 127,034 * 31,759 95,275 * 4,764
David Leblang........................ 89,830 * 44,017 45,813 * 0
Basil Bourque........................ 17,601 * 1,800 15,801 * 3,200
Basil Bourque Profit Sharing Trust... 11,734 * 4,250 7,484 * 7,484
Marc C. Branigan..................... 58,669 * 3,150 55,519 * 5,519
Earl R. Bryant....................... 58,669 * 10,250 48,419 * 8,419
John T. Campbell Revocable Trust..... 29,335 * 2,150 27,185 * 3,850
Robert B. Goldberg................... 29,335 * 1,550 27,785 * 2,785
Victoria Harter & Phyllis Spisak
Educational Trust.................. 53,714 * 7,200 46,514 * 12,800
Jeffrey A. Klein..................... 11,734 * 4,200 7,534 * 7,534
Michael Lang......................... 107,428 * 13,000 94,428 * 23,000
Sean McNamara Profit Sharing Trust... 11,734 * 2,900 8,834 * 5,100
J. Patrick O'Shaughnessy............. 17,601 * 6,300 11,301 * 11,301
Alan B. Osofsky...................... 29,335 * 9,900 19,435 * 17,600
Mark A. Pytosh....................... 17,601 * 3,600 14,001 * 6,400
R & S Partners Ltd................... 58,669 * 3,600 55,069 * 6,400
Antonio R. Sanchez, Jr............... 58,669 * 3,600 55,069 * 6,400
Ronald L. Stanfa..................... 197,000 1.4 6,200 190,800 1.2 15,800
Tricia M. Stanfa..................... 4,907 * 1,000 3,907 * 0
Marc H. Sulam........................ 11,734 * 3,200 8,534 * 5,600
Wasatch Capital Corp................. 107,428 * 14,398 93,030 * 25,602
Weiskopf Silver & Company............ 29,335 * 5,400 23,935 * 9,600
Ronald Shapss........................ 132,372 * 18,000 114,372 * 17,000
The Samantha Shapss 1996 Trust....... 5,000 * 0 5,000 * 5,000
The Lindsey Shapss 1996 Trust........ 5,000 * 0 5,000 * 5,000
Harriet Shapss....................... 5,000 * 0 5,000 * 5,000
Donald E. Werby...................... 438,798 3.1 0 438,798 2.7 32,000
Robert K. Werbe...................... 87,760 * 0 87,760 * 7,000
Raymond K. Turner.................... 28,500 * 2,500 26,000 * 0
All executive officers and directors
as a group (12 persons)............ 4,678,906 33.5 157,310 4,521,596 28.3 121,000
(FOOTNOTES ON FOLLOWING PAGE)
</TABLE>
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- ------------
* Less than 1%.
(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, but does not include 100,000
shares which may be acquired upon the exercise of options not exercisable
within 60 days.
(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, but does not include 100,000 shares which may be acquired
upon the exercise of options not exercisable within 60 days.
(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) These shares are held by Harter Investment Partners, Ltd., of which Mr.
Harter is a general partner. Includes 10,000 shares which may be issued
upon exercise of options granted under the Directors' Plan effective as of
the commencement of the Initial Public Offering and 53,714 shares held by
the Victoria Harter and 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
Initial Public 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
Initial Public 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.
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<PAGE>
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"). As of September 30, 1996,
without giving effect to the issuance of shares as contemplated by this
Prospectus, the Company had outstanding 13,963,991 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 of
Directors' authority described above may adversely affect the rights of the
holders of Common
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<PAGE>
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.
SHARES ELIGIBLE FOR FUTURE SALE
As of September 30, 1996, the Company had outstanding 13,963,991 shares of
Common Stock. The 4,140,000 shares sold in the Initial Public Offering are, and
the 3,100,000 shares offered hereby will be, freely tradable without restriction
unless acquired by affiliates of the Company. None of the remaining 8,723,991
outstanding shares of Common Stock, or the 750,460 shares of Common Stock
currently issuable upon conversion of convertible notes issued by the Company in
connection with the August Acquisitions, 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
56
<PAGE>
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 Initial Public 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 the Selling Stockholders have
agreed not to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days from the date of this Offering 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 the Plan and
the Directors' 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 public 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 Common Stock registered pursuant to the Company's
shelf registration statement will be, upon issuance thereof, freely tradable
unless acquired by parties to the acquisition or affiliates of such parties,
other than the issuer, in which case they may be sold pursuant to Rule 145 under
the Securities Act. Rule 145 permits such persons to resell immediately
securities acquired in transactions covered under the Rule, provided such
securities are resold in accordance with the public information, volume
limitations and manner of sale requirements of Rule 144. If a period of two
years has elapsed since the date such securities were acquired in such
transaction and if the issuer meets the public information requirements of Rule
144, Rule 145 permits a person who is not an affiliate of the issuer to freely
resell such securities. In addition, in some instances 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
such shelf registration statement.
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.
57
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and Smith Barney Inc., have severally agreed to
purchase from the Company and the Selling Stockholders the following respective
number of shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
NUMBER
UNDERWRITER OF SHARES
- ------------------------------------- ---------
Alex. Brown & Sons Incorporated......
Smith Barney Inc.....................
---------
Total................................ 3,100,000
=========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby if
any of such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to be the public at the initial public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After commencement of the initial public offering, the
offering price and other selling terms may be changed by the Representatives.
The Company and certain of the Selling Stockholders have granted the
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 37,723 and 427,277 additional shares of
Common Stock, respectively, at the offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise such option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
that the number of shares of Common Stock to be purchased by it in the above
table bears to 3,100,000, and the Company and such Selling Stockholders will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters
58
<PAGE>
will offer such additional shares on the same terms as those on which the
3,100,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
among the Underwriters and the Company and the Selling Stockholders regarding
certain liabilities, including liabilities under the Securities Act.
One or more of the Underwriters currently act as market makers for the
Common Stock and may engage in "passive market making" in such securities on
the Nasdaq National Market in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Rule 10b-6A permits,
upon the satisfaction of certain conditions, Underwriters participating in a
distribution that are also Nasdaq market makers in the security being
distributed to engage in limited market making transactions during the period
when Rule 10b-6 under the Exchange Act would otherwise prohibit such activity.
Rule 10b-6A prohibits Underwriters engaged in passive market making generally
from entering a bid or effecting a purchase at a price that exceeds the highest
bid for those securities displayed on the Nasdaq National Market by a market
maker that is not participating in the distribution. Under Rule 10b-6A, each
Underwriter engaged in passive market making is subject to a daily net purchase
limitation equal to 30% of such Underwriter's average daily trading volume
during the two full consecutive calendar months immediately preceding the date
of the filing of the registration statement under the Securities Act pertaining
to the security to be distributed.
The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated, except for shares issued (i) in connection with
acquisitions; and (ii) pursuant to the exercise of options granted under the
Plans. Further, the Company's directors, officers and the Selling Stockholders
have agreed not to directly or indirectly sell or offer for sale or otherwise
dispose of any Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Alex. Brown & Sons,
Incorporated.
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. Certain legal matters related to this Offering will be
passed upon for the Underwriters by Piper & Marbury, L.L.P., Baltimore,
Maryland.
EXPERTS
The audited financial statements of Coach USA, Inc. and Subsidiaries,
Suburban Transit Corp. and Related Companies, Grosvenor Bus Lines, Inc. and
Subsidiaries, Leisure Time Tours, Community Bus Lines, Inc. and Related
Companies, Cape Transit Corp., Arrow Stage Lines, Inc. and Coach USA, Inc.
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.
The audited financial statements of K-T Contract Services, Inc., California
Charter, Inc. and Texas Bus Lines, Inc. and Subsidiary included elsewhere in
this Prospectus have been audited by Burnside & Rishebarger PLLC, 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.
59
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the information requirements of 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 Citicorp 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 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 has filed with the Commission 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 or through the Commission's Internet web site.
The Company's Common Stock is traded 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.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
COACH USA, INC. PRO FORMA
Introduction to Unaudited Pro
Forma Statements of Income.... F-3
Pro Forma Statements of Income
(unaudited)................... F-4
Notes to Pro Forma Statements of
Income (unaudited)............ F-5
COACH USA, INC. AND SUBSIDIARIES
Report of Independent Public
Accountants................... F-6
Consolidated Balance Sheets..... F-7
Consolidated Statements of
Income........................ F-8
Consolidated Statements of
Stockholders' Equity.......... F-9
Consolidated Statements of Cash
Flows......................... F-10
Notes to Consolidated Financial
Statements.................... F-11
FOUNDING COMPANIES
SUBURBAN TRANSIT CORP. AND RELATED
COMPANIES
Report of Independent Public
Accountants................... F-24
Combined Balance Sheets......... F-25
Combined Statements of Income... F-26
Combined Statements of
Stockholders' Equity.......... F-27
Combined Statements of Cash
Flows......................... F-28
Notes to Combined Financial
Statements.................... F-29
GROSVENOR BUS LINES, INC. AND
SUBSIDIARIES (OPERATING AS GRAY
LINE
OF SAN FRANCISCO)
Report of Independent Public
Accountants................... F-36
Consolidated Balance Sheets..... F-37
Consolidated Statements of
Income........................ F-38
Consolidated Statements of
Stockholders' Equity.......... F-39
Consolidated Statements of Cash
Flows......................... F-40
Notes to Consolidated Financial
Statements.................... F-41
LEISURE TIME TOURS
Report of Independent Public
Accountants................... F-48
Balance Sheets.................. F-49
Statements of Income............ F-50
Statements of Stockholders'
Equity........................ F-51
Statements of Cash Flows........ F-52
Notes to Financial Statements... F-53
COMMUNITY BUS LINES, INC. AND
RELATED COMPANIES
Report of Independent Public
Accountants................... F-59
Combined Balance Sheets......... F-60
Combined Statements of Income... F-61
Combined Statements of
Stockholders' Equity.......... F-62
Combined Statements of Cash
Flows......................... F-63
Notes to Combined Financial
Statements.................... F-64
F-1
<PAGE>
PAGE
-----
CAPE TRANSIT CORP. (OPERATING AS
ADVENTURE TRAILS)
Report of Independent Public
Accountants................... F-71
Balance Sheets.................. F-72
Statements of Income............ F-73
Statements of Stockholders'
Equity........................ F-74
Statements of Cash Flows........ F-75
Notes to Financial Statements... F-76
ARROW STAGE LINES, INC.
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
COACH USA, INC.
Report of Independent Public
Accountants................... F-92
Balance Sheet................... F-93
Statements of Income............ F-94
Statements of Changes in
Stockholders' Equity.......... F-95
Statements of Cash Flows........ F-96
Notes to Financial Statements... F-97
PURCHASED COMPANIES
K-T CONTRACT SERVICES, INC.
Independent Auditors' Report.... F-99
Balance Sheet................... F-100
Statements of Income............ F-101
Statements of Stockholders'
Equity........................ F-102
Statements of Cash Flows........ F-103
Notes to Financial Statements... F-104
CALIFORNIA CHARTER, INC.
Independent Auditors' Report.... F-110
Balance Sheet................... F-111
Statements of Income............ F-112
Statements of Stockholders'
Equity........................ F-113
Statements of Cash Flows........ F-114
Notes to Financial Statements... F-115
TEXAS BUS LINES
Independent Auditors' Opinion... F-120
Consolidated Balance Sheet...... F-121
Consolidated Statements of
Income........................ F-122
Consolidated Statement of
Changes in Stockholder's
Equity........................ F-123
Consolidated Statement of Cash
Flows......................... F-124
Notes to Consolidated Financial
Statements.................... F-125
F-2
<PAGE>
COACH USA, INC.
INTRODUCTION TO UNAUDITED PRO FORMA STATEMENTS OF INCOME
The following unaudited pro forma statements of income of Coach USA present
the Company (including the Pooled Companies) after restatement for the Founding
Companies and Purchased Companies and give effect to the following pro forma
adjustments: (i) the issuance of 425,039 shares of Coach USA Common Stock to the
Pooled Company stockholders to reflect the conversion of certain debt to equity;
(ii) the Compensation Differential; (iii) the interest expense on debt incurred
to fund the cash price of the Purchased Companies and convertible notes issued;
and (iv) the incremental provision for income taxes for S Corporations, the
Compensation Differential and changes in interest expense, as if the
transactions were consummated as of January 1, 1995.
These pro forma statements of income should be read in conjunction with
other information contained elsewhere in this Prospectus under the headings
"Summary Pro Forma Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the consolidated financial
statements of Coach USA, Inc. and Subsidiaries ("Coach USA" or the "Company"),
and the financial statements of the individual Founding Companies and the
Purchased Companies. See "Index to Financial Statements."
Certain pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The pro
forma financial data do not purport to represent what the Company's results of
operations would actually have been if such transactions in fact had occurred on
those dates or to project the Company's results of operations for any future
period. See "Risk Factors" included elsewhere herein.
F-3
<PAGE>
COACH USA, INC.
PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------
COMBINED
FOUNDING PURCHASED PRO FORMA PRO
COACH USA COMPANIES COMPANIES ADJUSTMENTS FORMA
--------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
REVENUES............................. $47,930 $113,489 $36,102 $ (250)(a) $197,271
OPERATING EXPENSES................... 32,594 89,325 22,885 144,804
--------- --------- --------- ----------- --------
Gross profit..................... 15,336 24,164 13,217 (250) 52,467
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 8,736 14,213 5,119 (6,797)(b) 21,271
AMORTIZATION OF GOODWILL............. 712(c) 712
--------- --------- --------- ----------- --------
Operating income................. 6,600 9,951 8,098 5,835 30,484
OTHER (INCOME) EXPENSE:
Interest Expense................. 4,026 2,878 3,690 (1,298)(d) 11,472
2,176(e)
Earnings from investment in
unconsolidated subsidiary...... -- -- (762) 762(f) --
--------- --------- --------- ----------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM................. 2,574 7,073 5,170 4,195 19,012
PROVISION FOR INCOME TAXES........... 1,040 929 1,011 5,216(g) 8,196
--------- --------- --------- ----------- --------
INCOME BEFORE EXTRAORDINARY ITEM..... $ 1,534 $ 6,144 $ 4,159 $(1,021) $ 10,816
========= ========= ========= =========== ========
PRO FORMA INCOME PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM.......... $ .93
========
WEIGHTED AVERAGE SHARES
OUTSTANDING (h).................... 11,643
========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------------------------------
COMBINED
FOUNDING PURCHASED
COMPANIES COMPANIES
THROUGH THROUGH PRO FORMA PRO
COACH USA MAY 31 AUGUST 29 ADJUSTMENTS FORMA
--------- --------- --------- ----------- --------
REVENUES............................. $94,147 $ 44,938 $26,020 $ $165,105
OPERATING EXPENSES................... 66,532 36,925 15,465 118,922
--------- --------- --------- ----------- --------
Gross profit..................... 27,615 8,013 10,555 -- 46,183
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 12,430 7,776 5,132 (5,287)(b) 20,051
AMORTIZATION OF GOODWILL............. 59 474(c) 533
--------- --------- --------- ----------- --------
Operating income................. 15,126 237 5,423 4,813 25,559
OTHER (INCOME) EXPENSE:
Interest Expense................. 4,761 1,220 2,659 (892)(d) 9,198
1,450(e)
Earnings from investment in
unconsolidated subsidiary...... -- -- (432) 432(f) --
--------- --------- --------- ----------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM................. 10,365 (983 ) 3,196 3,823 16,401
PROVISION FOR INCOME TAXES........... 4,306 42 859 1,857(g) 7,064
--------- --------- --------- ----------- --------
INCOME BEFORE EXTRAORDINARY ITEM..... $ 6,059 $ (1,025 ) $ 2,337 $ 1,966 $ 9,337
========= ========= ========= =========== ========
PRO FORMA INCOME PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM.......... $ .71
========
WEIGHTED AVERAGE SHARES OUTSTANDING
(h)................................ 13,083
========
</TABLE>
The accompanying notes are an integral part of these pro forma statements of
income.
F-4
<PAGE>
COACH USA, INC.
NOTES TO PRO FORMA STATEMENT OF INCOME (UNAUDITED)
(a) Eliminates management fees charged to related companies.
(b) Adjusts compensation to the level the owners of the Founding, Pooled and
Purchased Companies have agreed to receive subsequent to their respective
Acquisition. Also adjusts compensation to reverse a non-recurring, non-cash
charge recorded in March 1996, representing the difference between the
amounts paid for shares of the Company's common stock and the estimated fair
value of the shares on the date of sale as if the companies were combined.
(c) Records the amortization of goodwill using a 40-year life.
(d) Records reduction of interest expense related to debt converted to equity
subsequent to the August Acquisitions.
(e) Records interest expense on debt incurred to fund the cash purchase price
and convertible debt issued in conjunction with the August Acquisitions.
(f) Eliminates earnings in previously unconsolidated subsidiary.
(g) Records the incremental provision for Federal and state income taxes
relating to the Compensation Differential, income taxes on S Corporation
income, utilization of loss carryforwards at the time the loss was incurred
on a combined basis, and income taxes on the income from personal assets of
a stockholder.
(h) The 1995 share data include: (i) 2,165,724 shares issued by Coach USA prior
to the Initial Public Offering; (ii) 5,099,687 shares issued to the
stockholders of the Founding Companies in connection with the Mergers; (iii)
1,700,714 of the 4,140,000 shares sold in the Initial Public Offering to pay
the cash portion of the consideration for the Founding Companies; (iv)
118,142 of the 4,140,000 shares sold in the Initial Public Offering to pay
excess S Corporation distributions; (v) 2,133,541 shares issued in
connection with the acquisition of the Pooled Companies; and (vi) 425,039
shares issued in connection with the conversion of indebtedness to equity at
one of the Pooled Companies. The 1996 share data include those amounts
included in the 1995 share data plus (i) the remaining 2,321,144 of the
4,140,000 shares sold in the Initial Public Offering weighted from June 1,
1996 and (ii) 279,890 shares attributable to dilution for outstanding
options to purchase Common Stock, using the treasury stock method.
F-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coach USA, Inc.:
We have audited the accompanying consolidated balance sheets of Coach USA,
Inc. (a Delaware corporation), and subsidiaries as of December 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 December 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
Coach USA, Inc., and subsidiaries 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
November 13, 1996
F-6
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
---------------------- SEPTEMBER 30
1994 1995 1996
---------- ---------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1,257 $ 2,765 $ 3,395
Accounts receivable, less
allowance of $682, $775 and
$1,401....................... 4,007 5,137 18,271
Notes receivable, current
portion...................... 2,679 2,606 3,629
Notes receivable from
stockholders................. 363 371 --
Inventories..................... 2,035 3,132 7,202
Prepaid expenses and other
current assets............... 2,310 2,925 8,081
---------- ---------- ------------
Total current
assets............ 12,651 16,936 40,578
PROPERTY AND EQUIPMENT, net.......... 20,548 31,652 166,503
NOTES RECEIVABLE, less allowance of
$500............................... 1,181 1,978 3,022
GOODWILL, net........................ -- -- 28,663
OTHER ASSETS......................... 9,034 9,838 8,400
---------- ---------- ------------
Total assets......... $ 43,414 $ 60,404 $247,166
========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 4,237 $ 5,848 $ 7,773
Accounts payable and accrued
liabilities.................. 11,490 13,791 42,164
Notes payable to stockholders... 1,153 914 --
---------- ---------- ------------
Total current
liabilities....... 16,880 20,553 49,937
---------- ---------- ------------
LONG-TERM OBLIGATIONS, net of current
maturities......................... 16,226 26,551 115,728
LONG-TERM CONVERTIBLE NOTES, net of
current maturities................. -- -- 18,500
LONG-TERM OBLIGATIONS DUE TO
STOCKHOLDERS....................... 15,649 16,467 --
DEFERRED INCOME TAXES................ 788 1,453 9,718
---------- ---------- ------------
Total liabilities.... 49,543 65,024 193,883
---------- ---------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par,
30,000,000 shares authorized,
2,133,541, 2,133,541 and
13,963,991 shares issued,
respectively................. 21 21 140
Additional paid-in capital...... 3,857 3,832 51,085
Retained earnings (deficit)..... (10,007) (8,473) 2,058
---------- ---------- ------------
Total stockholders'
equity............ (6,129) (4,620) 53,283
---------- ---------- ------------
Total liabilities and
stockholders'
equity............ $ 43,414 $ 60,404 $247,166
========== ========== ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 35,239 $ 36,656 $ 47,930 $ 34,708 $ 94,147
OPERATING EXPENSES................... 27,003 25,912 32,594 23,776 66,532
---------- ---------- ---------- ---------- ----------
Gross profit......... 8,236 10,744 15,336 10,932 27,615
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 6,358 7,724 8,736 6,610 12,149
ACQUISITION RELATED COSTS............ -- -- -- -- 340
---------- ---------- ---------- ---------- ----------
Operating income..... 1,878 3,020 6,600 4,322 15,126
INTEREST EXPENSE..................... 2,493 3,105 4,026 2,666 4,761
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY GAIN................. (615) (85) 2,574 1,656 10,365
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. (551) 72 1,040 620 4,306
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY GAIN................. (64) (157) 1,534 1,036 6,059
EXTRAORDINARY GAIN, net of taxes..... 1,191 -- -- -- 4,205
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).................... $ 1,127 $ (157) $ 1,534 $ 1,036 $ 10,264
========== ========== ========== ========== ==========
INCOME (LOSS) PER COMMON SHARE BEFORE
EXTRAORDINARY GAIN................. $ (.03) $ (.07) $ .72 $ .49 $ .64
EXTRAORDINARY GAIN PER COMMON
SHARE.............................. .56 -- -- -- .45
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) PER COMMON SHARE... $ .53 $ (.07) $ .72 $ .49 $ 1.09
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-8
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
---------------- PAID-IN (DEFICIT) STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992......... 2,134 $ 21 $ 3,775 $ (10,977) $ (7,181)
Net income...................... -- -- 1,127 1,127
------ ------ ---------- --------- ------------
BALANCE AT DECEMBER 31, 1993......... 2,134 21 3,775 (9,850) (6,054)
Other........................... -- 82 -- 82
Net loss........................ -- -- (157) (157)
------ ------ ---------- --------- ------------
BALANCE AT DECEMBER 31, 1994......... 2,134 21 3,857 (10,007) (6,129)
Other........................... -- (25) -- (25)
Net income...................... -- -- 1,534 1,534
------ ------ ---------- --------- ------------
BALANCE AT DECEMBER 31, 1995......... 2,134 21 3,832 (8,473) (4,620)
Issuance of Common Stock
(unaudited):
Initial Public Offering... 4,140 41 48,021 -- 48,062
Merger with Predecessor... 2,166 22 2,055 (2,053) 24
Acquisition of Founding
Companies............... 5,099 51 6,323 9,155 15,529
Cash Distribution to Founding
Company Shareholders
(unaudited).................. -- -- (23,810) -- (23,810)
Reorganization (unaudited)...... -- -- 4,402 (4,402) --
Deferred tax liability: S
Corporation to C Corporation
(unaudited).................. -- -- -- (2,700) (2,700)
Conversion of debt to equity
(unaudited).................. 425 5 10,197 -- 10,202
Other (unaudited)............... -- -- 65 -- 65
Adjustment to conform year ends
(unaudited).................. -- -- -- 267 267
Net income (unaudited).......... -- -- -- 10,264 10,264
------ ------ ---------- --------- ------------
BALANCE AT SEPTEMBER 30, 1996
(Unaudited)........................ 13,964 $ 140 $ 51,085 $ 2,058 $ 53,283
====== ====== ========== ========= ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-9
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 1,127 $ (157) $ 1,534 $ 1,036 $ 10,264
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation............... 3,465 3,492 4,017 2,933 6,279
Gain on sale of assets..... (25) 57 (77) (30) (40)
Extraordinary gain......... (2,200) -- -- -- (7,007)
Deferred tax provision..... (449) (105) 929 549 371
Changes in operating assets
and liabilities --
Accounts receivable,
net................. (401) 670 (1,130) (1,288) (3,891)
Inventories........... 131 (1,196) (2,554) (2,059) (2,793)
Notes receivable...... 2,573 1,256 (724) (249) (2,067)
Prepaid expenses and
other current
assets.............. 169 (147) (81) (62) 4,286
Accounts payable and
accrued
liabilities......... 953 (1,104) 2,301 1,273 (485)
Other................. 1,167 191 (992) 442 2,647
--------- --------- --------- --------- ----------
Net cash provided
by operating
activities..... 6,510 2,957 3,223 2,545 7,564
--------- --------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (1,988) (8,847) (11,371) (5,276) (16,716)
Proceeds from sales of property
and equipment................. 56 889 388 351 1,336
Cash consideration paid for
Purchased Companies, net of
cash acquired................. -- -- -- -- (12,343)
Proceeds from sales of
investments -- restricted..... -- -- -- -- 1,005
--------- --------- --------- --------- ----------
Net cash used in
investing
activities..... (1,932) (7,958) (10,983) (4,925) (26,718)
--------- --------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations................... (8,813) (7,960) (7,820) (5,873) (79,301)
Proceeds from issuance of
long-term obligations......... 5,528 11,724 17,113 9,024 73,135
Other........................... -- 82 (25) (25) --
Cash consideration paid for the
Founding Companies, net of
cash acquired................. -- -- -- -- (22,112)
Sale of Common Stock in Initial
Public Offering............... -- -- -- -- 48,062
--------- --------- --------- --------- ----------
Net cash provided
by (used in)
financing
activities..... (3,285) 3,846 9,268 3,126 19,784
--------- --------- --------- --------- ----------
NET INCREASE (DECREASE) IN CASH...... 1,293 (1,155) 1,508 746 630
CASH AND CASH EQUIVALENTS, beginning
of year............................ 1,119 2,412 1,257 1,257 2,765
--------- --------- --------- --------- ----------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 2,412 $ 1,257 $ 2,765 $ 2,003 $ 3,395
========= ========= ========= ========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 1,730 $ 1,698 $ 2,752 $ 1,998 $ 4,028
Cash paid for income taxes...... -- 25 125 108 1,108
Assets acquired under capital
leases........................ 982 1,931 2,404 1,594 2,981
Convertible debt issued for
Purchased Companies........... -- -- -- -- 22,500
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-10
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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, and related passenger ground transportation services.
In May 1996, Coach USA acquired, simultaneously with the closing of an
initial public offering (the Offering), six established businesses.
Consideration for these businesses consisted of a combination of cash and common
stock of Coach USA, par value $.01 per share (the Common Stock). These six
businesses are referred to herein as the "Founding Companies." Coach USA
acquired six additional businesses on August 29, 1996. Of these six additional
businesses acquired, American Bus Lines, Inc., and affiliated companies (ABL),
Gulf Coast Transportation, Inc., operating as Gray Line of Houston, and Yellow
Cab Service Corporation (Yellow Cab) were accounted for as poolings of interests
and are referred to herein as the "Pooled Companies." The remaining three
businesses acquired were accounted for as purchases and are referred to herein
as the "Purchased Companies" (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Coach USA and the Founding Companies from June 1, 1996, the effective date used
to account for the acquisitions of the Founding Companies, and give retroactive
effect to the acquisitions of the Pooled Companies. The Pooled Companies, the
Founding Companies subsequent to May 31, 1996, and the Purchased Companies
subsequent to August 29, 1996, are collectively referred to herein as the
"Company."
Two of the Pooled Companies have previously reported on an October fiscal
year-end. As such, the accounts of these companies for their 1994 and 1995
fiscal years have been consolidated with the accounts of the Company as of
December 31, 1994 and 1995, respectively. Operating results of these two
companies are presented for the nine months ended September 30, 1995 and 1996,
in order to conform the interim periods to a calendar year presentation.
Unaudited revenues and net income for these two companies for this two-month
period ended December 31, 1995, were approximately $6,292,000 and $267,000,
respectively.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the consolidated
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.
INVENTORIES
Inventories consist of motorcoach and taxicab replacement parts and
taxicabs held for sale. Inventory cost for replacement parts is accounted for on
the first-in, first-out basis and inventory
F-11
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cost for taxicabs held for sale is accounted for on a specific identification
basis, and both are reported at the lower of cost or market.
NOTES RECEIVABLE
Notes receivable result from the sale of taxicabs to independent
contractors. The notes bear interest ranging from 15 percent to 17.75 percent
and are due in weekly installments over periods ranging up to 42 months. Notes
receivable and the taxicabs sold under these contracts are assigned as
collateral for related notes payable.
NOTES RECEIVABLE FROM STOCKHOLDER
The Company had notes receivable from former stockholders of the Pooled
Companies. These notes receivable were unsecured, noninterest-bearing and
payable on demand and were repaid in full in connection with the merger with
Coach USA in August 1996.
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. Gains
(losses) on sale of equipment are included in operating expenses.
OTHER ASSETS
Taxicab permits are carried at cost, less accumulated amortization. The
permit costs are amortized using the straight-line method over a period of not
more than 40 years. Annual renewal fees are charged to operations as incurred.
CONCENTRATIONS OF CREDIT RISK
The Company provides services to a broad range of geographical regions.
Four of the Founding Companies operate in the northeast region of the U.S., and
two of the Pooled Companies and one Founding Company operate primarily in the
southwest region of the U.S.
The Company's credit risk primarily consists of receivables from a variety
of customers, including casinos and various other tourism-based companies. In
addition, the Company's accounts and notes receivable include amounts due from
independent taxicab contractors. Management performs ongoing credit evaluations
of its customers and provides allowances as deemed necessary.
The activity in the allowance for doubtful accounts is as follows (in
thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1993............ $ 851 $ 963 $ (885) $ 929
Year ended December 31, 1994............ 929 791 (1,038) 682
Year ended December 31, 1995............ 682 706 (613) 775
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue from recreation, excursion, commuter,
transit and taxicab support services and sales to independent taxicab operators
when such services and sales are performed. The Company recognizes financing
income on notes receivable using the effective
F-12
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest method over the term of the note. Costs associated with the revenues
are incurred and recorded as services and sales are performed.
The Company has a 50 percent interest in a joint venture which provides
various paratransit services to a governmental agency in South Florida. Income
from this joint venture was $168,000, $1,035,000 and $619,000 in 1993, 1994 and
1995, respectively, and is included in revenues in the accompanying financial
statements.
INCOME TAXES
The Company will file 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.
ACCOUNTING POLICY FOR EMPLOYEE STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." SFAS No. 123 encourages
companies to account for stock based compensation awards based on the fair value
of the awards at the date they are granted. The resulting compensation cost
would be shown as an expense in the statement of income. Adoption of the
standard is required for fiscal years beginning after December 15, 1995.
Companies can choose not to apply the new accounting method and continue to
apply current accounting requirements; however, disclosure will be required as
to what net income and earnings per share would have been had the new accounting
method been followed. The Company accounts for its stock-based compensation
under Accounting Principles Board Statement No. 25 "Accounting for Stock Issued
to Employees." Under this accounting method, no compensation expense is
recognized in the consolidated statements of operations if no intrinsic value of
the option exists at the date of grant. While the Company does not intend to
adopt SFAS No. 123 for accounting purposes; it will implement the disclosure
requirements which will include annual pro forma disclosures of its effects
commencing December 31, 1996.
NET INCOME PER SHARE
The computation of net income per share for the years ended December 31,
1993, 1994, 1995 and nine months ended September 1995 includes 2,133,541 shares
issued in connection with the acquisitions of the Pooled Companies.
The computation of net income per share for the nine months ended September
30, 1996 is based upon 9,446,813 weighted average shares outstanding which
includes (a) the 2,133,541 shares discussed above, (b) the weighted average
portion of 2,165,724 shares issued to management prior to the mergers, (c) the
weighted average portion of the 5,099,687 shares issued to the stockholders of
the Founding Companies, (d) the weighted average portion of the 4,140,000 shares
sold in the Initial Public Offering, (e) the weighted average portion of 425,039
shares issued in connection with the conversion of indebtedness to equity at one
of the Pooled Companies and (f) 279,890 shares representing the weighted
F-13
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
average portion of shares for the dilution attributable to outstanding options
to purchase common stock, using the treasury stock method.
In March 1996, the Company authorized 500,000 shares of $.01 par value
preferred stock, none of which has been issued.
3. BUSINESS COMBINATIONS:
The Founding Companies were merged with Coach USA effective June 1, 1996,
for financial reporting purposes. The unaudited data presented below consists of
the income statement data as presented in these consolidated financial
statements combined with the Founding Companies, as if the companies were
combined as of January 1, 1995:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
(IN THOUSANDS)
Revenues............................. $ 161,419 $ 139,085
Income before extraordinary gain..... 9,425 8,430
Income per share before extraordinary
gain................................. .81 .64
POOLINGS
During the third quarter of 1996, the Company acquired all of the
outstanding stock of three companies in exchange for 2,133,541 shares of Common
Stock. Two of these companies provide motorcoach transportation services and one
provides taxicab services. These acquisitions have been accounted for as
poolings-of-interests and the results of operations of these three companies are
included for all periods presented herein.
PURCHASES
On August 29, 1996, the Purchased Companies were acquired which were
accounted for as purchases. These companies provide motor coach transportation
services in the metropolitan areas of Houston, Los Angeles and Las Vegas. The
aggregate consideration paid in these transactions was $14.5 million in cash and
$22.5 million in the form of notes convertible into 750,460 shares of Common
Stock. The accompanying balance sheet as of September 30, 1996 includes
preliminary allocations of the respective purchase prices and is subject to
final adjustment. The preliminary allocations resulted in Goodwill of $28.7
million representing the excess of purchase price over net assets, which is
being amortized over 40 years. The table set forth below further adjusts the
unaudited pro forma revenues and income data above to reflect the effect of
these acquisitions on the Company's results of operations for the year ended
December 31, 1995, and the nine months ended September 30, 1996. The unaudited
data presented below consists of the income statement data as presented above
plus all Purchased Companies as if the acquisitions were effective on the first
day of the year being reported.
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(IN THOUSANDS)
Revenues................................ $197,271 $ 165,105
Income before extraordinary gain........ 10,816 9,337
Income per share before extraordinary
gain.................................. .94 .71
F-14
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma adjustments included in the tables above primarily relate to (a)
owners' compensation differential, (b) adjustment to depreciation and
amortization expense due to the purchase price allocations, (c) elimination or
adjustment of historical interest expense related to certain obligations which
were repaid or refinanced by the Company, (d) elimination of interest on debt
converted to equity of one of the Pooled Companies, and (e) adjustment to the
federal and state income tax provisions based on the combined operations.
The pro forma combined results presented above are not necessarily
indicative of actual results which might have occurred had the operations and
management teams of the Company, the Founding Companies, and the Purchased
Companies been combined at the beginning of the period presented.
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following (in
thousands):
DECEMBER 31
--------------------
1994 1995
--------- ---------
Prepaid insurance....................... $ 961 $ 1,061
Deferred income tax asset, current...... 741 1,283
Other................................... 608 581
--------- ---------
$ 2,310 $ 2,925
========= =========
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
DECEMBER 31
ESTIMATED ----------------------
USEFUL LIVES 1994 1995
-------------- ---------- ----------
(YEARS)
Transportation equipment............. 3-12 $ 24,578 $ 37,346
Building and leasehold
improvements......................... 5-31.5 3,758 3,837
Computer equipment................... 5-7 7,229 7,518
Other................................ 3-33 1,150 1,245
---------- ----------
36,715 49,946
---------- ----------
Less -- Accumulated depreciation..... (16,167) (18,294)
---------- ----------
$ 20,548 $ 31,652
========== ==========
Included in transportation equipment at December 31, 1994 and 1995, are
approximately $8,510,000 and $10,915,000, respectively, of assets held under
capital leases.
F-15
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER ASSETS:
Other assets consist of the following (in thousands):
DECEMBER 31
--------------------
1994 1995
--------- ---------
Taxicab permits, net of accumulated
amortization of $2,034 and
$2,194............................. $ 3,242 $ 4,263
Noncurrent deferred income tax
asset................................ 5,553 4,747
Other, net of accumulated
amortization of $631 and $672........ 239 828
--------- ---------
$ 9,034 $ 9,838
========= =========
Amortization expense related to other assets for the years ended December
31, 1994 and 1995 was $177,000 and $201,000, respectively.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following (in
thousands):
DECEMBER 31
----------------------
1994 1995
---------- ----------
Trade accounts payable............... $ 1,806 $ 2,113
Accrued insurance claims............. 4,249 4,580
Accrued compensation................. 920 1,873
Due to affiliates.................... 472 642
Property and other taxes............. 422 736
Accrued interest payable............. 664 724
Independent contractor deposits...... 453 529
Other................................ 2,504 2,594
---------- ----------
$ 11,490 $ 13,791
========== ==========
F-16
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
Notes payable to banks, interest
ranging from 8.0% to 10.1%, due in
monthly installments of $24,629,
maturing at various dates through
2003; secured by transportation
equipment and personal guarantees
of a stockholder................... $ 375 $ 287
Notes payable to finance companies,
interest ranging from 8.0% to
12.2%, due in monthly installments
of $384,653, maturing at various
dates through 2005; secured by
transportation equipment and
personal guarantees of a
stockholder........................ 7,362 15,960
Obligations under capital leases of
certain transportation equipment,
interest ranging from 7.9% to
15.4%, due in variable monthly
installments of $146,490, maturing
at various dates through 2002,
secured by transportation equipment
and computer equipment............. 6,064 7,364
Revolving credit agreement (credit
line increased to $5,700,000 in
November 1995 from $3,500,000 which
existed at October 28, 1995),
interest at the bank's prime rate
(8.75% at October 28, 1995) plus
1.0%, secured by receivables,
taxicab equipment and other assets
and guaranteed by a stockholder.
The amount outstanding is limited
to a borrowing base based upon a
percentage of trade receivables and
book value of vehicles purchased... 1,242 2,972
Various notes, bearing interest at
rates ranging from prime plus .75%
to 10.75%, due in variable monthly
installments, secured by land,
building, assignment of taxicab
permits and equipment and
guaranteed by a stockholder........ 3,509 4,458
Notes payable to finance companies,
interest ranging from prime plus
1.0% to 10%, maturing from January
1996 to 2000, monthly payments of
$45,000, secured by transportation
equipment.......................... 1,911 1,358
---------- ----------
20,463 32,399
Less -- Current maturities........... (4,237) (5,848)
---------- ----------
$ 16,226 $ 26,551
========== ==========
F-17
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term obligations due to former stockholders of Yellow Cab and ABL
consist of the following (in thousands):
DECEMBER 31
----------------------
1994 1995
---------- ----------
Note payable, interest at rates
ranging from 11.75% to 12.25%,
due 2002, interest payments due
monthly not to exceed $600,000
per year, subordinate to
revolving credit agreement and
notes payable to a bank,
includes excess accrued interest
of $1,330,000 and $1,919,000 at
October 29, 1994, and October
28, 1995, respectively, secured
by substantially all of the
assets of Yellow Cab............ $ 8,612 $ 9,201
Various subordinated notes, each
bearing interest at 3% per annum
through June 30, 1999, 6% per
annum through June 30, 2002, and
9% per annum thereafter, due
2005, includes accrued interest
of $294,000 and $523,000 at
October 29, 1994, and October
28, 1995, respectively, secured
by substantially all of the
assets of Yellow Cab............ 7,637 7,866
Notes payable, interest ranging
from 7.5% to 10%................ 1,153 914
---------- ----------
17,402 17,981
Less -- Current maturities......... 1,153 914
Less -- Accrued interest, current
portion......................... (600) (600)
---------- ----------
$ 15,649 $ 16,467
========== ==========
At December 31, 1995, future principal payments of long-term obligations,
excluding excess accrued interest of $2,442,000, and minimum lease payments
under capital lease obligations are as follows (in thousands):
LONG-TERM CAPITAL LEASE
OBLIGATIONS OBLIGATIONS
------------ -------------
Year ending December 31 --
1996............................ $ 5,418 $ 2,177
1997............................ 4,142 2,063
1998............................ 3,959 1,751
1999............................ 3,948 1,004
2000............................ 3,230 1,911
Thereafter...................... 19,877 1,124
------------ -------------
$ 40,574 10,030
============
Less -- Amounts representing
interest..................... (2,666)
-------------
$ 7,364
=============
Management estimates that the fair value of its debt obligations is
$39,660,000 compared to the historical value of $40,574,000 at December 31,
1995. The estimated fair value was determined by applying an estimated discount
rate to the scheduled cash payments under the obligations.
In connection with the mergers with Coach USA in August 1996, obligations
due to stockholders of $17.2 million were retired in exchange for shares of
Coach USA common stock.
F-18
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The transactions resulted in an extraordinary gain on early extinguishment of
debt of approximately $4.2 million, net of taxes, representing the excess of the
recorded value of the obligations exchanged over the market value of the Coach
USA Common Stock.
REVOLVING CREDIT AGREEMENT
In May 1996, the Company entered into a $30 million revolving credit
agreement with one bank. This credit facility was primarily utilized to
refinance certain indebtedness of the Founding Companies not repaid with
proceeds of the Offering.
In August 1996, the Company amended and restated the $30 million credit
agreement. The credit agreement, as amended, provides for a revolving credit
facility of $115 million through a syndicate of eight banks and allows for an
additional $15 million of debt outside the credit facility. The proceeds of the
facility are to be used for working capital, capital expenditures and
acquisitions, including refinancing of indebtedness related to acquisitions. The
facility is unsecured and matures in August 1999, at which time all amounts then
outstanding become due. Interest on outstanding borrowings is charged, at the
Company's option, at the bank's prime rate plus zero percent to 1.0 percent or
the London Interbank Offered Rate plus 1.0 percent to 2.25 percent, both as
determined by the ratio of the Company's funded debt to cash flow (as defined).
A commitment fee ranging from 0.25 percent to 0.50 percent is payable on the
unused portion of the facility. Under the terms of the credit agreement, the
Company must maintain certain minimum financial ratios. The credit agreement
prohibits the payment of cash dividends. As of November 12, 1996, the Company
had a total of $122.1 million outstanding under the revolving and other outside
credit facilities and had utilized $4.9 million of the facility for letters of
credit securing certain insurance obligations and performance bonds, resulting
in a borrowing availability of $3.0 million.
In September 1996, the Company entered into an interest rate cap agreement
with a bank. The agreement has a term of one year and a notional amount of $50
million. The agreement provides that if the 90 day LIBOR rate exceeds 6.5%, the
bank will pay to the Company the difference between such rate and 6.5%. As of
November 12, the 90 day LIBOR rate was 5.5%. The cost of the agreement is being
amortized over its term.
The Company is presently negotiating with its bank group to amend the
credit facility by increasing the borrowing capacity.
CONVERTIBLE SUBORDINATED DEBT
In August 1996, the Company issued $22.5 million of convertible
subordinated notes (the Notes) to former owners of the Purchased Companies as
partial consideration of the acquisition purchase price. The Notes bear
interest, payable quarterly, at a weighted average interest rate of 5.0 percent
and are convertible by the holder into shares of the Company's Common Stock at a
weighted average price of $29.98 per share. The Notes are redeemable for cash or
the Company's Common Stock at the option of the Company at any time after one
year of issuance. The terms of the Notes require $4.0 million of principal
payments in 1997 and $18.5 million in 1999.
9. INCOME TAXES:
The Company has implemented Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," which provides for a liability
approach to accounting for income taxes.
F-19
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for taxes on income consists of the following (in
thousands):
YEAR ENDED DECEMBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
Current --
Federal............................ $ 53 $ (29) $ 70
State.............................. (104) (18) 41
--------- --------- ---------
(51) (47) 111
--------- --------- ---------
Deferred --
Federal............................ (539) 133 849
State.............................. 39 (14) 80
--------- --------- ---------
(500) 119 929
--------- --------- ---------
$ (551) $ 72 $ 1,040
========= ========= =========
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, accrued insurance claims payable and net operating
loss carryforwards. 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
(in thousands):
DECEMBER 31
----------------------
1994 1995
---------- ----------
Deferred income tax liabilities --
Property and equipment............. $ 1,360 $ 2,777
Other.............................. 491 505
---------- ----------
Total deferred income tax
liabilities................ 1,851 3,282
---------- ----------
Deferred income tax assets --
Accounts receivable/allowance for
doubtful accounts............... (42) (36)
Accrued liabilities/expenses....... (3,070) (3,958)
Net operating losses............... (1,911) (1,657)
Other assets....................... (2,133) (2,074)
General business credit............ (4) (4)
Other.............................. (202) (135)
---------- ----------
Total deferred income tax
assets..................... (7,362) (7,864)
Plus -- Valuation allowance............. 5 5
---------- ----------
Net deferred income tax
assets..................... $ (5,506) $ (4,577)
========== ==========
F-20
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (in thousands):
YEARS ENDED DECEMBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
Tax at statutory rate................... $ 202 $ (30) $ 884
Add (deduct) --
State income taxes........... (42) 5 78
Nondeductible expenses....... 72 70 94
Tax-exempt income............ (770) -- --
Effect of nontaxable income
from personal assets of
stockholder/S
Corporations............... (13) 27 (16)
--------- --------- ---------
$ (551) $ 72 $ 1,040
========= ========= =========
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 at various dates
from 1996 to 2010. 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. In
connection with the acquisition of the Pooled Companies, ownership changes
occurred resulting in various limitations on certain tax attributes of the
Pooled Companies. However, the Company expects full utilization of these tax
attributes prior to their expiration.
10. COMMITMENTS AND CONTINGENCIES:
LETTERS OF CREDIT
The Company is contingently liable for letters of credit totaling $252,000
issued in connection with the Company's long-term service contracts and
insurance policies. These letters of credit require commitment fees ranging from
1 percent to 2 percent paid on an annual basis and are secured by a guarantee of
a stockholder.
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended December 31, 1993, 1994 and 1995, was
$1,137,000, $1,118,000 and $832,000, respectively. The following represents
future minimum rental payments under noncancelable operating leases (in
thousands):
Year ending December 31 --
1996............................ $ 800
1997............................ 800
1998............................ 403
1999............................ 161
2000............................ 117
Thereafter...................... 313
---------
$ 2,594
=========
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,
F-21
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not be material to the Company's financial position or results of
operations.
REGULATORY MATTERS
The Surface Transportation Board ("STB") must approve or exempt any
consolidation or merger of two or more regulated interstate motorcoach operators
or the acquisition of one such operator by another. On November 7, 1996, the STB
granted the Company's petition for exemption in connection with the acquisitions
of the Pooled and Purchased Companies. There can be no assurance that the
Company will be able to obtain such approval or exemption with respect to future
acquisitions.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company has a commercial liability insurance policy that provides
coverage by the insurance company, subject to deductibles ranging from $5,000 to
$250,000. Effective May 17, 1996, for the Founding Companies and August 29,
1996, for the Pooled Companies, the Company began to consolidate its insurance
program under a consolidated program which provides for deductibles ranging from
$100,000 to $250,000. As such, any claim within the deductible per incident
would be the financial obligation of the Company.
The accrued insurance claims payable represent management's estimate of the
Company's potential claims costs in satisfying the deductible provisions of the
insurance policies for claims 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 PLAN
The Pooled Companies maintain 401(k) plans which allow eligible employees
to defer a portion of their income through contributions to the plans. The
Company made no contributions to the plans during 1993 and 1994. The Company
contributed $21,000 to the plans during the year ended December 31, 1995.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements will
expire at various times through September 30, 2000.
COMMITMENTS
The Company has entered into agreements with Exel Motorcoach Partnership
("Exel") whereby Exel will provide introductions to other motorcoach
businesses and other consulting services for a term of three years. The
consideration to be paid to Exel will be approximately $100,000 per year. In
addition, Exel will be paid a commission on any acquisition completed by the
Company with motorcoach businesses introduced to it by Exel, based on a formula
ranging from 5% of the first $1,000,000 of consideration paid for the acquired
business to 1% of the consideration in excess of $4,000,000 paid for such
business. Mr. Paul Verrochi, who became a director of the Company upon
consummation of the Offering, is a principal of Exel. In connection with the
acquisition of ABL, the Company paid Exel a commission of $213,600, based on the
formula outlined above.
In October 1996, the Company filed a registration statement with the SEC
for the registration and sale of 2,000,000 shares of common stock by the Company
and 1,100,000 shares of common stock by certain shareholders.
F-22
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. EXTRAORDINARY GAIN
The extraordinary gain in 1993 relates to a gain of $2,200,000 on early
extinguishment of debt owed to a shareholder of a Pooled Company. This gain was
offset by a settlement of litigation attributed to a service line previously
terminated by a Pooled Company.
F-23
<PAGE>
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 May 31, 1996, 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, and for the five months ended May 31, 1996.
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 May
31, 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, and for the five months
ended May 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
F-24
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
---------------------- MAY 31
1994 1995 1996
---------- ---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 2,226 $ 1,861 $ 286
Accounts receivable, less
allowance of $50............. 1,372 952 1,298
Notes receivable from
stockholders................. 655 652 --
Inventories..................... 720 796 639
Investments -- restricted....... 362 365 110
Prepaid expenses and other
current assets............... 919 577 442
---------- ---------- ----------
Total current assets...... 6,254 5,203 2,775
PROPERTY AND EQUIPMENT, net.......... 8,759 10,826 12,550
OTHER ASSETS......................... 83 62 53
---------- ---------- ----------
Total assets.............. $ 15,096 $ 16,091 $ 15,378
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 914 $ 1,217 $ --
Accounts payable and accrued
liabilities.................. 4,354 4,067 3,547
---------- ---------- ----------
Total current
liabilities............... 5,268 5,284 3,547
LONG-TERM OBLIGATIONS, net of current
maturities......................... 2,944 3,850 --
DUE TO PARENT........................ -- -- 5,365
DEFERRED INCOME TAXES................ 2,084 2,055 2,046
---------- ---------- ----------
Total liabilities......... 10,296 11,189 10,958
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 4,347
---------- ---------- ----------
Total stockholders'
equity.................. 4,800 4,902 4,420
---------- ---------- ----------
Total liabilities and
stockholders' equity.... $ 15,096 $ 16,091 $ 15,378
========== ========== ==========
The accompanying notes are an integral part of these combined financial
statements.
F-25
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
---------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
---------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 32,274 $ 30,427 $ 29,752 $13,742 $11,520
OPERATING EXPENSES................... 28,903 27,526 25,322 12,038 10,648
---------- ---------- ---------- ----------- -----------
Gross profit.............. 3,371 2,901 4,430 1,704 872
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,417 2,283 2,563 1,333 1,052
---------- ---------- ---------- ----------- -----------
Operating income (loss)... 954 618 1,867 371 (180)
OTHER (INCOME) EXPENSE:
Interest expense................ 227 282 432 205 197
Interest income................. (33) (39) (114) (57) (39)
Other, net...................... (19) (96) (105) -- --
---------- ---------- ---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 779 471 1,654 223 (338)
PROVISION FOR INCOME TAXES........... 259 128 423 47 --
---------- ---------- ---------- ----------- -----------
NET INCOME (LOSS).................... $ 520 $ 343 $ 1,231 $ 176 $ (338)
========== ========== ========== =========== ===========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 520 $ 343 $ 1,231 $ 176 (338)
Pro forma compensation
differential................. 569 597 902 336 140
Less: Pro forma provision for
income taxes................. 294 282 621 182 (83)
---------- ---------- ---------- ----------- -----------
PRO FORMA NET INCOME (LOSS).......... $ 795 $ 658 $ 1,512 $ 330 $ (115)
========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-26
<PAGE>
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
Dividends paid.................. -- -- (81) (81)
Distribution to Stockholders.... -- -- (63) (63)
Net loss........................ -- -- (338) (338)
------ ------ -------- -------------
BALANCE AT MAY 31, 1996.............. 549 $ 73 $ 4,347 $ 4,420
====== ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-27
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
---------------------------------- JUNE 30 MAY 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 $ 176 $ (338)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation.............. 848 893 878 395 396
Gain on sale of assets.... -- (96) (105) -- --
Deferred tax provision.... 157 -- 303 81 --
Changes in operating
assets and
liabilities --
Accounts receivable,
net..................... (13) (387) 420 312 (346)
Inventories............. (75) (77) (76) (60) 157
Prepaid expenses and
other current
assets............... (410) 301 36 150 135
Accounts payable and
accrued
liabilities.......... 354 349 (291) 840 (520)
Other................... 21 20 2 17 652
---------- ---------- ---------- ------------ -----------
Net cash provided
by operating
activities..... 1,402 1,346 2,398 1,911 136
---------- ---------- ---------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment.................... (1,074) (1,748) (3,199) (2,646) (2,183)
Proceeds from sales of property
and equipment................ -- 875 359 (1) --
Sales (Purchases) of investments
-- restricted................ -- (252) (3) -- 255
---------- ---------- ---------- ------------ -----------
Net cash used in
investing
activities..... (1,074) (1,125) (2,843) (2,647) (1,928)
---------- ---------- ---------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (1,196) (1,819) (3,037) (2,897) (6,719)
Proceeds from issuance of
long-term obligations........ 1,390 1,670 4,246 3,858 1,652
Advances from Parent............ -- -- -- -- 5,365
Dividends paid.................. (455) (305) (1,129) -- (81)
---------- ---------- ---------- ------------ -----------
Net cash provided
by (used in)
financing
activities..... (261) (454) 80 961 217
---------- ---------- ---------- ------------ -----------
NET INCREASE (DECREASE) IN CASH...... 67 (233) (365) 225 (1,575)
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 $ 2,451 $ 286
========== ========== ========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 201 $ 307 $ 232 $ 131 $ 154
Cash paid for income taxes...... 58 160 114 27 153
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-28
<PAGE>
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 merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. 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. 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 $63,000 (unaudited). The Company's financial
position and results of operations are consolidated with Coach USA effective
June 1, 1996 for financial reporting purposes.
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 financial statements for the six months ended June 30, 1995 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 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 ended June 30, 1995 and May 31, 1996, 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 as
of December 31, 1994 and 1995, and May 31, 1996, of $112,000, $115,000 and
$110,000, respectively, which are restricted as to withdrawal related to the
Company's accrued insurance claims payable.
F-29
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED 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 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.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES ---------------------- MAY 31
(YEARS) 1994 1995 1996
-------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment............. 5-12 $ 15,683 $ 17,354 $ 19,470
Other................................ 5-10 1,007 1,061 926
---------- ---------- ----------
16,690 18,415 20,396
Less -- Accumulated depreciation..... (7,931) (7,589) (7,846)
---------- ---------- ----------
$ 8,759 $ 10,826 $ 12,550
========== ========== ==========
</TABLE>
F-30
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
--------------------- MAY 31
1994 1995 1995
--------- ---------- ----------
(IN THOUSANDS)
Notes payable to a bank.............. $ 3,858 $ 5,067 $ --
--------- ---------- ----------
3,858 5,067 --
Less -- Current maturities........... (914) (1,217) --
--------- ---------- ----------
$ 2,944 $ 3,850 $ --
========= ========== ==========
DUE TO PARENT
During May 1996, the Company borrowed $5,365,000 from Coach USA at an
annual interest rate of 10 percent in order to repay long-term obligations and
for other financing activities. These borrowings are considered long-term as
Coach USA does not intend to call the outstanding balance owed by the Company
during the next twelve months.
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 FIVE MONTHS
------------------------------- ENDED MAY 31,
1993 1994 1995 1996
--------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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 $ --
========= ========= ========= =============
</TABLE>
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-31
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax liabilities and assets are as
follows:
DECEMBER 31
---------------------- MAY 31
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 2,084 $ 2,055 $ 2,065
Other........................... 95 124 56
---------- ---------- ----------
Total deferred income tax
liabilities............. 2,179 2,179 2,121
---------- ---------- ----------
Deferred income tax assets --
Accrued expenses................ (605) (318) (153)
General business credits........ (859) (859) (859)
Other........................... (54) (38) (145)
---------- ---------- ----------
Gross deferred income tax
assets.................. (1,518) (1,215) (1,157)
Less valuation
allowance............... 859 859 859
---------- ---------- ----------
Net deferred income tax
assets.................. (659) (356) (298)
---------- ---------- ----------
$ 1,520 $ 1,823 $ 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
------------------------------- MAY 31
1993 1994 1995 1996
--------- --------- --------- -------
(IN THOUSANDS)
Tax at statutory rate................ $ 273 $ 165 $ 579 $ (118)
Add (deduct) --
State income taxes........ 98 28 96 1
Effect of S Corporation
income.................. (108) (39) (252) (82)
Other, net................ (4) (26) -- 199
--------- --------- --------- -------
$ 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
contract was renewed effective July 1, 1996. Revenues from the shuttle and
charter operations totaled approximately $3,000,000, $3,400,000, $3,500,000, and
$1,757,000 and for the years ended December 31, 1993, 1994 and 1995, and for the
five months ended May 31, 1996, respectively.
F-32
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended December 31, 1993, 1994 and 1995 and
five months ended May 31, 1996, was $830,000, $1,076,000, $856,000 and $376,000,
respectively. Included in these amounts are rent expenses for the five months
ended May 31, 1996 of $142,500 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............................ $ 221
1997............................ 363
1998............................ 352
1999............................ 376
2000............................ 376
Thereafter...................... 15,142
----------
$ 16,830
==========
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
F-33
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
first $100,000 per incident would be the financial obligation of the Company.
The Company is contingently liable for a letter of credit of $110,000 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 May 31, 1996. 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, $120,000 and $50,000 in
1993, 1994, 1995 and in the five months ended May 31, 1996, 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
-------------------- MAY 31
1994 1995 1996
--------- --------- ------
(IN THOUSANDS)
Prepaid insurance......... $ 239 $ 139 $--
Deferred tax
asset -- current.......... 610 304 304
Other..................... 70 134 138
--------- --------- ------
$ 919 $ 577 $ 442
========= ========= ======
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. These loans were repaid during 1996.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ------
(IN THOUSANDS)
Trade accounts payable.... $ 1,203 $ 922 $ 725
Accrued compensation and
benefits.................. 940 587 645
Accrued insurance claims
payable................... 1,069 1,314 1,153
Other..................... 1,142 1,244 1,024
--------- --------- ------
$ 4,354 $ 4,067 $3,547
========= ========= ======
F-34
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-35
<PAGE>
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 May 31, 1996, 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, and for the seven months ended May 31, 1996.
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
May 31, 1996, and the results of their operations and their cash flows for each
of the three years in the period ended October 31, 1995, and for the seven
months ended May 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
F-36
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 31
---------------------- MAY 31
1994 1995 1996
---------- ---------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 261 $ 401 $ 706
Accounts receivable, less
allowance of $150............ 2,055 2,367 1,654
Notes receivable from
stockholder.................. 225 229 347
Inventories..................... 422 474 458
Investments -- restricted....... 506 759 765
Prepaid expenses and other
current assets............... 1,187 1,001 1,038
---------- ---------- -------
Total current assets...... 4,656 5,231 4,968
PROPERTY AND EQUIPMENT, net.......... 8,282 7,668 7,531
OTHER ASSETS......................... 557 365 255
---------- ---------- -------
Total assets.............. $ 13,495 $ 13,264 $12,754
========== ========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,140 $ 1,358 $ 983
Accounts payable and accrued
liabilities.................. 2,355 2,260 1,913
Note payable to stockholder..... 256 -- --
---------- ---------- -------
Total current
liabilities............... 3,751 3,618 2,896
LONG-TERM OBLIGATIONS, net of current
maturities......................... 4,504 3,281 1,297
DUE TO PARENT........................ -- -- 2,709
DEFERRED INCOME TAXES................ 1,132 1,183 1,187
---------- ---------- -------
Total liabilities......... 9,387 8,082 8,089
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) (1,864)
---------- ---------- -------
Total stockholders'
equity.................. 4,108 5,182 4,665
---------- ---------- -------
Total liabilities and
stockholders' equity.... $ 13,495 $ 13,264 $12,754
========== ========== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS SIX MONTHS FIVE MONTHS
YEAR ENDED OCTOBER 31 ENDED ENDED ENDED
---------------------------------- MAY 31, JUNE 30, MAY 31,
1993 1994 1995 1996 1995 1996
---------- ---------- ---------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 22,122 $ 24,487 $ 29,235 $ 14,658 $12,811 $10,881
OPERATING EXPENSES................... 16,590 18,990 22,627 12,530 10,225 9,021
---------- ---------- ---------- ------------ ----------- -----------
Gross profit.............. 5,532 5,497 6,608 2,128 2,586 1,860
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 4,129 3,794 4,722 2,764 2,307 1,861
---------- ---------- ---------- ------------ ----------- -----------
Operating income (loss)... 1,403 1,703 1,886 (636) 279 (1)
OTHER (INCOME) EXPENSE:
Interest expense................ 404 441 583 276 311 227
Interest income................. (43) (39) (24) (22) (9) (17)
Other, net...................... (133) (79) (129) (79) -- --
---------- ---------- ---------- ------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 1,175 1,380 1,456 (811) (23) (211)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 503 456 382 (294) (26) (55)
---------- ---------- ---------- ------------ ----------- -----------
NET INCOME (LOSS).................... $ 672 $ 924 $ 1,074 $ (517) $ 3 $ (156)
========== ========== ========== ============ =========== ===========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 672 $ 924 $ 1,074 $ (517) $ 3 $ (156)
Pro forma compensation
differential................. 107 119 373 277 178 176
Less: Pro forma provision
(benefit) for income taxes... 44 176 362 (25) 87 40
---------- ---------- ---------- ------------ ----------- -----------
PRO FORMA NET INCOME (LOSS).......... $ 735 $ 867 $ 1,085 $ (215) $ 94 $ (20)
========== ========== ========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-38
<PAGE>
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 EARNINGS 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........................ -- -- (517) (517)
------------ ------ --------- -------------
BALANCE AT MAY 31, 1996.............. 4,358,879 $6,529 $ 1,864 $ 4,665
============ ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-39
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS SIX MONTHS FIVE MONTHS
YEAR ENDED OCTOBER 31 ENDED ENDED ENDED
------------------------------- MAY 31 JUNE 30 MAY 31
1993 1994 1995 1996 1995 1996
--------- --------- --------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 672 $ 924 $ 1,074 $ (517) $ 3 $ (156)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation............... 833 806 878 525 434 373
Gain on sale of assets..... (3) (65) (80) -- -- --
Deferred tax provision
(benefit)................ 362 346 295 (247) (8) 230
Changes in operating assets
and liabilities --
Accounts receivable,
net................... (401) (486) (312) 595 (1,003) 7
Inventories.............. (28) 123 (52) 16 (68) 7
Prepaid expenses and
other current
assets................ 90 (421) 225 (43) 565 (159)
Accounts payable and
accrued liabilities... (151) 480 (351) (53) 682 (39)
Other.................... 64 19 (95) 67 (38) (239)
--------- --------- --------- ------------ ------------ -----------
Net cash provided by
operating
activities....... 1,438 1,726 1,582 343 567 24
--------- --------- --------- ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (377) (1,617) (355) (388) (198) (363)
Proceeds from sales of property
and equipment................. -- 87 171 -- -- --
Purchases of
investments -- restricted..... -- -- (253) -- (254)
Proceeds from sales of
investments -- restricted..... -- 69 -- -- -- --
--------- --------- --------- ------------ ------------ -----------
Net cash used in
investing
activities....... (377) (1,461) (437) (388) (452) (363)
--------- --------- --------- ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations................... (1,310) (1,131) (3,812) (3,059) (2,978) (2,487)
Proceeds from issuance of
long-term obligations......... 137 862 2,807 700 2,807 700
Advances from parent............ -- -- -- 2,709 -- 2,709
--------- --------- --------- ------------ ------------ -----------
Net cash provided by
(used in)
financing
activities....... (1,173) (269) (1,005) 350 (171) 922
--------- --------- --------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH...... (112) (4) 140 305 (56) 583
CASH AND CASH EQUIVALENTS, beginning
of year............................ 377 265 261 401 115 123
--------- --------- --------- ------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 265 $ 261 $ 401 $ 706 $ 59 $ 706
========= ========= ========= ============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 379 $ 413 $ 524 $ 296 $ 296 $ 283
Cash paid for income taxes...... 142 124 71 51 25 51
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
<PAGE>
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 merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. 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's financial position and results of operations are
consolidated with Coach USA effective June 1, 1996 for financial reporting
purposes.
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 financial statements for the six months ended June 30, 1995 and
the five months ended May 31, 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 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 ended June 30, 1995
and May 31, 1996 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, and at May 31, 1996,
are certificates of deposit of $506,000 and $759,000, and $756,000 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-41
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES ---------------------- MAY 31
(YEARS) 1994 1995 1996
------------ ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment................... 5-12 $ 10,003 $ 9,940 $ 9,975
Other...................................... 5-10 3,094 3,193 3,179
---------- ---------- -------
13,097 13,133 13,154
Less -- Accumulated depreciation........... (4,815) (5,465) (5,623)
---------- ---------- -------
$ 8,282 $ 7,668 $ 7,531
========== ========== =======
</TABLE>
Included in transportation equipment at October 31, 1994 and 1995, and May
31, 1996 are approximately $1,151,000, $1,180,000, and $1,032,000, respectively,
of assets held under capital leases.
F-42
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
OCTOBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ------
(IN THOUSANDS)
Obligations under capital leases of
certain transportation equipment,
and computer equipment, implicit
interest rates ranging from 6% to
10%, due in monthly installments of
$61,372, maturing at various dates
through 1998....................... $ 1,058 $ 790 $1,375
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....................... 1,552 300 300
Other................................ 3,034 3,249 605
--------- -------- ------
5,644 4,639 2,280
Less -- Current maturities........... (1,140) (1,358) (983)
--------- -------- ------
$ 4,504 $ 3,281 $1,297
========= ======== ======
At May 31, 1996, future principal payments of long-term obligations and
minimum lease payments under capital lease obligations are as follows:
LONG-TERM CAPITAL LEASE
DEBT OBLIGATIONS
--------- -------------
(IN THOUSANDS)
Year ending October 31 --
1996......................... $ 300 $ 452
1997......................... -- 720
1998......................... -- 330
1999......................... 605 88
2000......................... -- 50
Thereafter................... -- 25
--------- -------------
$ 905 1,665
=========
Less -- Amounts representing
interest........................ (290)
-------------
$ 1,375
=============
Management estimates that the fair value of its debt obligations
approximates the historical value of $905,000 at May 31, 1996.
DUE TO PARENT
During May 1996, the Company borrowed $2,709,000 from Coach USA in order to
repay long-term obligations and for other financing activities. These borrowings
are considered long-term as Coach USA does not intend to call the outstanding
balance owed by the Company during the next twelve months.
F-43
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 SEVEN MONTHS
------------------------------- ENDED
1993 1994 1995 MAY 31, 1996
--------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current --
Federal......................... $ 20 $ 13 $ 15 $--
State........................... 121 97 72 --
--------- --------- --------- ------------
141 110 87 --
--------- --------- --------- ------------
Deferred --
Federal......................... 368 338 291 (247)
State........................... (6) 8 4 (47)
--------- --------- --------- ------------
362 346 295 (294)
--------- --------- --------- ------------
$ 503 $ 456 $ 382 $ (294)
========= ========= ========= ============
</TABLE>
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:
OCTOBER 31
-------------------- MAY 31,
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 1,132 $ 1,183 $ 1,187
--------- --------- -------
Total deferred income tax
liabilities............. 1,132 1,183 1,187
--------- --------- -------
Deferred income tax assets --
Accrued expenses................ (74) (179) (197)
General business credits........ (51) (45) (45)
Net operating losses............ (672) (338) (620)
Other........................... (109) (94) (92)
--------- --------- -------
Gross deferred income tax
assets.................. (906) (656) (954)
Less valuation
allowance............... 51 45 45
--------- --------- -------
Net deferred income tax
assets.................. (855) (611) 909
--------- --------- -------
$ 277 $ 572 $ 278
========= ========= =======
F-44
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 SEVEN MONTHS
------------------------------- ENDED MAY 31,
1993 1994 1995 1996
--------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax at statutory rate................ $ 411 $ 483 $ 510 $ (284)
Add (deduct) --
State income taxes........ 74 69 58 (47)
Nondeductible expenses.... 18 13 13 10
Effect of nontaxable
income from personal
assets (transportation
equipment) of
stockholder............. -- (109) (199) 27
--------- --------- --------- -------------
$ 503 $ 456 $ 382 $ (294)
========= ========= ========= =============
</TABLE>
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.
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, $7,320,880 for the years ended October 31, 1993,
1994 and 1995, and for seven months ended May 31, 1996, 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 and
for the seven months ended May 31, 1996, was $862,000, $868,000 and $1,019,000,
$566,000, respectively. The following
F-45
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
represents future minimum rental payments under noncancelable operating leases
(in thousands):
Year ending October 31 --
1996............................ $ 337
1997............................ 686
1998............................ 616
1999............................ 565
2000............................ 531
Thereafter...................... 989
---------
$ 3,724
=========
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided for certain of these
actions in the accompanying consolidated financial statements. In the opinion of
management, uninsured losses, if any, resulting from the ultimate resolution of
these matters will not be material to the Company's financial position or
results of operations.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company had a commercial motorcoach liability insurance policy that
provided 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 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 May 31, 1996. 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 $23,000,
$26,000 and $27,000 and $18,000 in 1993, 1994, and 1995, and for the seven
months ended May 31, 1996, 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.
F-46
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
OCTOBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Prepaid insurance.................... $ 196 $ 216 $ --
Deferred tax asset -- current........ 476 515 668
Other................................ 515 270 370
--------- --------- ---------
$ 1,187 $ 1,001 $ 1,038
========= ========= =========
NOTES RECEIVABLE FROM STOCKHOLDER
The Company had receivables from certain stockholders totaling $225,000 and
$229,000 and $290,000 at December 31, 1994 and 1995, and May 31, 1996,
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
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Trade accounts payable............... $ 1,175 $ 828 $ 705
Accrued compensation and benefits.... 680 769 518
Accrued insurance claims payable..... 136 170 170
Other................................ 364 493 520
--------- --------- ---------
$ 2,355 $ 2,260 $ 1,913
========= ========= =========
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.
F-47
<PAGE>
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 May 31, 1996, and
the related statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995 and for the five months
ended May 31, 1996. 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 May 31, 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995 and for the five months ended May 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
F-48
<PAGE>
LEISURE TIME TOURS
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
---------------------- MAY 31
1994 1995 1996
---------- ---------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 2,222 $ 1,315 $ 368
Accounts receivable, less
allowance of $62, $37 and
$37.......................... 462 579 652
Inventories..................... 237 234 234
Investments, including
restricted of $300 and
$300......................... 606 885 544
Prepaid expenses and other
current assets............... 973 1,055 877
---------- ---------- -----------
Total current assets...... 4,500 4,068 2,675
PROPERTY AND EQUIPMENT, net.......... 11,182 13,479 14,451
OTHER ASSETS......................... 42 90 54
---------- ---------- -----------
Total assets.............. $ 15,724 $ 17,637 $17,180
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,009 $ 1,334 $ 40
Accounts payable and accrued
liabilities.................. 5,095 5,271 6,103
---------- ---------- -----------
Total current
liabilities............... 6,104 6,605 6,143
LONG-TERM OBLIGATIONS, net of current
maturities......................... 2,289 2,999 42
DUE TO PARENT........................ -- -- 8,637
DEFERRED INCOME TAXES................ 554 558 570
---------- ---------- -----------
Total liabilities......... 8,947 10,162 15,392
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 1,786
---------- ---------- -----------
Total stockholders'
equity.................. 6,777 7,475 1,788
---------- ---------- -----------
Total liabilities and
stockholders' equity.... $ 15,724 $ 17,637 $17,180
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
LEISURE TIME TOURS
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
---------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
---------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 17,534 $ 17,694 $ 18,992 $ 8,949 $ 8,220
OPERATING EXPENSES................... 15,497 14,139 14,577 7,191 6,419
---------- ---------- ---------- ----------- -----------
Gross profit.............. 2,037 3,555 4,415 1,758 1,801
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,128 1,934 1,895 893 828
---------- ---------- ---------- ----------- -----------
Operating income (loss)... (91) 1,621 2,520 865 973
OTHER (INCOME) EXPENSE:
Interest expense................ 380 317 339 154 208
Interest income................. (41) (71) (104) (40) (26)
Other, net...................... (26) (62) (103) -- --
---------- ---------- ---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... (404) 1,437 2,388 751 791
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. (32) 139 225 71 66
---------- ---------- ---------- ----------- -----------
NET INCOME (LOSS).................... $ (372) $ 1,298 $ 2,163 $ 680 $ 725
========== ========== ========== =========== ===========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ (372) $ 1,298 $ 2,163 $ 680 $ 725
Pro forma compensation
differential................. 203 211 309 100 60
Less: Pro forma provision
(benefit) for income taxes... (42) 546 895 295 291
---------- ---------- ---------- ----------- -----------
PRO FORMA NET INCOME (LOSS).......... $ (127) $ 963 $ 1,577 $ 485 $ 494
========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
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.................. -- -- (4,391) (4,391)
Distribution to stockholders.... -- -- (2,021) (2,021)
Net income...................... -- -- 725 725
------ ------ --------- -------------
BALANCE AT MAY 31, 1996.............. 16 2/3 $ 2 $ 1,786 $ 1,788
====== ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
LEISURE TIME TOURS
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
--------------------------------- JUNE 30 MAY 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 $ 680 $ 725
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation.............. 1,451 1,164 1,053 492 377
(Gain) loss on sale of
assets.................. 60 (62) 44 46 --
Net gain on sale of
investments............. (33) (17) (153) (54) (61)
Deferred tax provision
(benefit)............... (49) (56) 60 (17) (67)
Changes in operating
assets and
liabilities --
Accounts receivable,
net.................. 186 (171) (117) (38) (73)
Inventories............. 61 99 3 9 --
Investments............. (124) (132) (126) (234) --
Prepaid expenses and
other current
assets............... (35) (146) (156) (111) 178
Accounts payable and
accrued liabilities.. 376 643 194 147 832
Other................... (12) 74 (48) (14) 15
---------- --------- ---------- ----------- -----------
Net cash provided
by operating
activities..... 1,509 2,694 2,917 906 1,926
---------- --------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment.................... (911) (94) (5,625) (2,264) (1,810)
Proceeds from sales of property
and equipment................ 170 99 2,231 1,033 492
---------- --------- ---------- ----------- -----------
Net cash provided
by (used in)
investing
activities..... (741) 5 (3,394) (1,231) (1,318)
---------- --------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (1,759) (990) (1,065) (275) (9,378)
Proceeds from issuance of
long-term obligations........ 422 500 2,100 744 3,371
Advances from parent............ -- -- -- -- 8,843
Dividends paid.................. (246) (175) (1,465) (1,240) (4,391)
---------- --------- ---------- ----------- -----------
Net cash provided
by (used in)
financing
activities..... (1,583) (665) (430) (771) (1,555)
---------- --------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH...... (815) 2,034 (907) (1,096) (947)
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 $ 1,126 $ 368
========== ========= ========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 372 $ 310 $ 318 $ 136 $ 192
Cash paid for income taxes...... 100 1 364 193 89
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
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 merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. 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's financial position and results of operations are
consolidated with Coach USA effective June 1, 1996 for financial reporting
purposes.
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 $2,021,000. In addition, the Company made a cash
distribution of $3,218,000 prior to the Merger which represents the Company's
estimated S Corporation accumulated adjustment account.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements for the six months ended June 30, 1995 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 results of operations and cash flows with respect to the
consolidated interim financial statements, have been included. The results of
operations for the interim period ended May 31, 1996 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, and May 31, 1996, 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 and May 31, 1996
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, $78,000 and $58,000 are
included in net income for the years ended December 31, 1993, 1994 and 1995 and
the five months ended May 31, 1996, respectively.
F-53
<PAGE>
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Included in investments at December 31, 1994 and 1995 and May 31, 1996, 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.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES ---------------------- MAY 31
(YEARS) 1994 1995 1996
-------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment............. 12 $ 18,672 $ 19,107 $ 21,389
Other................................ 3-25 3,214 3,221 411
---------- ---------- ----------
21,886 22,328 21,800
Less -- Accumulated depreciation..... (10,704) (8,849) (7,349)
---------- ---------- ----------
$ 11,182 $ 13,479 $ 14,451
========== ========== ==========
</TABLE>
F-54
<PAGE>
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
---------------------- MAY 31
1994 1995 1996
---------- ---------- -------
(IN THOUSANDS)
Notes payable to a bank.............. $ 3,178 $ 4,251 $--
Other................................ 120 82 82
---------- ---------- -------
3,298 4,333 82
Less -- Current maturities........... (1,009) (1,334) (40)
---------- ---------- -------
$ 2,289 $ 2,999 $ 42
========== ========== =======
At May 31, 1996, future principal payments of long-term obligations are as
follows (in thousands):
Year ending December 31 --
1996......................... $ 40
1997......................... 42
Thereafter................... --
---------
$ 82
=========
Management estimates that the fair value of its debt obligations
approximates the historical value of $82,000 at May 31, 1996.
DUE TO PARENT
During May 1996, the Company borrowed $8,843,000 from Coach USA at an
annual interest rate of 10 percent in order to repay long-term obligations and
for other financing activities. These borrowings are considered long-term as
Coach USA does not intend to call the outstanding balance owed by the Company
during the next twelve months.
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:
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED
------------------------------- MAY 31
1993 1994 1995 1996
--------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
State --
Current......................... $ 17 $ 195 $ 165 $ 133
Deferred........................ (49) (56) 60 (67)
--------- --------- --------- -----------
$ (32) $ 139 $ 225 $ 66
========= ========= ========= ===========
</TABLE>
F-55
<PAGE>
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 554 $ 558 $ 570
Other........................... 24 6 65
--------- --------- -------
Total deferred income tax
liabilities............. 578 564 635
--------- --------- -------
Deferred income tax assets --
Accrued expenses................ (331) (257) (398)
Other........................... (6) (6) (3)
--------- --------- -------
Total deferred income tax
assets.................. (337) (263) (401)
--------- --------- -------
$ 241 $ 301 $ 234
========= ========= =======
6. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases facilities and equipment under cancelable and
noncancelable lease agreements. Rental expense for the years ended December 31,
1993, 1994 and 1995 and for the five months ended May 31, 1996 was $71,000,
$79,000, $60,000 and $13,000, respectively. 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. The
term of the leases is May 1996 through May 2001 and provides for a 5 percent
escalation in rent expense each year. The following represents future minimum
rental payments under noncancelable operating leases (in thousands):
Year ending December 31 --
1996............................ $ 55
1997............................ 91
1998............................ 92
1999............................ 89
2000............................ 93
Thereafter...................... 32
---------
$ 452
=========
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
F-56
<PAGE>
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 May 31, 1996. 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 and $7,000 in 1993, 1994 and 1995, and five months ended May
31, 1996, 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
The Company had net amounts due to affiliated companies of $27,000, $30,000
and $7,000, at December 31, 1994 and 1995, and May 31, 1996, respectively,
attributed primarily to services for purchased transportation and motorcoach
maintenance. These amounts are 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
F-57
<PAGE>
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 into the
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
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Prepaid insurance.................... $ 444 $ 703 $ 454
Deferred tax asset -- current........ 337 263 263
Other................................ 192 89 160
--------- --------- -------
$ 973 $ 1,055 $ 877
========= ========= =======
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Trade accounts payable............... $ 997 $ 887 $ 1,595
Accrued compensation and benefits.... 273 268 260
Accrued insurance claims payable..... 3,159 3,624 3,773
Other................................ 666 492 475
--------- --------- -------
$ 5,095 $ 5,271 $ 6,103
========= ========= =======
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.
F-58
<PAGE>
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 May 31, 1996, 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, and for the five months ended May 31, 1996. 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
May 31, 1996, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, and for the five
months ended May 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
F-59
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 269 $ 209 $ 278
Accounts receivable, less
allowance of $10............. 183 183 208
Inventories..................... 257 307 289
Investments, including
restricted of $528, $580
and $0....................... 1,059 1,046 --
Prepaid expenses and other
current assets............... 766 1,022 443
--------- --------- -----------
Total current assets...... 2,534 2,767 1,218
PROPERTY AND EQUIPMENT, net.......... 2,590 3,241 3,488
OTHER ASSETS......................... 182 137 160
--------- --------- -----------
Total assets.............. $ 5,306 $ 6,145 $ 4,866
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 315 $ 497 $--
Accounts payable and accrued
liabilities.................. 2,485 2,953 2,524
Notes payable to stockholder.... 132 171 --
--------- --------- -----------
Total current
liabilities............... 2,932 3,621 2,524
LONG-TERM OBLIGATIONS, net of current
maturities...................... 784 1,191 --
DUE TO PARENT........................ -- -- 2,014
--------- --------- -----------
Total liabilities......... 3,716 4,812 4,538
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 1,580 575
Treasury stock, at cost......... (424) (424) (424)
--------- --------- -----------
Total stockholders'
equity.................. 1,590 1,333 328
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 5,306 $ 6,145 $ 4,866
========= ========= ===========
The accompanying notes are an integral part of these combined financial
statements.
F-60
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
---------------------------------- JUNE 30, MAY 31,
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 13,179 $ 14,106 $ 13,807 $6,598 $ 5,466
OPERATING EXPENSES................... 11,057 12,228 11,680 5,644 4,687
---------- ---------- ---------- ---------- -----------
Gross profit.............. 2,122 1,878 2,127 954 779
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,760 1,999 2,193 1,063 668
---------- ---------- ---------- ---------- -----------
Operating income (loss)... 362 (121) (66) (109) 111
OTHER (INCOME) EXPENSE:
Interest expense................ 264 228 262 143 83
Interest income................. (34) (38) (49) (12) (13)
Other, net...................... 28 49 (40) -- --
---------- ---------- ---------- ---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 104 (360) (239) (240) 41
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 1 (98) (177) (89) 17
---------- ---------- ---------- ---------- -----------
NET INCOME (LOSS).................... $ 103 $ (262) $ (62) $ (151) $ 24
========== ========== ========== ========== ===========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 103 $ (262) $ (62) $ (151) $ 24
Pro forma compensation differential.. 818 1,015 1,449 585 143
Less: Pro forma provision for
income taxes................. 383 338 669 225 60
---------- ---------- ---------- ---------- -----------
PRO FORMA NET INCOME................. $ 538 $ 415 $ 718 $ 209 $ 107
========== ========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-61
<PAGE>
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.................. -- -- -- -- (655) (655)
Distributions to stockholders... -- -- -- -- (374) (374)
Net income...................... -- -- -- -- 24 24
------ ------ ---------- -------- -------- -------------
BALANCE AT MAY 31, 1996.............. 3,600 $ 75 $ 102 $ (424) $ 575 $ 328
====== ====== ========== ======== ======== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-62
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
--------- --------- --------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ 103 $ (262) $ (62) $ (151) $ 24
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Depreciation................................ 365 349 350 171 143
(Gain) loss on sale of assets............... -- 15 (4) (4) (65)
Deferred tax provision (benefit)............ (3) (114) (204) (92) 9
Changes in operating assets and
liabilities --
Accounts receivable, net.................. (36) (25) -- (137) (25)
Inventories............................... (41) (48) (50) (16) 18
Investments............................... -- 132 65 -- 466
Prepaid expenses and other current
assets................................. (693) 404 (48) 361 236
Accounts payable and accrued
liabilities............................ 68 410 507 60 (429)
Other..................................... 158 74 41 8 (265)
--------- --------- --------- ------------ -----------
Net cash provided by (used in)
operating activities.............. (79) 935 595 200 112
--------- --------- --------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. -- (436) (1,001) (994) (571)
Proceeds from sales of property and equipment.... -- 10 4 4 277
Purchases of investments -- restricted........... -- (19) (52) (46) 580
--------- --------- --------- ------------ -----------
Net cash provided by (used in)
investing activities.............. -- (445) (1,049) (1,036) 286
--------- --------- --------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations...... (910) (804) (459) (93) (2,424)
Proceeds from issuance of long-term
obligations.................................... 700 558 1,048 1,048 736
Advances from Parent............................. -- -- -- -- 2,014
Dividends paid................................... -- (105) (195) (195) (655)
--------- --------- --------- ------------ -----------
Net cash provided by (used in)
financing activities.............. (210) (351) 394 760 (329)
--------- --------- --------- ------------ -----------
NET INCREASE (DECREASE) IN CASH....................... (289) 139 (60) (76) 69
CASH AND CASH EQUIVALENTS, beginning of year.......... 419 130 269 269 209
--------- --------- --------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of
year................................................ $ 130 $ 269 $ 209 $ 193 $ 278
========= ========= ========= ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................... $ 248 $ 212 $ 294 $ 152 $ 81
Cash paid for income taxes....................... 30 31 14 14 --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-63
<PAGE>
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 merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. 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's financial position and results of operations are
consolidated with Coach USA effective June 1, 1996 for financial reporting
purposes.
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 $374,000, and also distributed
approximately $655,000 of investments.
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 financial statements for the six months ended June 30, 1995 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 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 ended June 30, 1995 and May 31, 1996, 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, and May 31, 1996, 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-64
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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. The realized gain associated with liquidation of
the investment account during the five months ended May 31, 1996, is $5,000.
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.
F-65
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES ---------------------- MAY 31
(YEARS) 1994 1995 1996
------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment............. 12 $ 4,300 $ 4,926 $ 5,198
Other................................ 3-10 1,471 1,509 1,472
---------- ---------- ----------
5,771 6,435 6,670
Less -- Accumulated depreciation..... (3,181) (3,194) (3,182)
---------- ---------- ----------
$ 2,590 $ 3,241 $ 3,488
========== ========== ==========
</TABLE>
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Notes payable to banks............... $ 1,001 $ 1,580 $ --
Other................................ 98 108 --
--------- --------- ---------
1,099 1,688 --
Less -- Current maturities........... (315) (497) --
--------- --------- ---------
$ 784 $ 1,191 $ --
========= ========= =========
DUE TO PARENT
During May 1996, the Company borrowed $2,014,000 from Coach USA at an
annual interest rate of 10 percent in order to repay long-term obligations and
for other financing activities. These borrowings are considered long-term as
Coach USA does not intend to call the outstanding balance owed by the Company
during the next twelve months.
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 were paid
off during the five months ended May 31, 1996.
F-66
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 FIVE MONTHS
------------------------------- ENDED
1993 1994 1995 MAY 31, 1996
--------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current --
Federal......................... $ -- $ 5 $ 1 $ 7
State........................... 4 11 26 1
--------- --------- --------- ------------
4 16 27 8
--------- --------- --------- ------------
Deferred --
Federal......................... (8) (51) (172) (27)
State........................... 5 (63) (32) 36
--------- --------- --------- ------------
(3) (114) (204) 9
--------- --------- --------- ------------
$ 1 $ (98) $ (177) $ 17
========= ========= ========= ============
</TABLE>
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
-------------------- MAY 31,
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 101 $ 130 $ 45
Other........................... 25 33 --
--------- --------- -------
Total deferred income tax
liabilities............. 126 163 45
--------- --------- -------
Deferred income tax assets --
Accrued expenses................ (305) (546) (394)
Other........................... (3) (3) --
--------- --------- -------
Total deferred income tax
assets.................. (308) (549) (394)
--------- --------- -------
$ (182) $ (386) $ (349)
========= ========= =======
F-67
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 FIVE MONTHS
------------------------------- ENDED
1993 1994 1995 MAY 31, 1996
--------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax at statutory rate................ $ 36 $ (126) $ (84) $ 14
Add (deduct) --
State income taxes........ 6 (34) (3) 5
Effect of S Corporation
income.................. (46) 59 (146) (22)
Other, net................ 5 3 56 20
--------- --------- --------- ------------
$ 1 $ (98) $ (177) $ 17
========= ========= ========= ============
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended December 31, 1993, 1994 and 1995, and
for the five months ended May 31, 1996 was approximately $190,000, $297,000,
$357,000, and $109,000, respectively. Included in these amounts are rent
expenses paid to affiliated companies of $97,000, $233,000, $300,000 and $99,000
for the years ended December 31, 1993, 1994 and 1995, and for the five months
ended May 31, 1996 respectively. 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. The terms of the leases
are May 1996 through May 2001 and May 1996 through May 2009 and provide for a 5
percent escalation in rent expense each year. The following represents future
minimum rental payments under noncancelable operating leases (in thousands):
Year ending December 31 --
1996............................ $ 136
1997............................ 240
1998............................ 241
1999............................ 253
2000............................ 266
Thereafter...................... 443
---------
$ 1,579
=========
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.
F-68
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 May 31, 1996. 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
-------------------- MAY 31
1994 1995 1996
--------- --------- ------
(IN THOUSANDS)
Prepaid insurance.................... $ 191 $ 226 $ 110
Deferred tax asset -- current........ 89 297 297
Cash surrender value of life
insurance............................ 462 479 --
Other................................ 24 20 36
--------- --------- ------
$ 766 $ 1,022 $ 443
========= ========= ======
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ------
(IN THOUSANDS)
Trade accounts payable............... $ 306 $ 263 $ 162
Accrued compensation and benefits.... 143 634 117
Accrued insurance claims payable..... 1,755 1,810 1,634
Other................................ 281 246 611
--------- --------- ------
$ 2,485 $ 2,953 $2,524
========= ========= ======
F-69
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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-70
<PAGE>
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 May 31, 1996, and
the related statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995, and for the five
months ended May 31, 1996. 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 May 31, 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995 and for the five months ended May 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
F-71
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 129 $ 20 $ 56
Accounts receivable, less
allowance of $14, $16 and
$16.......................... 77 141 228
Inventories..................... 367 326 326
Prepaid expenses and other
current assets............... 97 27 27
--------- --------- -------
Total current assets...... 670 514 637
PROPERTY AND EQUIPMENT, net.......... 8,521 8,294 11,101
OTHER ASSETS......................... 46 36 14
--------- --------- -------
Total assets.............. $ 9,237 $ 8,844 $11,752
========= ========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,648 $ 1,708 $ 431
Accounts payable and accrued
liabilities.................. 1,397 1,223 1,363
Notes payable to stockholders... 315 315 --
--------- --------- -------
Total current
liabilities............. 3,360 3,246 1,794
LONG-TERM OBLIGATIONS, net of current
maturities......................... 5,653 4,675 892
DUE TO PARENT........................ -- -- 8,174
DEFERRED INCOME TAXES................ 120 142 145
--------- --------- -------
Total liabilities......... 9,133 8,063 11,005
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 2,500
shares authorized, 300 shares
issued....................... 16 16 16
Retained earnings............... 88 765 731
--------- --------- -------
Total stockholders'
equity.................. 104 781 747
--------- --------- -------
Total liabilities and
stockholders' equity.... $ 9,237 $ 8,844 $11,752
========= ========= =======
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
--------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
--------- ---------- ---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 8,494 $ 10,001 $ 11,053 $5,239 $ 4,392
OPERATING EXPENSES................... 6,665 8,457 8,241 4,126 3,592
--------- ---------- ---------- ------------ -----------
Gross profit.............. 1,829 1,544 2,812 1,113 800
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 840 968 1,089 517 516
--------- ---------- ---------- ------------ -----------
Operating income.......... 989 576 1,723 596 284
OTHER (INCOME) EXPENSE:
Interest expense................ 640 683 787 385 309
Other, net...................... (14) (42) 141 (3) --
--------- ---------- ---------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 363 (65) 795 214 (25)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 35 (7) 76 20 (2)
--------- ---------- ---------- ------------ -----------
NET INCOME (LOSS).................... $ 328 $ (58) $ 719 $ 194 $ (23)
========= ========== ========== ============ ===========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 328 $ (58) $ 719 $ 194 $ (23)
Pro forma compensation
differential................. 79 86 142 71 17
Less: Pro forma provision
(benefit) for income taxes... 152 16 324 103 (1)
--------- ---------- ---------- ------------ -----------
PRO FORMA NET INCOME (LOSS).......... $ 255 $ 12 $ 537 $ 162 $ (5)
========= ========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
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.................. -- -- (11) (11)
Net loss........................ -- -- (23) (23)
------ ------ --------- -------------
BALANCE AT MAY 31, 1996.............. 300 $ 16 $ 731 $ 747
====== ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 328 $ (58) $ 719 $ 194 $ (23)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation............... 377 634 593 283 287
(Gain) loss on sale of
assets................... -- (42) 60 -- --
Deferred tax provision
(benefit)................ 35 (7) 58 21 (16)
Changes in operating assets
and liabilities --
Accounts receivable,
net................... 52 (8) (64) (77) (87)
Inventories.............. (209) (50) 41 41 --
Prepaid expenses and
other current
assets................ (61) 9 60 65 --
Accounts payable and
accrued liabilities 447 277 (174) 102 140
Other.................... (31) 21 (16) -- 41
--------- --------- --------- ----------- -----------
Net cash provided by
operating
activities....... 938 776 1,277 629 342
--------- --------- --------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (954) (2,163) (711) (14) (3,094)
Proceeds from sales of property
and equipment................. -- 1,172 285 -- --
--------- --------- --------- ----------- -----------
Net cash used in
investing
activities....... (954) (991) (426) (14) (3,094)
--------- --------- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations................... (1,012) (2,954) (1,545) (703) (6,073)
Proceeds from issuance of
long-term obligations......... 1,085 3,294 627 85 698
Advances from parent............ -- -- -- -- 8,174
Dividends paid.................. (42) (41) (42) (21) (11)
--------- --------- --------- ----------- -----------
Net cash provided by
(used in)
financing
activities....... 31 299 (960) (639) 2,788
--------- --------- --------- ----------- -----------
NET INCREASE (DECREASE) IN CASH...... 15 84 (109) (24) 36
CASH AND CASH EQUIVALENTS, beginning
of year 30 45 129 129 20
--------- --------- --------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 45 $ 129 $ 20 $ 105 $ 56
========= ========= ========= =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 649 $ 799 $ 680 $ 350 $ 304
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
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 merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. 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's financial position and results of operations are
consolidated with Coach USA effective June 1, 1996 for financial reporting
purposes.
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 for the six months ended June 30, 1995 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 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 ended June 30, 1995 and May 31, 1996, 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.
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.
F-76
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- MAY 31
(YEARS) 1994 1995 1996
------------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment............. 12 $ 9,411 $ 9,639 $ 12,733
Other................................ 5-10 304 347 347
--------- --------- ----------
9,715 9,986 13,080
Less --Accumulated depreciation...... (1,194) (1,692) (1,979)
--------- --------- ----------
$ 8,521 $ 8,294 $ 11,101
========= ========= ==========
</TABLE>
Included in transportation equipment at December 31, 1994 and 1995, and May
31, 1996, is approximately $5,097,000 and $5,325,000, $1,974,940 respectively,
of assets held under capital leases.
F-77
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
---------------------- MAY 31
1994 1995 1996
---------- ---------- ---------
(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 $ 229
Obligations under capital leases of
certain transportation equipment,
implicit interest rates ranging
from 4.8% to 13.5%, due in monthly
installments of $31,540, maturing
at various dates through 2002...... 2,986 2,708 1,094
Notes payable to a bank.............. 1,058 917 --
---------- ---------- ---------
7,301 6,383 1,323
Less -- Current maturities........... (1,648) (1,708) (431)
---------- ---------- ---------
$ 5,653 $ 4,675 $ 892
========== ========== =========
At May 31, 1996, 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...................... $ 84 $ 221
1997...................... 91 349
1998...................... 38 261
1999...................... 16 190
2000...................... -- 98
Thereafter................ -- 102
------------ -------------
$ 229 1,221
============
Less -- Amounts representing
interest..................... (127)
-------------
$ 1,094
=============
Management estimates that the fair value of its debt obligations
approximates the historical value of $229,000 at May 31, 1996.
DUE TO PARENT (UNAUDITED)
During May 1996, the Company borrowed $8,174,000 from Coach USA at an
annual interest rate of 10 percent in order to repay long-term obligations and
for other financing activities. These
F-78
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
borrowings are considered long-term as Coach USA does not intend to call the
outstanding balance owed by the Company during the next twelve months.
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. During 1996, these borrowings were repaid by Coach USA in
connection with the Merger.
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 FIVE MONTHS
------------------------------- ENDED
1993 1994 1995 MAY 31, 1996
--------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
State --
Current................... $ -- $ -- $ 18 $ 14
Deferred.................. 35 (7) 58 (16)
--------- --------- --------- ------------
$ 35 $ (7) $ 76 $ (2)
========= ========= ========= ============
</TABLE>
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
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 120 $ 142 $ 145
--------- --------- -------
Total deferred income tax
liabilities............. 120 142 145
--------- --------- -------
Deferred income tax assets --
Accrued expenses................ (39) (34) (53)
Other........................... (34) (3) (3)
--------- --------- -------
Total deferred income tax
assets.................. (73) (37) (56)
--------- --------- -------
$ 47 $ 105 $ 89
========= ========= =======
F-79
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended December 31, 1993, 1994 and 1995, and
for the five months ended May 31, 1996, was $53,000, $56,000, $67,000 and
$36,000, respectively. The following represents future minimum rental payments
under noncancelable operating leases (in thousands):
Year ending December 31 --
1996............................ $ 29
1997............................ 46
1998............................ 42
1999............................ 42
2000............................ 39
---------
$ 198
=========
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 May 31, 1996. The accrual is
based on known facts and historical trends, and management believes such accrual
to be adequate.
COLLECTIVE BARGAINING AGREEMENT
The Company is a party to collective bargaining agreements, effective as of
July 1, 1996, 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 June 30, 1999.
F-80
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Prepaid insurance.................... $ 60 $ -- $ --
Deferred tax asset -- current........ 37 27 27
--------- --------- ---------
$ 97 $ 27 $ 27
========= ========= =========
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Trade accounts payable............... $ 735 $ 371 $ 501
Accrued compensation and benefits.... 203 197 159
Accrued insurance claims payable..... 44 99 99
Other................................ 415 556 604
--------- --------- ---------
$ 1,397 $ 1,223 $ 1,363
========= ========= =========
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.
F-81
<PAGE>
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 May 31, 1996,
and the related statements of income, stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1995, and for the
eight months ended May 31, 1996. 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 May 31, 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1995, and for the eight months ended May 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
F-82
<PAGE>
ARROW STAGE LINES, INC.
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30
---------------------- MAY 31
1994 1995 1996
---------- ---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 147 $ 286 $ 3
Accounts receivable, less
allowance of $34, $38
and $38...................... 1,067 1,021 929
Inventories..................... 285 297 369
Investments..................... 278 543 --
Prepaid expenses and other
current assets............... 322 458 184
---------- ---------- ----------
Total current assets...... 2,099 2,605 1,485
PROPERTY AND EQUIPMENT, net.......... 13,559 14,581 16,761
OTHER ASSETS......................... 325 196 --
---------- ---------- ----------
Total assets.............. $ 15,983 $ 17,382 $ 18,246
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,659 $ 1,887 $ 351
Accounts payable and accrued
liabilities.................. 1,038 1,338 1,014
---------- ---------- ----------
Total current
liabilities............. 2,697 3,225 1,365
LONG-TERM OBLIGATIONS, net of current
maturities......................... 9,024 9,117 1,004
DUE TO PARENT........................ -- -- 12,296
---------- ---------- ----------
Total liabilities......... 11,721 12,342 14,665
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $100 par, 990
shares authorized,
10 shares issued............. 1 1 1
Retained earnings............... 4,261 5,039 3,580
---------- ---------- ----------
Total stockholders'
equity.................. 4,262 5,040 3,581
---------- ---------- ----------
Total liabilities and
stockholders' equity.... $ 15,983 $ 17,382 $ 18,246
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
ARROW STAGE LINES, INC.
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS SIX MONTHS FIVE MONTHS
YEAR ENDED SEPTEMBER 30 ENDED ENDED ENDED
--------------------------------- MAY 31 JUNE 30 MAY 31
1993 1994 1995 1996 1995 1996
--------- ---------- ---------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 9,469 $ 10,039 $ 10,650 $6,670 $5,317 $ 4,459
OPERATING EXPENSES................... 6,655 6,957 7,222 4,860 3,540 2,558
--------- ---------- ---------- ------------ ------------ -----------
Gross profit.............. 2,814 3,082 3,428 1,810 1,777 1,901
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,216 1,493 1,751 1,012 889 675
--------- ---------- ---------- ------------ ------------ -----------
Operating income.......... 1,598 1,589 1,677 798 888 1,226
OTHER (INCOME) EXPENSE:
Interest expense................ 726 773 807 664 419 437
Interest income................. (76) (19) (41) (29) (30) (7)
Other, net...................... (149) (220) (108) (401) -- --
--------- ---------- ---------- ------------ ------------ -----------
INCOME BEFORE INCOME TAXES........... 1,097 1,055 1,019 564 499 796
PROVISION FOR INCOME TAXES........... -- -- -- -- -- --
--------- ---------- ---------- ------------ ------------ -----------
NET INCOME........................... $ 1,097 $ 1,055 $ 1,019 $ 564 $ 499 $ 796
========= ========== ========== ============ ============ ===========
PRO FORMA DATA (Unaudited):
Historical net income........... $ 1,097 $ 1,055 $ 1,019 $ 564 $ 499 $ 796
Pro forma compensation
differential................. 60 30 32 35 17 27
Less: Pro forma provision
(benefit) for income taxes... 480 432 431 246 211 346
--------- ---------- ---------- ------------ ------------ -----------
PRO FORMA NET INCOME................. $ 677 $ 653 $ 620 $ 353 $ 305 $ 477
========= ========== ========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE>
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.................. -- -- (963) (963)
Distribution to stockholders.... -- -- (1,060) (1,060)
Net income...................... -- -- 564 564
------ ------ -------- -------------
BALANCE AT MAY 31, 1996.............. 10 $ 1 $3,580 $ 3,581
====== ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE>
ARROW STAGE LINES, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS SIX MONTHS FIVE MONTHS
YEAR ENDED SEPTEMBER 30 ENDED ENDED ENDED
------------------------------- MAY 31 JUNE 30 MAY 31
1993 1994 1995 1996 1995 1996
--------- --------- --------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 1,097 $ 1,055 $ 1,019 $ 564 $ 499 $ 796
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation.................... 766 926 1,240 706 626 356
Gain on sale of assets.......... (146) (180) (49) (470) (38) (220)
Changes in operating assets and
liabilities --
Accounts receivable, net........ (211) (193) 46 92 72 (595)
Inventories..................... (62) (70) (12) (72) 10 (98)
Investments..................... -- (16) (265) 543 -- --
Prepaid expenses and other
current assets................ (179) (120) (136) 336 (83) 101
Accounts payable and accrued
liabilities................... 167 222 300 (240) 347 111
Other........................... (9) (154) 129 (83) 100 270
--------- --------- --------- ------------ ------------ -----------
Net cash provided by
operating
activities....... 1,423 1,470 2,272 1,376 1,533 721
--------- --------- --------- ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (103) (759) (2,513) (5,783) (2,682) (5,311)
Proceeds from sales of property
and equipment................. 183 -- 300 1,935 -- 1,935
--------- --------- --------- ------------ ------------ -----------
Net cash provided by
(used in)
investing
activities....... 80 (759) (2,213) (3,848) (2,682) (3,376)
--------- --------- --------- ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations................... (2,115) (1,382) (2,128) (13,511) (652) (13,243)
Proceeds from issuance of
long-term obligations......... 753 572 2,449 4,367 2,172 3,932
Advances from Parent............ -- -- -- 12,296 -- 12,296
Dividends paid.................. (73) -- (241) (963) (136) (422)
--------- --------- --------- ------------ ------------ -----------
Net cash provided by
(used in)
financing
activities....... (1,435) (810) 80 2,189 1,384 2,563
--------- --------- --------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH...... 68 (99) 139 (283) 235 (92)
CASH AND CASH EQUIVALENTS, beginning
of year............................ 178 246 147 286 2 95
--------- --------- --------- ------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of
year................................. $ 246 $ 147 $ 286 $ 3 $ 237 $ 3
========= ========= ========= ============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 697 $ 774 $ 807 $ 632 $ 415 $ 407
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE>
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 merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. 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's financial position and results of operations are
consolidated with Coach USA effective June 1, 1996 for financial reporting
purposes.
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 $1,060,000. 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements for the six months ended June 30, 1995 and
the five months ended May 31, 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 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 ended June 30, 1995
and May 31, 1996 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. As of May 31, 1996, all investments were liquidated as part of the
Merger.
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 and $18,000 are included in net income for the years ended September 30,
1993, 1994 and 1995, and for the eight months ended May 31, 1996, respectively.
F-87
<PAGE>
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%, 20% and 12% of total revenues for
the years ended September 30, 1993, 1994 and 1995, and for the eight months
ended May 31, 1996, 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.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 30
USEFUL LIVES ---------------------- MAY 31
(YEARS) 1994 1995 1996
------------ ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment............. 12 $ 14,288 $ 15,720 $ 18,927
Other................................ 3-31 1,989 2,075 455
---------- ---------- ----------
16,277 17,795 19,382
Less -- Accumulated depreciation..... (2,718) (3,214) (2,621)
---------- ---------- ----------
$ 13,559 $ 14,581 $ 16,761
========== ========== ==========
</TABLE>
Included in transportation equipment at September 30, 1994 and 1995, and
May 31, 1996, is approximately $8,110,000, $7,726,000, and $2,191,000,
respectively, of assets held under capital leases.
F-88
<PAGE>
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
SEPTEMBER 30
---------------------- MAY 31
1994 1995 1996
---------- ---------- ---------
(IN THOUSANDS)
Obligations under capital leases
of certain transportation
equipment and other assets,
implicit interest rates
ranging from 6.0% to 9.1%,
due in monthly installments
of $30,827, maturing at
various dates through 2001... $ -- $ -- $ 1,355
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 bank........... 4,304 5,847 --
---------- ---------- ---------
10,683 11,004 1,355
Less -- Current maturities...... (1,659) (1,887) (351)
---------- ---------- ---------
$ 9,024 $ 9,117 $ 1,004
========== ========== =========
At May 31, 1996, future principal payments of long-term obligations and
minimum lease payments under capital lease obligations are as follows:
CAPITAL LEASE
OBLIGATIONS
--------------
(IN THOUSANDS)
Year ending September 30 --
1996............................ $ 123
1997............................ 407
1998............................ 331
1999............................ 207
2000............................ 202
Thereafter...................... 305
--------------
1,575
==============
Less -- Amounts representing
interest........................... (220)
--------------
$1,355
==============
DUE TO PARENT (UNAUDITED)
During May 1996, the Company borrowed $12,296,000 from Coach USA at an
annual interest rate of 10 percent in order to repay long-term obligations and
for other financing activities. These borrowings are considered long-term as
Coach USA does not intend to call the outstanding balance owed by the Company
during the next twelve months.
F-89
<PAGE>
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
6. COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENTS
The Company has entered into commitments to purchase 15 motorcoaches as of
May 31, 1996, for approximately $4,600,000. 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 for the eight
months ended May 31, 1996, was $1,000, $5,000, $5,000 and $3,000, respectively.
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. The following represents future minimum rental
payments under noncancelable operating leases (in thousands):
Period ending September 30 --
1996............................ $ 30
1997............................ 91
1998............................ 91
1999............................ 91
2000............................ 91
Thereafter...................... 57
---------
$ 451
=========
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 May 31, 1996. The accrual is
based on known facts and historical trends, and management believes such accrual
to be adequate.
F-90
<PAGE>
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
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Prepaid insurance.................... $ 54 $ 35 $ 86
Cash surrender value of life
insurance.......................... 71 133 --
Other................................ 197 290 98
--------- --------- -------
$ 322 $ 458 $ 184
========= ========= =======
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
SEPTEMBER 30
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Trade accounts payable............... $ 421 $ 426 $ 186
Accrued compensation and benefits.... 179 292 223
Deferred revenue..................... 133 195 129
Accrued insurance claims payable..... 61 67 67
Other................................ 244 358 409
--------- --------- -------
$ 1,038 $ 1,338 $ 1,014
========= ========= =======
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-91
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coach USA, Inc.
We have audited the accompanying balance sheets of Coach USA, Inc. (a
Delaware corporation) as of December 31, 1995 and May 31, 1996, and the related
statements of income, changes in stockholders' equity and cash flows for the
period from inception (September, 1995) to December 31, 1995 and for the five
months ended May 31, 1996. 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 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 audits provides 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 Coach USA, Inc. as of
December 31, 1995 and May 31, 1996, and the results of its operations and its
cash flows for the period from inception (September, 1995) to December 31, 1995
and for the five months ended May 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas,
August 2, 1996
F-92
<PAGE>
COACH USA, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31 MAY 31
1995 1996
----------- ---------
ASSETS
CASH AND CASH EQUIVALENTS............ $ 1 $ 8
DEFERRED OFFERING COSTS.............. 188 5,173
PROPERTY AND EQUIPMENT, net.......... 9 49
OTHER ASSETS......................... -- 54
----------- ---------
Total assets.............. $ 198 $ 5,284
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE
TO A STOCKHOLDER................... $ 197 $ 5,260
----------- ---------
Total liabilities......... 197 5,260
----------- ---------
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)..... -- (2,053)
----------- ---------
Total stockholders'
equity.................. 1 24
----------- ---------
Total liabilities and
stockholders' equity.... $ 198 $ 5,284
=========== =========
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE>
COACH USA, INC.
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
INCEPTION FIVE MONTHS
THROUGH ENDED
DECEMBER 31, MAY 31,
1995 1996
------------ ------------
GENERAL AND ADMINISTRATIVE
EXPENSES........................... -- $ 2,176
------------ ------------
Operating loss.................. -- (2,176)
OTHER INCOME......................... -- 139
------------ ------------
LOSS BEFORE INCOME TAXES............. -- (2,037)
PROVISION FOR INCOME TAXES........... 16
------------ ------------
NET LOSS............................. $ $ (2,053)
============ ============
NET LOSS BEFORE INCOME TAX...........
PRO FORMA DATA (Unaudited):
Historical net loss............. $ -- $ (2,053)
Pro forma non-recurring
charge........................ -- 2,076
------------ ------------
PRO FORMA NET INCOME................. $ -- $ 23
============ ============
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE>
COACH USA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- ------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September, 1995
(inception)........................ -- $-- $-- $ -- $--
Issuance of Common Stock............. 1,474 15 (14) -- 1
------- ------- ----------- --------- -------------
Balance at December 31, 1995......... 1,474 15 (14) -- 1
Issuance of Common Stock............. 692 7 2,069 -- 2,076
Net (Loss)........................... -- -- -- (2,053) (2,053)
------- ------- ----------- --------- -------------
Balance at May 31, 1996.............. 2,166 $ 22 $ 2,055 $ (2,053) $ 24
======= ======= =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE>
COACH USA, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
INCEPTION FIVE MONTHS
THROUGH ENDED
DECEMBER 31, MAY 31,
1995 1996
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............... $ -- $(2,053)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Non-recurring, non-cash
charge................. -- 2,076
Depreciation.............. -- 1
Changes in operating
assets and
liabilities --
Prepaid expenses and
other current
assets........... -- (4,985)
Accounts payable and
accrued
liabilities...... 9 5,056
Other................ -- (54)
------------- -----------
Net cash
provided by
operating
activities... 9 41
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (9) (41)
------------- -----------
Net cash used
in investing
activities... (9) (41)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock........ 1 7
Net cash provided by financing
activities....................
------------- -----------
NET INCREASE (DECREASE) IN CASH...... 1 7
CASH AND EQUIVALENTS, beginning of
period............................. -- 1
------------- -----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 1 $ 8
============= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ -- $ --
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE>
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 passenger ground transportation companies to expand
their national and regional operations.
Coach USA's primary assets at December 31, 1995 and May 31, 1996, 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 in 1995 and another
$7,000 in 1996. Other expenditures to date have been funded by a stockholder on
behalf of the Company.
2. BASIS OF PRESENTATION:
The Company incurred 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 $5.3 million as of May 31, 1996.
For accounting purposes and for purposes of the presentation of the
financial statements herein, May 31, 1996, has been used as the effective date
of the Merger. The results of the Company for the month ended June 30, 1996 are
included in the Coach USA, Inc. and subsidiaries supplemental consolidated
financial statements. The IPO and Merger transactions are excluded from these
predecessor company financial statements.
INTERIM FINANCIAL INFORMATION
The results of operations for the interim period ended May 31 are not
necessarily indicative of the results for the entire fiscal year.
STOCKHOLDERS' EQUITY
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 shares of common stock (which reflects the common stock
dividend) 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 approximately $95.2 million (based upon an offering price
of $14 per share consisting of a combination of cash and common stock.
F-97
<PAGE>
COACH USA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. COMMITMENTS AND CONTINGENCIES
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.
F-98
<PAGE>
INDEPENDENT AUDITORS' REPORT
K-T Contract Services, Inc.
We have audited the accompanying balance sheets of K-T Contract Services,
Inc. (the "Company") as of December 31, 1994 and December 31, 1995 and the
related statements of income, stockholders' equity and of cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1994 and December 31, 1995 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
BURNSIDE & RISHEBARGER PLLC
March 8, 1996
F-99
<PAGE>
K-T CONTRACT SERVICES, INC.
BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31,
---------------------- AUGUST 29,
1994 1995 1996
---------- ---------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 440 $ 1,703 $ 513
Short-term investments.......... 500 1,511 500
Accounts receivable............. 1,236 944 1,745
Receivable from related
parties...................... 550 1,559 2,513
Prepaid expenses................ 455 193 362
Materials and supplies.......... 48 48 48
---------- ---------- ------------
Total current assets...... 3,229 5,958 5,681
PROPERTY, net........................ 26,071 21,688 25,966
OTHER ASSETS......................... 177 209 155
---------- ---------- ------------
Total assets.............. $ 29,477 $ 27,855 $ 31,802
========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 3,009 $ 1,718 $ 1,657
Accounts payable................ 367 507 1,483
Accrued liabilities............. 426 683 986
Federal tax payable............. -- 528 412
Amounts due to related
parties...................... 150 59 --
---------- ---------- ------------
Total current
liabilities............. 3,952 3,495 4,538
---------- ---------- ------------
LONG-TERM OBLIGATIONS, net of current
maturities......................... 20,837 18,041 20,082
DEFERRED FEDERAL INCOME TAXES........ 537 643 643
---------- ---------- ------------
Total liabilities......... 25,326 22,179 25,263
---------- ---------- ------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par,
1,000,000 shares authorized,
100,000 shares issued........ 1 1 1
Additional paid-in capital...... 2,299 2,299 2,299
Retained earnings............... 1,851 3,376 4,239
---------- ---------- ------------
Total stockholders'
equity.................. 4,151 5,676 6,539
---------- ---------- ------------
Total liabilities and
stockholders' equity.... $ 29,477 $ 27,855 $ 31,802
========== ========== ============
See notes to financial statements.
F-100
<PAGE>
K-T CONTRACT SERVICES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT
YEAR ENDED NINE MONTHS MONTHS
DECEMBER 31 ENDED ENDED
---------------------- SEPTEMBER 30 AUGUST 29
1994 1995 1995 1996
---------- ---------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................. $ 15,131 $ 16,976 $ 12,662 $11,219
OPERATING EXPENSES................... 9,129 10,799 8,197 6,847
---------- ---------- ------------ -----------
Gross profit.................... 6,002 6,177 4,465 4,372
GENERAL AND ADMINISTRATIVE EXPENSES.. 2,509 1,715 1,285 1,909
---------- ---------- ------------ -----------
Operating income................ 3,493 4,462 3,180 2,463
OTHER (INCOME) EXPENSE:
Interest expense................ 1,692 2,266 1,725 1,195
Interest income................. (32) (84) (68) --
---------- ---------- ------------ -----------
INCOME BEFORE FEDERAL INCOME TAXES
AND EXTRAORDINARY ITEM............. 1,833 2,280 1,523 1,268
PROVISION FOR FEDERAL INCOME TAXES... 423 730 487 405
---------- ---------- ------------ -----------
NET INCOME BEFORE EXTRAORDINARY
ITEM............................... 1,410 1,550 1,036 863
EXTRAORDINARY ITEM................... -- 25 -- --
---------- ---------- ------------ -----------
NET INCOME........................... $ 1,410 $ 1,525 $ 1,036 $ 863
========== ========== ============ ===========
</TABLE>
See notes to financial statements.
F-101
<PAGE>
K-T CONTRACT SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993......... 100 $ 1 $2,299 $ 441 $ 2,741
Net income...................... -- -- -- 1,410 1,410
------ ------ ---------- --------- -------------
BALANCE AT DECEMBER 31, 1994......... 100 1 2,299 1,851 4,151
Net income...................... -- -- -- 1,525 1,525
------ ------ ---------- --------- -------------
BALANCE AT DECEMBER 31, 1995......... 100 1 2,299 3,376 5,676
Net income...................... -- -- -- 863 863
------ ------ ---------- --------- -------------
BALANCE AT AUGUST 29, 1996
(unaudited)........................ 100 $ 1 $2,299 $ 4,239 $ 6,539
====== ====== ========== ========= =============
</TABLE>
See notes to financial statements.
F-102
<PAGE>
K-T CONTRACT SERVICES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS EIGHT MONTHS
DECEMBER 31 ENDED ENDED
---------------------- SEPTEMBER 30 AUGUST 29
1994 1995 1995 1996
---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 1,410 $ 1,525 $ 1,036 $ 863
Adjustments to reconcile net
income to net cash provided
by operating activities --
Depreciation and
amortization.............. 1,478 1,515 1,122 875
Deferred federal income
tax....................... 357 106 120 54
Changes in assets and
liabilities --
Accounts receivable....... (125) 331 (413) (801)
Prepaid expenses.......... (211) 172 (96) (169)
Federal income tax
payable................. (82) 618 426 (116)
Accounts payable and
accrued liabilities..... 483 397 213 1,279
Receivable from related
parties................. (228) -- (954)
Other..................... (1,206) (530) (695) (59)
---------- ---------- ------------ ------------
Net cash provided by
operating
activities........... 2,104 3,906 1,713 972
---------- ---------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset purchases........... (96) (278) (230) (5,265)
Proceeds from the sale of
buses........................ 4,751 2,363 1,529 112
(Increase) decrease in
short-term investments....... -- (1,011) (2,000) 1,011
---------- ---------- ------------ ------------
Net cash provided by
(used in) investing
activities........... 4,655 1,074 (701) (4,142)
---------- ---------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (6,866) (3,625) (1,009) (2,450)
Proceeds from issuance of
long-term obligations........ 367 -- -- 4,430
Increase in note receivable..... -- (92) -- --
---------- ---------- ------------ ------------
Net cash provided by
(used in) financing
activities........... (6,499) (3,717) (1,009) 1,980
---------- ---------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 260 1,263 3 (1,190)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 180 440 440 1,703
---------- ---------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 440 $ 1,703 $ 443 $ 513
========== ========== ============ ============
</TABLE>
See notes to financial statements.
F-103
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION
K-T Contract Services, Inc. (the "Company") was incorporated in November
1988 and is owned 50% each by Kerrville Bus Company, Inc. and Texas Bus Lines,
Inc. The Company generates its revenues primarily in the Las Vegas, Nevada area
by providing shuttle (see Note 6) and charter services.
ACCOUNTS RECEIVABLE
Accounts receivable that management of the Company considers uncollectible
are written off as a bad debt expense in accordance with the direct write-off
method. Management believes that there are no material uncollectible accounts at
December 31, 1995.
PROPERTY, DEPRECIATION, AND AMORTIZATION
The Company uses the straight-line method over the following estimated
useful lives in computing depreciation and amortization:
ESTIMATED
SERVICE
LIVES
------------
Buses................................... 10 years
Buildings............................... 30 years
Service cars............................ 3 to 5 years
Shop and garage equipment............... 8 years
Furniture and office equipment.......... 5 years
Effective January 1, 1995 the Company reduced the estimated useful lives of
buses from twelve to ten years and increased the salvage value from 0% to 50% of
cost. These revisions were made to more properly reflect true economic lives of
the assets and to better align the Company's depreciated value with the
estimated market value. The effect of this change was to reduce 1995
depreciation expense and increase net income by approximately $955,739.
Expenditures for maintenance and repairs are charged to operating expenses
as incurred; expenditures for renewals and replacements are capitalized. When
property is sold or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss on disposition
is included in income.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109).
Pursuant to SFAS No. 109, deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
OPERATING CERTIFICATES
Costs of obtaining certain intrastate operating certificates have been
capitalized, and are amortized using the straight line method over a 25 year
period.
F-104
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly
liquid investments with a remaining maturity of three months or less at the date
of acquisition to be cash equivalents.
SHORT-TERM INVESTMENTS
As of December 31, 1994, the Company had a $500,000 Certificate of Deposit
earning 4.75% interest that matured in January, 1995. As of December 31, 1995,
the Company has a $500,000 Certificate of Deposit earning 5.10% interest,
maturing in July 1996, and a $1,011,207 Certificate of Deposit earning 4.50%
interest, maturing in May 1996.
MATERIALS AND SUPPLIES
Inventory consists primarily of diesel fuel and bus parts and is carried at
the lower of first-in, first-out cost or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has, where appropriate, estimated the fair value of financial
instruments. These fair value amounts may be significantly affected by the
assumptions used, including the discount rate and estimates of cash flow.
Accordingly, the estimates presented are not necessarily indicative of the
amounts that could be realized in current market exchange. Where these estimates
approximate carrying value, no separate disclosure of fair value is shown.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results could differ from those estimates.
F-105
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
PORTION PORTION PORTION PORTION
------- --------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Notes payable to Bank America, due in
monthly installments of $13,000
including interest at 1.5% over
prime (minimum 9.5%, maximum 14%),
collateralized by a deed of trust
and assignment of rents............ $ 121 $ 298 $ 41 $ 342
Notes payable to Bank America, due in
monthly installments of $2,435 plus
interest at 9.25%, collateralized
by certain buses................... 22 55 25 29
Note payable to The CIT Group, due in
monthly installments of $6,636
including interest at 2.0% at
prime, collateralized by certain
buses.............................. -- -- 30 433
Note payable to Coastal Banc, due in
monthly installments of $1,525 plus
interest at prime, collateralized
by certain buses................... -- -- 18 41
Note payable to Coastal Banc, due in
monthly installments of $3,453 plus
interest at prime, collateralized
by certain buses................... -- -- 42 85
Note payable to Westar Banc, due in
annual installments of $86,126
including interest at 9.0%,
collateralized by land............. -- -- 50 285
Note payable to Francis Judson Smith,
due in one lump sum, including
principle and accrued interest at
8.5% per annum on January 3, 1998,
guaranteed by one shareholder and
two related companies. (See Note
8.)................................ -- -- -- 500
Note payable to Sun Bank, due in
monthly installments of $19,407
including interest at 7.75%,
collateralized by certain buses.... 5 -- -- --
------- --------- ------- ---------
Total........................... $ 148 $ 353 $ 206 $ 1,715
======= ========= ======= =========
</TABLE>
Scheduled principal payments on the notes payable are as follows:
1996................................. $ 206
1997................................. 224
1998................................. 711
1999................................. 174
2000................................. 183
Thereafter........................... 423
---------
Total................................ $ 1,921
=========
CAPITALIZED LEASES
The Company leases certain buses under six different lease agreements under
terms which essentially constitute a purchase of the buses. The lease terms call
for monthly payments on each bus. The present values of the required rentals and
residual value guarantees have been capitalized and the obligations recorded
using the interest rate implicit in the lease. The assets are
F-106
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amortized over their estimated useful lives of five to ten years and interest on
the outstanding lease obligation is charged to expense during each period.
Following is a schedule of future minimum lease payments (including
guaranteed residual value payments) and capitalized lease obligations under
capitalized leases as of December 31, 1995 in thousands:
YEAR ENDED DECEMBER 31 AMOUNT
- ------------------------------------- -------
1996................................. $ 3,032
1997................................. 3,032
1998................................. 3,032
1999................................. 3,032
2000................................. 2,793
Thereafter........................... 8,953
-------
23,874
Less amounts representing interest at
8.66% to 10.45%...................... (6,036)
-------
Total obligations under capital
leases............................... 17,838
Less current portion................. (1,512)
-------
Long-term obligations under capital
leases............................... $16,326
=======
At December 31, 1995 assets capitalized under lease agreements had a net
book value of $19,370,085.
Based on the borrowing rates currently available to the Company for long
term obligations with similar terms and average maturities, the fair value of
the Company's long term obligations, including current maturities, was
$20,721,233 at December 31, 1995.
OPERATING LEASES
The Company leases certain buses from Kerrville Bus Company, Inc. (a
shareholder) under operating leases. The terms of the leases call for 84 monthly
payments with no purchase option nor guarantee of residual value at the end of
the lease terms.
Following is a schedule of future minimum rental payments required under
operating leases that have initial noncancelable lease terms in excess of one
year (in thousands):
YEAR ENDED DECEMBER 31, AMOUNT
- ------------------------------------- ------
1996................................. $ 180
1997................................. 180
1998................................. 60
------
Total................................ $ 420
======
Operating expenses include $1,633,739 in 1994 and $2,145,105 in 1995 of
interest expense and $1,305,112 in 1994 and $1,303,349 in 1995 of depreciation
expense related to capitalized leases for buses. Operating expenses also include
$280,000 in 1994 and $215,000 1995 of lease expense related to buses under
operating leases.
The Company incurred charter expenses of $163,553 in 1994 and $253,449 in
1995 to related parties, general management expenses of $750,000 in 1994 and
$25,000 in 1995, and consulting fees of $85,849 in 1994 and $420,028 in 1995 to
its shareholders. As of December 31, the Company has a net accounts receivable
trade balance with affiliates of $273,326 in 1994 and $253,449 in 1995 and
advances to a related party with a balance of $276,619 in 1994 and $1,305,922 in
1995 and accounts payable of $150,000 in 1994 and $25,000 in 1995. Furthermore,
F-107
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the following revenue amounts were earned from affiliates: Outside services
revenue--$59,838 in 1994 and $11,186 in 1995, charter revenue--$200,339 in 1994
and $186,318 in 1995, and other services revenue--$55,581 in 1995.
The Company has an uncollateralized note receivable from a related company,
due in monthly installments of $3,656 including interest at 9.0%, due in May
1998.
The Company is a guarantor for notes payable and lease obligations of
affiliated bus companies. These agreements have balances totaling approximately
$11,972,000 at December 31, 1995, and are due in monthly installments totaling
approximately $185,000 with interest rates ranging from 7.92% to 13.25%.
The Company has entered into certain global agreements with lessors. The
agreements with lessors contain requirements concerning financial reporting,
minimum cash flow ratios, capital expenditure limits, limits on indebtedness,
various administrative requirements and certain other restrictive covenants.
3. FEDERAL INCOME TAXES
The provision for federal income taxes are as follows (in thousands):
1994 1995
--------- ---------
Current................................. $ 66 $ 624
Deferred................................ 357 106
--------- ---------
Total.............................. $ 423 $ 730
========= =========
Deferred income taxes and benefits under SFAS No. 109 are provided for
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Temporary differences and the
resulting deferred tax assets and liabilities at December 31 follow:
1994 1995
--------- ---------
Depreciable assets...................... $ (537) $ (651)
Settlement costs........................ -- 8
--------- ---------
Total net deferred tax liability... $ (537) $ (643)
========= =========
The reconciliation of income tax attributable to continuing operations
computed at federal statutory tax rates to income tax expense is:
1994 1995
--------- ---------
Tax at statutory rates.................. $ 623 $ 766
Net effect of certain leasing
transactions.......................... (105) --
Net effect of alternative minimum tax
carryforward.......................... (95) (39)
Non-deductible items.................... -- 3
--------- ---------
Total.............................. $ 423 $ 730
========= =========
4. SUMMARY OF NON-CASH TRANSACTIONS
Interim financing totaling $5,194,753 was incurred during 1994 to purchase
buses. Notes payable of $1,199,955 were incurred to purchase buses during 1995.
Capital lease obligations of $23,026,209 in 1994 and $3,338,030 in 1995 were
incurred to purchase buses under various capital leases.
F-108
<PAGE>
K-T CONTRACT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest was $1,587,981 and $2,238,751 for the years ended
December 31, 1994 and 1995, respectively.
Cash paid for income taxes was $89,500 and $350,000 for the years ended
December 31, 1994 and 1995, respectively.
6. CONCENTRATIONS OF RISKS
The Company is subject to the risks associated with the bus business
including realizability of costs, although management is not aware of any
immediate risk of loss from its significant concentration of business that
would, if suddenly eliminated, severely impact operations. The Company's primary
operations are in Las Vegas, Nevada and about 45% in 1994 and 50% of its
revenues in 1995 were derived from providing employee shuttle operations under a
contract with Reynolds Electrical & Engineering Co., Inc. The contract expires
in June 1997.
7. ADVERTISING EXPENSES
The Company charges to expense all advertising expenses as incurred. The
Company's advertising expenses were approximately $53,813 for the year ended
December 31, 1995.
8. SETTLEMENT
At March 7, 1995, the Company, certain related companies, and certain
directors (the "Company et al") were named as defendants in a lawsuit asserted
by a shareholder. On December 31, 1995, the Company et al entered into a
Purchase and Settlement Agreement (the "Agreement") whereby such shareholder
agreed to sell her share of two related companies in exchange for the following
settlement consideration on the closing date (January 3, 1996): first, the
related companies' cash payment of $1,000,000 to such shareholder; second, the
Company's delivery to the shareholder of a promissory note in the face amount of
$500,000 (see Note 2); and third, the Company's and a related company's
agreement to pay the shareholder contingency payments of certain percentages of
revenues over certain amounts, with no maximum limit, or the minimum of $300,000
if revenue levels are not achieved.
As a result of this Agreement, the Company has recorded a liability payable
to such shareholder and a receivable from the related companies in the amount of
$500,000 (see Note 2). The Company and the related company have estimated their
minimum portions of the contingent liability based on estimated revenues and,
therefore, the Company has recorded as its share of such liability and the
related charge to earnings for the contingency payments the amount of $25,000.
9. COMMITMENTS AND CONTINGENCIES
The Company has commitments and contingencies including the future payments
described in Note 8. and in the normal course of business which are not
considered by management to be likely to result in any material adverse effect
on the December 31, 1995 financial position.
Also, the Company's federal income tax return (Form 1120) for the year
ended December 31, 1994 is under examination by the Internal Revenue Service.
While the examination is in a preliminary stage, management believes that the
final outcome will not have a material adverse effect on the Company's financial
statements.
F-109
<PAGE>
INDEPENDENT AUDITORS' REPORT
California Charter, Inc.
We have audited the accompanying balance sheets of California Charter, Inc.
as of December 31, 1994 and December 31, 1995 and the related statements of
income, changes in stockholders' equity and of cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and
December 31, 1995 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
BURNSIDE & RISHEBARGER, PLLC
March 8, 1996
F-110
<PAGE>
CALIFORNIA CHARTER, INC.
BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31
---------------------- AUGUST 29,
1994 1995 1996
---------- ---------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 24 $ 565 $ 950
Accounts receivable............. 1,322 1,402 1,916
Materials and supplies
inventory.................... 37 37 37
Prepaid expenses................ 297 145 187
---------- ---------- ------------
Total current assets...... 1,680 2,149 3,090
PROPERTY, net........................ 8,436 17,630 21,139
OTHER ASSETS......................... 60 35 35
---------- ---------- ------------
Total assets.............. $ 10,176 $ 19,814 $ 24,264
========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 701 $ 3,178 $ 3,507
Accounts payable................ 496 254 1,687
Accrued liabilities............. 322 258 312
Advances from related party..... 276 1,773 1,438
---------- ---------- ------------
Total current
liabilities............. 1,795 5,463 6,944
---------- ---------- ------------
LONG-TERM OBLIGATIONS, net of current
maturities......................... 7,520 13,183 15,321
---------- ---------- ------------
Total liabilities......... 9,315 18,646 22,265
---------- ---------- ------------
STOCKHOLDERS' EQUITY:
Common stock.................... 1 1 1
Retained earnings............... 860 1,167 1,998
---------- ---------- ------------
Total stockholders'
equity.................. 861 1,168 1,999
---------- ---------- ------------
Total liabilities and
stockholders' equity.... $ 10,176 $ 19,814 $ 24,264
========== ========== ============
See notes to financial statements.
F-111
<PAGE>
CALIFORNIA CHARTER, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 ENDED AUGUST 29
--------------------- SEPTEMBER 30 ---------
1994 1995 1995 1996
--------- ---------- ------------ ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................. $ 7,701 $ 10,537 $8,032 $ 7,721
OPERATING EXPENSES................... 6,111 6,925 5,340 4,228
--------- ---------- ------------ ---------
Gross profit.................... 1,590 3,612 2,692 3,493
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 709 1,419 1,025 1,567
--------- ---------- ------------ ---------
Operating income................ 881 2,193 1,667 1,926
OTHER (INCOME) EXPENSE:
Interest expense................ 634 995 744 1,059
Interest income................. -- (9) -- (6)
--------- ---------- ------------ ---------
INCOME BEFORE INCOME TAXES........... 247 1,207 923 873
PROVISION FOR INCOME TAXES........... -- -- -- 42
--------- ---------- ------------ ---------
NET INCOME BEFORE EXTRAORDINARY
ITEM............................... 247 1,207 923 831
--------- ---------- ------------ ---------
EXTRAORDINARY ITEM................... -- 900 -- --
--------- ---------- ------------ ---------
NET INCOME........................... $ 247 $ 307 $ 923 $ 831
========= ========== ============ =========
</TABLE>
See notes to financial statements.
F-112
<PAGE>
CALIFORNIA CHARTER, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ --------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993......... 100 $ 1 $ 613 $ 614
Net income...................... -- -- 247 247
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1994......... 100 1 860 861
Net income...................... -- -- 307 307
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1995......... 100 1 1,167 1,168
Net income...................... -- -- 831 831
------ ------ --------- -------------
BALANCE AT AUGUST 29, 1996
(unaudited)........................ 100 $ 1 $ 1,998 $ 1,999
====== ====== ========= =============
</TABLE>
See notes to financial statements.
F-113
<PAGE>
CALIFORNIA CHARTER, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT
YEAR ENDED NINE MONTHS MONTHS
DECEMBER 31 ENDED ENDED
--------------------- SEPTEMBER 30 AUGUST 29
1994 1995 1995 1996
---------- --------- ------------ ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 247 $ 307 $ 923 $ 831
Adjustments to reconcile net
income to net cash provided
by operating activities --
Depreciation and
amortization............ 679 575 544 751
Changes in assets and
liabilities --
Accounts
receivable........ (315) (80) (343) (514)
Prepaid expenses..... (50) 152 (43) (42)
Accounts payable and
accrued
liabilities....... 414 (306) (82) 1,487
Advances from (to)
related party..... (275) 1,124 (251) (335)
Other................ 124 25 (33) --
---------- --------- ------------ ---------
Net cash
provided by
operating
activities... 824 1,797 715 2,178
---------- --------- ------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset purchases........... (116) (317) (3,471) (4,260)
Proceeds from sale of assets.... 514 -- -- --
---------- --------- ------------ ---------
Net cash
provided by
(used in)
investing
activities... 398 (317) (3,471) (4,260)
---------- --------- ------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (1,198) (939) -- (955)
Proceeds from issuance of
long-term obligations........ -- -- 3,339 3,422
---------- --------- ------------ ---------
Net cash
provided by
(used in)
financing
activities... (1,198) (939) 3,339 2,467
---------- --------- ------------ ---------
NET INCREASE IN CASH................. 24 541 583 385
CASH AT BEGINNING OF PERIOD.......... -- 24 24 565
---------- --------- ------------ ---------
CASH AT END OF PERIOD................ $ 24 $ 565 $ 607 $ 950
========== ========= ============ =========
</TABLE>
See notes to financial statements.
F-114
<PAGE>
CALIFORNIA CHARTER, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION -- California Charter, Inc.
(the Company) was incorporated in the state of Texas in January 1991, and is
owned 50% by the sole shareholder of Kerrville Bus Company, Inc. and 50% by the
sole shareholder of Texas Bus Lines, Inc. (formerly more than one shareholder,
see Note 7). During March 1991, the Company purchased substantially all of the
assets of California Charter, Inc., a California Corporation, for $2,525,000.
The acquisition was accounted for using the purchase method of accounting. The
purchase price was allocated to the various assets based on their fair market
values in accordance with the purchase contract. The Company generates its
revenues primarily in California by providing charter services (see Note 5).
ACCOUNTS RECEIVABLE -- Accounts receivable that management of the Company
considers uncollectible are written off as bad debt expense in accordance with
the direct write-off method. Management believes that there are no material
uncollectible accounts at December 31, 1995.
PROPERTY, DEPRECIATION, AND AMORTIZATION --
The Company uses the straight-line method over the following estimated
useful lives, in the respective years, in computing depreciation and
amortization:
ESTIMATED
SERVICE LIVES
-------------
Buses................................ 10 years
Service Cars......................... 5 years
Shop and garage equipment............ 5 years
Furniture and office equipment....... 5 years
Effective January 1, 1995, the Company reduced the estimated useful lives
of certain buses from twelve to ten years and increased the salvage value from
0% to 50% of cost. These revisions were made to more properly reflect true
economic lives of the assets and to better align the Company's depreciated value
with the estimated market value. The effect of this change was to reduce 1995
depreciation expense and increase net income by approximately $447,699.
Expenditures for maintenance and repairs are charged to operating expenses
as incurred; expenditures for renewals and replacements are capitalized. When
property is sold or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss on disposition
is included in income.
ORGANIZATIONAL EXPENSES -- Organizational expenses are being amortized over
a five year period.
MATERIALS AND SUPPLIES INVENTORY -- Materials and supplies inventory
consists primarily of bus parts and is carried at the lower of average cost or
market. Cost is determined using first-in, first-out method.
FEDERAL INCOME TAXES -- For Federal income tax purposes, the Company has
elected to be treated as an S corporation, which is not subject to Federal
income taxes at the corporate level. Accordingly, no provision for Federal
income taxes has been recorded in the accompanying financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company has, where appropriate,
estimated the fair value of financial instruments. These fair value amounts may
be significantly affected by the assumptions used, including the discount rate
and estimates of cash flow. Accordingly, the
F-115
<PAGE>
CALIFORNIA CHARTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
estimates presented are not necessarily indicative of the amounts that could be
realized in a current market exchange. Where these estimates approximate
carrying value, no separate disclosure of fair value is shown.
ESTIMATES AND ASSUMPTIONS -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. LONG-TERM DEBT OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
PORTION PORTION PORTION PORTION
------- --------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Notes payable to Textron Financial
Corporation, due in monthly
installments of $22,871 including
interest ranging from 9.95% to
10.5%, collateralized by certain
buses, guaranteed by Kerrville Bus
Company, Inc., K-T Contract
Services, Inc. and Texas Bus Lines,
Inc................................ $ 136 $ 1,279 $ 150 $ 1,128
Notes payable to MCI Acceptance
Corporation, due in monthly
installments of $26,014 including
interest at prime plus 2%,
collateralized by the purchases,
guaranteed by K-T Contract
Services, Inc., Texas Bus Lines,
Inc., Kerrville Bus Lines, Inc. and
individually by the shareholders of
California Charter, Inc............ 171 2,259 122 1,284
Note payable to G E Capital Fleet
Services, due in monthly
installments of $6,778 including
interest at 9.5%, collateralized by
Kerrville Bus Company, Inc., K-T
Contract Services, Inc. and Texas
Bus Lines, Inc..................... -- -- 44 368
Note payable to the CIT Group, due in
monthly installments of $20,364
including interest at 11%,
collateralized by certain buses,
guaranteed by Kerrville Bus
Company, Inc., K-T Contract
Services, Inc., and Texas Bus
Lines, Inc......................... -- -- 152 2,124
------- --------- ------- ---------
Total notes payable....... $ 307 $ 3,538 $ 468 $ 4,904
======= ========= ======= =========
</TABLE>
F-116
<PAGE>
CALIFORNIA CHARTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled principal payments on the notes are as follows (in thousands):
1996................................. $ 468
1997................................. 504
1998................................. 856
1999................................. 477
2000................................. 659
Thereafter........................... 2,408
---------
Total................................ $ 5,372
=========
CAPITALIZED LEASES -- The Company leases certain buses under terms which
essentially constitute a purchase of the buses. The lease terms call for monthly
payments on each bus. The present values of the required rentals and residual
value guarantees have been capitalized and the obligations recorded using the
interest rate implicit in the lease. The assets are amortized over their
estimated useful lives (see note 1). Interest on the outstanding lease
obligation is charged to expense during each period.
Following is a schedule of future minimum lease payments (including
guaranteed residual value payments) and capitalized lease obligations under
capitalized leases as of December 31, 1995 (in thousands):
YEAR ENDED DECEMBER 31, AMOUNT
----------
1996................................. $ 1,748
1997................................. 1,463
1998................................. 1,463
1999................................. 1,460
2000................................. 1,336
Thereafter........................... 3,956
----------
11,426
Less amounts representing interest at
7.92% to 10.80%.................... 437
----------
Total obligations under capital
leases............................. 10,989
Less current portion................. (2,710)
----------
Long-term obligations under capital
leases............................. $ 8,279
==========
Assets capitalized under lease agreements had net book values of $3,863,425
at December 31, 1994 and $11,713,873 at December 31, 1995.
Based on the borrowing rates currently available to the Company for
long-term obligations with similar terms and average maturities, the fair value
of the Company's long-term obligations including current maturities, was
$16,882,446 at December 31, 1995.
OPERATING LEASES
The Company leases certain buses from Kerrville Bus Company, Inc. (a
related party) under operating leases. The terms of the leases call for monthly
payments for seven years with no purchase option nor guarantee of residual value
at the end of the lease terms.
F-117
<PAGE>
CALIFORNIA CHARTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Following is a schedule of future minimum rental payments required under
operating leases that have initial noncancelable lease terms in excess of one
year (in thousands):
YEAR ENDED DECEMBER 31 AMOUNT
- ------------------------------------- ---------
1996................................. $ 180
1997................................. 180
1998................................. 60
---------
Total........................... $ 420
=========
Operating expenses include $587,124 in 1994 and $215,000 in 1995, of lease
expense related to buses under operating leases and $154,532 in 1994 and
$145,356 in 1995, of lease expense related to facilities.
The Company incurred charter expenses of $200,339 in 1994 and $248,872 in
1995, with related parties. The Company has a net accounts receivable trade
balance with affiliates of $46,993 in 1994 and $33,995 in 1995.
The shareholders performed certain management duties for the Company. To
compensate for such services the Company paid $300,000 in management fees for
the year ended December 31, 1994 and $850,000 for the year ended December 31,
1995.
The Company had accounts payable, primarily trade and settlement payment,
due to K-T Contract Services (a related party) in the amount of $276,460 at
December 31, 1994 and $1,247,027 at December 31, 1995. The Company also had
accounts receivable, primarily trade, due from Texas Bus Lines (a related party)
in the amount of $46,993 at December 31, 1994.
The Company is guarantor for certain notes payable and lease obligations of
affiliated bus companies. These agreements have balances totaling approximately
$24,909,000 at December 31, 1995 and are due in monthly installments totaling
approximately $420,000, with interest rates ranging from prime plus 2% to
13.25%. Certain of the Company's notes payable and lease obligations have been
guaranteed by affiliated bus companies.
The Company has entered into certain global agreements with lessors. The
agreements with lessors contain requirements concerning financial reporting,
minimum cash flow ratios, capital expenditure limits, limits on indebtedness,
various administrative requirements and certain other restrictive covenants. At
December 31, 1995, the Company was not in compliance with certain restrictive
covenants. The Company expects the provisions governing such noncompliance to be
waived by the lessors.
3. SUMMARY OF NON-CASH TRANSACTIONS
Notes payable of $1,675,871 in 1994 and $1,478,331 in 1995 were incurred to
purchase buses. Capital lease obligations of $1,279,655 in 1994 and $8,624,944
in 1995, were incurred to purchase buses under various capital leases.
4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years ended December 31 for interest was $624,342 in
1994 and $936,655 in 1995.
5. CONCENTRATIONS OF RISKS
The Company is subject to the risks associated with the bus business
including realizability of costs, although management is not aware of any
immediate risk of loss from its significant
F-118
<PAGE>
CALIFORNIA CHARTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
concentration of business that would, if suddenly eliminated, severely impact
operations. The Company's primary operations are located in Orange County,
California. The Company is engaged primarily in providing charter bus services
in California. Approximately 37% in 1994 and 20% in 1995 of the Company's
revenues were derived from providing airport shuttle operations between Los
Angeles International Airport and Van Nuys Airport. The contract expires in
October 1996. The Company had an uncollected receivable due on the above
contract of approximately $650,000 at December 31, 1994 and $332,756 at December
31, 1995.
6. ADVERTISING EXPENSES
The Company charges to expense all advertising expenses as incurred. The
Company's advertising expenses were approximately $25,765 in 1995.
7. SETTLEMENT
At March 7, 1995, the Company, certain related companies, and certain
directors (the "Company et al") were named as defendants in a lawsuit asserted
by a shareholder. On December 31, 1995, the Company et al entered into a
Purchase and Settlement Agreement (the "Agreement") whereby such shareholder
agreed to sell her shares of the Company and a related company in exchange for
the following settlement consideration on the closing date (January 3, 1996):
first, the Company's and a related company's cash payment of $1,000,000 to such
shareholder; second, a related company's delivery to such shareholder of a
promissory note in the face amount of $500,000; and third, the Company's and a
related company's agreement to pay such shareholder contingency payments of
certain percentages of revenues over certain amounts, with no maximum limit, or
the minimum of $300,000 if revenue levels are not achieved.
As a result of this Agreement, the Company has recorded a payable to a
related party in the amount of $500,000 for its share (50%) of the cash payment,
which resulted in a $500,000 charge to earnings. The Company recorded a related
party payable and a charge to earnings in the amount of $125,000 for its share
of the promissory note. The Company and the related company have estimated their
minimum portions of the contingent liability based on estimated revenues and,
therefore, the Company has recorded as its share of such liability and the
related charge to earnings for the contingency payments the amount of $275,000.
8. CONTINGENCIES
The Company has commitments and contingencies including the future payments
described in Note 7 and in the normal course of business which are not
considered by management to be likely to result in any material adverse effect
on the December 31, 1995 financial position.
Also, the Company's federal income tax return (Form 1120S) for the year
ended December 31, 1992 is under examination by the Internal Revenue Service.
While the examination is in a preliminary stage, management believes that the
final outcome will not have a material adverse effect on the Company's financial
statements.
F-119
<PAGE>
INDEPENDENT AUDITORS' OPINION
Texas Bus Lines, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Texas Bus
Lines, Inc. and Subsidiary (the "Company") as of December 31, 1995 and related
consolidated statement of income, changes in stockholder's equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the consolidated financial statements provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
presents fairly, in all material respects, the financial position of the Company
as of December 31, 1995, in conformity with generally accepted accounting
principles.
BURNSIDE & RISHEBARGER PLLC
March 22, 1996 (except for pages
F-123, F-124, F-125 and footnotes
1, 4, 11 and 12 which are as of
August 9, 1996)
F-120
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31 AUGUST 29
1995 1996
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 413 $ 194
Accounts receivable, net of
allowance for doubtful
accounts of $23............... 485 613
Receivable from related
parties....................... 160 --
Prepaid expenses................ 81 225
Materials and supplies.......... 112 112
Federal income tax
recoverable................... 20 --
------------ -----------
Total current assets...... 1,271 1,144
PROPERTY, net........................ 6,985 9,581
INVESTMENT IN UNCONSOLIDATED
ENTITY............................. 2,023 3,709
OTHER ASSETS......................... 143 145
------------ -----------
Total assets.............. $ 10,422 $14,579
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- Trade....... 300 304
Notes payable -- Stockholder.... 50 --
Current portion of long-term
obligations................... 1,232 1,473
Amounts due to related party.... -- 1,251
Accrued liabilities............. 258 961
------------ -----------
Total current
liabilities............. 1,840 3,989
------------ -----------
LONG-TERM OBLIGATIONS................ 4,958 6,323
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock.................... 50 50
Additional paid-in capital...... 1,669 1,669
Retained earnings............... 2,141 2,784
Less treasury stock, at cost.... (236) (236)
------------ -----------
Total stockholders'
equity.................. 3,624 4,267
------------ -----------
Total liabilities and
stockholders' equity.... $ 10,422 $14,579
============ ===========
See notes to consolidated financial statements.
F-121
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT
NINE MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31 SEPTEMBER 30 AUGUST 29
1995 1995 1996
----------- ------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES............................. $ 8,589 $ 6,221 $ 7,080
OPERATING EXPENSES................... 5,161 3,793 4,390
----------- ------------- -----------
Gross profit.................... 3,428 2,428 2,690
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,985 1,488 1,656
----------- ------------- -----------
Operating income................ 1,443 940 1,034
OTHER (INCOME) EXPENSE:
Interest expense................ 522 391 411
Earnings from investment in
unconsolidated entity........ (762) (510) (432)
----------- ------------- -----------
INCOME BEFORE FEDERAL INCOME TAXES
AND EXTRAORDINARY ITEM............. 1,683 1,059 1,055
PROVISION FOR FEDERAL INCOME TAXES... 281 177 412
----------- ------------- -----------
INCOME BEFORE EXTRAORDINARY ITEM..... $ 1,402 $ 882 $ 643
EXTRAORDINARY ITEM NET OF TAX........ 421 -- --
----------- ------------- -----------
NET INCOME........................... $ 981 $ 882 $ 643
=========== ============= ===========
</TABLE>
See notes to consolidated financial statements.
F-122
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL LESS
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1995 --
As previously reported................ $ 50 $1,220 $ 1,217 $ -- $ 2,487
Prior period adjustment (net of $29,600
tax).................................. -- -- (57) -- (57)
------- ---------- --------- --------- ---------
BALANCE JANUARY 1, 1995 --
As restated........................... 50 1,220 1,160 -- 2,430
Net income.............................. -- -- 981 -- 981
Conversion of former stockholder's
payable............................... -- 449 -- -- 449
Treasury stock purchased -- 2,500
shares................................ -- -- -- (236) (236)
------- ---------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995............ 50 1,669 2,141 (236) 3,624
------- ---------- --------- --------- ---------
Net income.............................. -- -- 643 -- 643
------- ---------- --------- --------- ---------
Balance at August 29, 1996
(unaudited)........................... $ 50 $1,669 $ 2,784 $ (236) $ 4,267
======= ========== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-123
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT
NINE MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31 SEPTEMBER 30 AUGUST 29
1995 1995 1996
------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 981 $ 882 $ 643
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation.................... 916 637 692
Deferred federal income tax..... 20 -- --
Earnings from investment in
unconsolidated
entity....................... (762) (518) (432)
Changes in assets and
liabilities --
Accounts receivable........ (324) (50) (128)
Prepaid expenses........... 50 (54) (124)
Accounts payable and
accrued liabilities..... 82 (130) 707
Other...................... 240 6 105
------------ ------------ -----------
Net cash provided by
operating
activities........ 1,203 773 1,463
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset purchases.............. (765) (328) (3,641)
Proceeds from the sale of buses.... 364 364 353
------------ ------------ -----------
Net cash used in
investing
activities........ (401) 36 (3,288)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations..................... (1,405) (915) (1,443)
Proceeds from issuance of debt..... 702 3,049
Loan from stockholder.............. 50 -- --
------------ ------------ -----------
Net cash provided by
(used in)
financing
activities........ (653) (915) 1,606
------------ ------------ -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... 149 (106) (219)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 264 264 413
------------ ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 413 $ 158 $ 194
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-124
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION
Texas Bus Lines, Inc. and Subsidiary (the "Company") generates its
revenues primarily in the Houston, Texas area by providing shuttle (see Note 7)
and charter services.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Texas Bus Lines, Inc. and its 100% owned subsidiary, Nevada Corporation, Inc.
(the "Company"). Intercompany accounts and transactions have been eliminated
in consolidation.
WORKING CAPITAL
The Company had a working capital deficit as of December 31, 1995. The
Company may continue to experience working capital deficits as they pursue their
current expansion of operations. The Company currently funds its activities with
cash flows from operations and debt from lenders. While there can be no
assurances, management believes that the Company has adequate financing
alternatives to fund operations through 1996.
UNCONSOLIDATED SUBSIDIARY
Generally accepted accounting principles require consolidation of a
subsidiary if it is controlled by its parent company. Since neither of the 50%
owners of K-T Contract Services, Inc. are deemed by management of either company
to control that subsidiary, it is accounted for on the equity method of
accounting. The equity method followed allows the parent company to record its
investment at cost adjusted for its share of profits and dividends. All
intercompany transactions are eliminated.
ACCOUNTS RECEIVABLE, BAD DEBTS, AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company has made a provision for bad debts based on management's
determination of uncollectible receivables including evaluation of factors such
as collateral, customers' credit worthiness, and anticipated economic
conditions.
PROPERTY, DEPRECIATION, AND AMORTIZATION
The Company uses the straight-line method and the following estimated
service lives in computing depreciation and amortization:
ESTIMATED
SERVICE LINES
-------------
Buses capitalized under lease
agreements......................... 10 years
Buses................................ 10 years
Furniture and fixtures............... 5 years
Leasehold improvements............... 30 years
Other equipment...................... 3 to 8 years
Effective January 1, 1995 the Company reduced the estimated useful lives of
buses from twelve to ten years and increased the salvage value from 0% to 50% of
cost. These revisions were made to more properly reflect true economic lives of
the assets and to better align the Company's depreciated value with the
estimated market value. The effect of this change was to reduce 1995
depreciation expense and increase net income by approximately $89,485.
F-125
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures for maintenance and repairs are charged to operating expenses
as incurred; expenditures for renewals and replacements are capitalized. When
property is sold or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss on disposition
is included in income.
REVENUE RECOGNITION
Revenues are recognized from recreation, excursion, commuter and transit
services when such services are rendered. Costs associated with the revenues are
incurred and recorded as services are rendered.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS No. 109). Pursuant to SFAS No. 109, deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
INTANGIBLE ASSETS
Costs of obtaining certain intrastate operating certificates have been
capitalized, and are amortized using the straight-line method over a 25 year
period.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly
liquid investments with a remaining maturity of three months or less at the date
of acquisition to be cash equivalents.
MATERIALS AND SUPPLIES
Inventory consists primarily of diesel fuel and bus parts and is carried at
the lower of first-in, first-out cost or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management of the Company has, where appropriate, estimated the fair value
of financial instruments. These fair value amounts may be significantly affected
by the assumption used, including the discount rate and estimates of cash flow.
Accordingly, the estimates presented are not necessarily indicative of the
amounts that could be realized in current market exchange. Where Management's
estimates approximate carrying value, no separate disclosure of fair value is
shown.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results could differ from those estimates.
F-126
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENT IN UNCONSOLIDATED ENTITY
Investment in unconsolidated entity consists of the Company's cost and
equity of K-T Contract Services, Inc. which represents a 50% ownership at
December 31, 1995 is as follows (in thousands):
Balance, January 1, 1995............. $ 2,290
Equity in earnings................... 762
Intercompany eliminations............ (1,029)
----------
Balance, December 31, 1995........... $ 2,023
==========
Summary financial information of the unconsolidated entity is as follows
for the year ended December 31, 1995:
Assets:
Current Assets $ 5,958
Property -- Net...................... 21,688
Other assets......................... 209
----------
Total........................... $ 27,855
==========
Liabilities and Equity:
Current liabilities.................. $ 3,495
Non-current portion of long-term
obligations........................ 18,041
Deferred federal income taxes........ 643
Equity............................... 5,676
----------
Total........................... $ 27,855
==========
Revenues............................. $ 16,976
Expenses............................. 12,514
----------
Operating income..................... 4,462
Other expense........................ 2,182
----------
Income before federal income taxes
and extraordinary item............. 2,280
Provision for federal income taxes... 730
----------
Net income before extraordinary
item............................... 1,550
Extraordinary item................... 25
----------
Net income........................... $ 1,525
==========
F-127
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT
CURRENT LONG-TERM
PORTION PORTION
-------- ---------
(IN THOUSANDS)
Note payable to G E Capital Fleet
Services, due in monthly installments
of $13,095 including interest at 9.0%,
due June 2000, collateralized by
certain buses......................... $ 94 $ 637
Note payable to Post Oak Bank, due in
monthly installments of $9,375 plus
interest at 10.0%, due June 1998,
collateralized by certain buses....... 113 149
Note payable to Post Oak Bank, due in
monthly installments of $4,980 plus
interest at 10.0%, due May 1998,
collateralized by certain buses....... 60 80
Note payable to G E Capital Fleet
Services, due in monthly installments
of $7,714 including interest at 9.5%,
due January 1997, collateralized by
certain buses......................... 87 --
Note payable to Post Oak Bank, due in
monthly installments of $1,612
including interest at 10.5%, due
January 2000, collateralized by
certain buses......................... 19 42
Note payable to G E Capital Fleet
Services, due in monthly installments
of $8,182 including interest at 8.75%,
due August 1997, collateralized by
certain buses......................... 34 21
Note payable to Post Oak Bank, due in
monthly installments of $5,417 plus
interest at prime, due August 1996,
collateralized by certain buses....... 49
Note payable to Post Oak Bank, due in
monthly installments of $977 plus
interest at 11.0%, due March 1999,
collateralized by certain buses....... 12 25
Note payable to Coastal Banc, due in
monthly installments of $3,018
including interest at 10.75%, due
January 1997, collateralized by
certain buses......................... 34 3
Note payable to G E Capital Fleet
Services, due in monthly installments
of $5,496 including interest at 9.0%
due December 1996, collateralized by
certain buses......................... 32 --
Note payable to G E Capital Fleet
Services, due in monthly installments
of $3,297 including interest at 9.0%,
due November 1996, collateralized by
certain buses......................... 31 --
Note payable to Post Oak Bank, due in
monthly installments of $2,083 plus
interest at 9.25%, due August 1997,
collateralized by certain buses....... 25 6
Note payable to G E Capital Fleet
Services, due in monthly installments
of $4,262 including interest at 8.75%,
due August 1996, collateralized by
certain buses......................... 29 --
Note payable to G E Capital Fleet
Services, due in monthly installments
of $3,297 including interest at 9.0%,
due August 1996, collateralized by
certain buses......................... 22 --
(TABLE CONTINUED ON FOLLOWING PAGE)
F-128
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CURRENT LONG-TERM
PORTION PORTION
-------- ---------
(IN THOUSANDS)
Note payable to G E Capital Fleet
Services, due in monthly installments
of $3,297 including interest at 9.0%,
due October 1996, collateralized by
certain buses......................... 18 --
Note payable to G E Capital Fleet
Services, due in monthly installments
of $1,607 including interest at 9.0%,
due December 1996, collateralized by a
certain bus........................... 17 --
Note payable to G E Capital Fleet
Services, due in monthly installments
of $1,099 including interest at 9.0%,
due November 1996, collateralized by a
certain bus........................... 10 --
Note payable to Coastal Banc, due in
monthly installments of $529 including
interest at 9.0%, due September 1996,
collateralized by an automobile....... 5 --
-------- ---------
Total.............................. $ 691 $ 963
======== =========
Scheduled principal payments on the notes are as follows (in thousands):
1996.................................... $ 691
1997.................................... 332
1998.................................... 196
1999.................................... 136
2000.................................... 299
---------
Total.............................. $ 1,654
=========
CAPITALIZED LEASES
The Company leases certain buses under three different lease agreements
under terms which essentially constitute a purchase of the buses. The lease
terms call for monthly payments on each bus. The present values of the required
rentals and residual value guarantees have been capitalized and the obligations
recorded using the interest rate implicit in the lease. The assets are amortized
over their estimated service lives of five to ten years and interest on the
outstanding lease obligation is charged to expense during each period.
F-129
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a schedule of future minimum lease payments (including
guaranteed residual value payments) and capitalized lease obligations under
capitalized leases as of December 31, 1995 (in thousands):
AMOUNT
------
Year Ended December 31,
1996................................. $ 874
1997................................. 814
1998................................. 687
1999................................. 687
2000................................. 687
Thereafter........................... 2,507
------
6,256
Less amounts representing interest at
8.00% to 12.00%.................... 1,720
------
Total obligations under capital
leases............................. 4,536
Less current portion................. 541
------
Long-term obligations under capital
leases............................. $3,995
======
At December 31, 1995 assets capitalized under lease agreements had a net
book value of $5,277,459.
Based on the borrowing rates currently available to the Company for
long-term obligations with similar terms and average maturities, the fair value
of the Company's long-term obligations, including current maturities, was
$6,195,643 at December 31, 1995.
Operating expenses for 1995 include $280,773 of interest expense and
$305,722 of depreciation expense related to capitalized leases for buses.
Operating expenses also include $234,830 of lease expense related to buses under
operating leases that were leased from related parties and expired during 1995.
The Company has an operating lease agreement with a related party for land.
The lease is renewable annually and the rental expense of $117,600 for 1995 is
included in operating expenses.
During the year, the Company incurred charter expenses of $23,323 to
related parties. As of December 31, 1995 the Company has a net accounts
receivable trade balance with affiliates of $159,713. The Company had accounts
payable, primarily trade and settlement payment, due to K-T Contract Services,
Inc. (a related party) in the amount of $907,238 at December 31, 1995 which was
eliminated (see Note 2). The Company also had lease revenues of $121,814 from
K-T Contract Services, Inc. (a related party) which were eliminated (see Note
2). Furthermore, the following revenue amounts were earned from affiliates
during 1995: Outside services revenue -- $130,748 and charter
revenue -- $66,153.
The Company has entered into certain global agreements with lessors. The
agreements with lessors contain requirements concerning financial reporting,
minimum cash flow ratios, capital expenditure limits, limits on indebtedness,
various administrative requirements and certain other restrictive covenants.
The Company has an uncollateralized note payable to the stockholder,
bearing interest at 9%, due upon demand.
F-130
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a non-interest bearing, uncollateralized note receivable
from the stockholder, due upon demand.
4. FEDERAL INCOME TAXES
The provision for federal income taxes are as follows for 1995 (in
thousands):
Current.............................. $ 73
Deferred............................. 208
---------
Total................................ $ 281
=========
Deferred income taxes and benefits under SFAS No. 109 are provided between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Temporary differences and the resulting deferred tax
assets (liabilities) at December 31, 1995 follow (in thousands):
Depreciable assets................... $ (214)
Settlement costs (see Note 9)........ 217
General business credit
carryforward....................... 290
Valuation allowance.................. (293)
---------
Total net deferred asset
(liability)........................ $ --
=========
The reconciliation of income tax attributable to continuing operations
computed at federal statutory tax rates to income tax expense is (in thousands):
Tax at statutory rates............... $ 572
Net effect of earnings of
unconsolidated entity.............. (301)
Net effect of extraordinary item (See
note 9)............................ 217
Net effect of write-off of debt...... (79)
Net effect of general business
credit............................. (69)
Net effect of alternative minimum tax
carryforward....................... (44)
Net effect of net operating loss
carryforward....................... (18)
Non-deductible items................. 6
Other................................ (3)
---------
Total................................ $ 281
=========
5. SUMMARY OF NON-CASH TRANSACTIONS
Notes payable of $702,316 were incurred to purchase buses. Capital lease
obligations totaling $3,247,382 were incurred to purchase buses under various
capital leases.
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest was $443,106.
Cash paid during the year for income taxes was $114,799.
F-131
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CONCENTRATIONS OF RISK
The Company is subject to the risks associated with the bus business
including realizability of costs, although management is not aware of any
immediate risk of loss from its significant concentration of business that
would, if suddenly eliminated, severely impact operations. The Company's primary
operations are in Houston, Texas and about one-half of its revenues are derived
from providing airport shuttle operations for Houston's Hobby Airport. The
contract expires in 1999 and has two one year options for renewal.
The Company's unconsolidated subsidiary is subject to the risks associated
with the bus business including realizability of costs, although management is
not aware of any immediate risk of loss from its significant concentration of
business that would, if suddenly eliminated, severely impact operations. The
Company's primary operations are in Las Vegas, Nevada and about one-half of its
revenues are derived from providing employee shuttle operations under a contract
with Reynolds Electrical & Engineering Co., Inc. The contract expires in June
1997.
8. ADVERTISING EXPENSES
The Company charges to expense all advertising expenses as incurred. The
Company's advertising expenses were approximately $49,535 in 1995.
9. SETTLEMENT
At March 7, 1995, the Company, certain related companies (see Note 2), and
certain directors (the "Company et al") were named as defendants in a lawsuit
asserted by a shareholder. On December 31, 1995, the Company et al entered into
a Purchase and Settlement Agreement (the "Agreement") whereby such shareholder
agreed to sell her shares of the Company and a related company in exchange for
the following settlement consideration on the closing date (January 3, 1996):
first, the Company's and a related company's cash payment of $1,000,000 to such
shareholder; second, a related Company's delivery to such shareholder of a
promissory note in the face amount of $500,000; and third, two related companies
agreement to pay such shareholder contingency payments of certain percentages of
revenues over certain amounts, with no maximum limit, or the minimum of $300,000
if revenue levels are not achieved.
As a result of this Agreement, the Company has recorded a payable to a
related party in the amount of $500,000 for its share (50%) of the cash payment,
which resulted in a $263,638 charge to earnings and the acquisition of treasury
stock in the amount of $236,362. The Company recorded a related party payable
and a charge to earnings in the amount of $375,000 for its share of the
promissory note. The Company has also been relieved of any future payments on a
note payable that existed prior to these settlements due to such shareholder and
has credited additional paid in capital in the amount of $449,447.
10. CONTINGENCIES
The Company has commitments and contingencies including the items described
in Note 4 and the future payments described in Note 9 and in the normal course
of business which are not considered by management to be likely to result in a
material adverse effect on the December 31, 1995 financial position.
11. RESTATEMENT OF BEGINNING RETAINED EARNINGS
The Company has restated its beginning retained earnings to correct errors
in the prior financial statements.
F-132
<PAGE>
TEXAS BUS LINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS
In July 1996, the Company's sole shareholder entered into a letter of
intent reaching an agreement in principle to sell all of the outstanding stock
of the Company. Another letter of intent was entered into by the Company to sell
the Company's 50% investment in K-T Contract Services, Inc. No definitive
agreements have been made.
Both letters of intent are contingent upon conditions including regulatory
filings and approvals and certain other matters, and could affect the
allocations discussed in Note 9.
F-133
<PAGE>
================================================================================
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, THE SELLING STOCKHOLDERS 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.......................... 8
Risk Factors......................... 10
Price Range of Common Stock and
Dividend Policy.................... 14
Use of Proceeds...................... 14
Capitalization....................... 15
Selected Pro Forma Financial Data.... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
Business............................. 32
Management........................... 45
Certain Transactions................. 50
Principal and Selling Stockholders... 53
Description of Capital Stock......... 55
Shares Eligible for Future Sale...... 56
Underwriting......................... 58
Legal Matters........................ 59
Experts.............................. 59
Additional Information............... 60
Index to Financial Statements........ F-1
================================================================================
3,100,000 SHARES
COACH USA, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
ALEX. BROWN & SONS
INCORPORATED
SMITH BARNEY INC.
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the offering
described in this Registration Statement. All of such amounts (except the SEC
Registration Fee, the NASD Filing Fee and the Nasdaq Filing Fee) are estimated.
SEC Registration Fee................. $ 29,708
NASD Filing Fee...................... 20,108
Nasdaq Filing Fee.................... 17,500
Blue Sky Fees and Expenses........... 5,000
Printing and Engraving Costs......... 300,000
Legal Fees and Expenses.............. 200,000
Accounting Fees and Expenses......... 400,000
Transfer Agent and Registrar Fees and
Expenses........................... 12,000
Miscellaneous........................ 15,684
--------------
Total..................... $ 1,000,000
==============
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's By-laws provide that the Company shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Article Seven of the Company's Certificate of Incorporation provides that
the Company's directors will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (a) for any breach of the duty of loyalty to the
Company or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of the State of Delaware, which makes
directors liable for unlawful dividends or unlawful stock repurchases or
redemptions, or (d) for transactions from which directors derive improper
personal benefit.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold by the Company within the past three years which were not registered under
the Securities Act:
(i) In December 1995, the Company issued 147.3724 shares of Common
Stock to Notre Capital Ventures II, L.L.C. for $1,000;
(ii) In January 1996, the Company issued 30 shares of Common Stock at
an effective price of $.01 per share to officers of the Company; and
(iii) In March 1996, the Company issued 39.2 shares of Common Stock
at an effective price of $.01 per share to officers of the Company, Shelli
LePori (an employee of Notre), Dominic Pupolo and M Three Trust (a trust
for the benefit of the children of Paul M. Verrochi).
Subsequent to the issuance of the foregoing shares, and prior to the
completion of the Offering, Coach USA declared a stock dividend and issued 9,999
shares of Common Stock for each share of Common Stock then outstanding.
Simultaneously with the completion of this Offering, the Company issued
5,099,687 shares of its Common Stock in connection with the Mergers of the six
Founding Companies.
In connection with the August Acquisitions, the Company issued 2,555,820
shares of Common Stock to the stockholders of the Pooled Companies and
convertible debt currently convertible into 750,460 shares of Common Stock to
the stockholders of the Purchased Companies.
Each of these transactions was effected without registration of the
relevant security under the Securities Act in reliance upon the exemption
provided by Section 4(2) of the Securities Act for transactions not involving a
public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- -------------------------------------------------------------
1 -- Form of Underwriting Agreement.*
2.1 -- Agreement and Plan of Organization,
dated as of March 21, 1996, by and
among Coach USA, Inc., Suburban
Transit Corp. and affiliated
entities, Suburban Trails Acquisition
Corp. and affiliated entities and the
Stockholders named therein
(Incorporated by reference to Exhibit
2.1 to Amendment No. 1 to the
Registration Statement on Form S-1
(File No. 333-2704) of the Company)
2.2 -- Agreement and Plan of Organization,
dated as of March 21, 1996, by and
among Coach USA, Inc., Grosvenor Bus
Lines, Inc., Grayline Acquisition
Corp. and the Stockholders named
therein (Incorporated by reference to
Exhibit 2.2 to Amendment No. 1 to the
Registration Statement on Form S-1
(File No. 333-2704) of the Company)
2.3 -- Agreement and Plan of Organization,
dated as of March 21, 1996, by and
among Coach USA, Inc., Leisure Time
Tours, Leisure Line Acquisition Corp.
and the Stockholders named therein
(Incorporated by reference to Exhib-
it 2.3 to Amendment No. 1 to the
Registration Statement on Form S-1
(File No. 333-2704) of the Company)
2.4 -- Agreement and Plan of Organization,
dated as of March 21, 1996, by and
among Coach USA, Inc., Community
Coach, Inc. and affiliated entities,
Community Coach Acquisition Corp. and
affiliated entities and the
Stockholders named therein
(Incorporated by reference to Exhibit
2.4 to Amendment No. 1 to the
Registration Statement on Form S-1
(File No. 333-2704) of the Company)
II-2
<PAGE>
2.5 -- Agreement and Plan of Organization,
dated as of March 21, 1996, by and
among Coach USA, Inc., Arrow Stage
Lines, Inc., Arrow Stage Acquisition
Corp. and the Stockholders named
therein (Incorporated by reference to
Exhibit 2.5 to Amendment No. 1 to the
Registration Statement on Form S-1
(File No. 333-2704) of the Company)
2.6 -- Agreement and Plan of Organization,
dated as of March 21, 1996, by and
among Coach USA, Inc., Cape Transit
Corp., Adventure Trails Acquisition
Corp. and the Stockholders named
therein (Incorporated by reference to
Exhibit 2.6 to Amendment No. 1 to the
Registration Statement on Form S-1
(File No. 333-2704) of the Company)
2.7 -- Agreement and Plan of Reorganization
dated as of August 29, 1996 by and
among Coach USA, Inc., Coach V
Acquisition, Inc., Yellow Cab Service
Corporation, George D. Kamins, Joseph
M. Chernow and Equus II Incorporated
(Incorporated by reference to Exhibit
2.3 to the Company's Current Report
on Form 8-K dated September 13,
1996).
2.8 -- Stock Purchase Agreement dated as of
August 29, 1996 by and among Coach
USA, Inc., Texas Bus Lines, Inc. and
Scott Keller (Incorporated by
reference to Exhibit 2.5 to the
Company's Current Report on Form 8-K
dated September 13, 1996).
2.9 -- Stock Purchase Agreement dated as of
August 29, 1996 by and among Coach
USA, Inc., K-T Contract Services,
Inc., Kerrville Bus Company, Inc. and
Fred Kaiser (Incorporated by
reference to Exhibit 2.6 to the
Company's Current Report on Form 8-K
dated September 13, 1996).
3.1 -- Amended and Restated Certificate of
Incorporation of Coach USA (In-
corporated by reference to Exhibit
3.1 to the Registration Statement on
Form S-1 (File No. 333-2704) of the
Company)
3.2 -- By-Laws of Coach USA (Incorporated by
reference to Exhibit 3.2 to the
Registration Statement on Form S-1
(File No. 333-2704) of the Company)
4 -- Form of certificate evidencing
ownership of Common Stock of Coach
USA (Incorporated by reference to
Exhibit 4.1 to the Registration
Statement on Form S-1 (File No.
333-2704) of the Company)
5 -- Opinion of Morgan, Lewis & Bockius
LLP*
10.1 -- Coach USA 1996 Long-Term Incentive
Plan (Incorporated by reference to
Exhibit 10.1 to Amendment No. 2 to
the Registration Statement on Form
S-1 (File No. 333-2704) of the
Company)
10.2 -- Coach USA 1996 Non-Employee
Directors' Stock Plan (Incorporated
by reference to Exhibit 10.2 to
Amendment No. 2 to the Registration
Statement on Form S-1 (File No.
333-2704) of the Company)
10.3 -- Employment Agreement between Coach
USA and Richard H. Kristinik
(Incorporated by reference to Exhibit
10.3 to the Registration Statement on
Form S-1 (File No. 333-6525) of the
Company)
10.4 -- Employment Agreement between Coach
USA and Lawrence K. King (In-
corporated by reference to Exhibit
10.4 to the Registration Statement on
Form S-1 (File No. 333-6525) of the
Company)
10.5 -- Employment Agreement between Coach
USA and Douglas M. Cerny (In-
corporated by reference to Exhibit
10.5 to the Registration Statement on
Form S-1 (File No. 333-6525) of the
Company)
10.6 -- Employment Agreement between Coach
USA, Cape Transit Corp. and John
Mercadante, Jr. (Incorporated by
reference to Exhibit 10.6 to the
Registration Statement on Form S-1
(File No. 333-6525) of the Company)
10.7 -- Employment Agreement among Coach USA,
Community Coach, Inc. and affiliated
entities and Frank P. Gallagher
(Incorporated by reference to Exhibit
10.7 to the Registration Statement on
Form S-1 (File No. 333-6525) of the
Company)
10.8 -- Employment Agreement among Coach USA,
Suburban Transit Corp. and affiliated
entities and Kenneth Kuchin
(Incorporated by reference to Exhibit
10.8 to the Registration Statement on
Form S-1 (File No. 333-6525) of the
Company)
II-3
<PAGE>
10.9 -- Employment Agreement among Coach USA,
Leisure Time Tours and Gerald
Mercadante (Incorporated by reference
to Exhibit 10.9 to the Registration
Statement on Form S-1 (File No.
333-6525) of the Company)
10.10 -- Employment Agreement between
Grosvenor Bus Lines, Inc. and Robert
K. Werbe (Incorporated by reference
to Exhibit 10.10 to the Registration
Statement on Form S-1 (File No.
333-6525) of the Company)
10.11 -- Employment Agreement between Arrow
Stage Lines, Inc. and Charles D.
Busskohl (Incorporated by reference
to Exhibit 10.11 to the Registration
Statement on Form S-1 (File No.
333-6525) of the Company)
10.12 -- Consulting Agreement between Coach
USA and Exel Holdings, Ltd.*
10.13 -- Agreement between Coach USA and Exel
Motorcoach Partners LLC with respect
to acquisitions*
10.14 -- Agreement from Coach USA and certain
of its stockholders to the
stockholders of the Founding
Companies with respect to
restrictions on transfers of Common
Stock, registration rights and
related matters (Incorporated by
reference to Exhibit 10.14 to the
Registration Statement on Form S-1
(File No. 333-6525) of the Company)
10.15 -- Leases by and between Gerdaneu, Inc.
and Leisure Time Tours related to
property located in Mahwah and
Pleasantville, New Jersey and
Philadelphia, Pennsylvania
(Incorporated by reference to Exhibit
10.15 to the Registration Statement
on Form S-1 (File No. 333-6525) of
the Company)
10.16 -- Lease by and between Liberty Street
Corporation and Community Coach, Inc.
and its affiliated entities related
to property located in Passaic, New
Jersey (Incorporated by reference to
Exhibit 10.16 to the Registration
Statement on Form S-1 (File No.
333-6525) of the Company)
10.17 -- Lease and Sublease by and between
Tri-County Bus Lines, Inc. and Commu-
nity Coach, Inc. and its affiliated
entities related to property located
in Passaic, New Jersey (Incorporated
by reference to Exhibit 10.17 to the
Registration Statement on Form S-1
(File No. 333-6525) of the Company)
10.18 -- Leases by and between Sidney Kuchin
and Suburban Transit Corp. or one of
its affiliated entities related to
property located in South Plainfield,
New Brunswick, and Monroe Township,
New Jersey (the "Leases")
(Incorporated by reference to Exhibit
10.18 to Amendment No. 1 to the
Registration Statement on Form S-1
(File No. 333-2704) of the Company)
together with riders and amendments
to the Leases
10.19 -- Lease by and between a stockholder of
Arrow Stage Lines, Inc. and Arrow
Stage Lines, Inc. related to property
located in Phoenix, Arizona
(Incorporated by reference to Exhibit
10.19 to the Registration Statement
on Form S-1 (File No. 333-6525) of
the Company)
10.20 -- Credit Agreement dated as of August
14, 1996 among Coach USA, Inc. as
Borrower and The Financial
Institutions named therein, as Banks,
and NationsBank of Texas, N.A., as
Agent for the Banks, providing for a
$115,000,000 revolving credit
facility (Incorporated by reference
to Exhibit 99.1 to the Company's
Current Report on Form 8-K dated
September 13, 1996)
21 -- List of subsidiaries of Coach USA*
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Burnside & Rishebarger
PLLC
23.3 -- Consent of Morgan, Lewis & Bockius
LLP (contained in Exhibit 5)*
24 -- Power of Attorney*
27 -- Financial Data Schedule
- ------------
* Previously filed
(b) Financial Statement Schedules
None
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes as follows:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance on Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it is declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be the initial
bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS AMENDMENT NO. 2 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
TEXAS, ON THE 15TH DAY OF NOVEMBER, 1996.
COACH USA, INC.
By: RICHARD H. KRISTINIK
RICHARD H. KRISTINIK
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE OR DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ---------------------------------------------------------------------------------------- ------------------
<S> <C> <C>
RICHARD H. KRISTINIK Chairman of the Board and Chief November 15, 1996
RICHARD H. KRISTINIK Executive Officer (Principal
Executive Officer)
LAWRENCE K. KING Senior Vice President, Chief November 15, 1996
LAWRENCE K. KING Financial Officer and Director
(Principal Financial and Accounting
Officer)
* Director November 15, 1996
STEVEN S. HARTER
* President, Chief Operating Officer November 15, 1996
JOHN MERCADANTE, JR. and Director
* Vice Chairman of the Board November 15, 1996
KENNETH KUCHIN
II-6
<PAGE>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ---------------------------------------------------------------------------------------- ------------------
* Senior Vice President -- Corporate November 15, 1996
FRANK P. GALLAGHER Development and Director
* Senior Vice President -- Northeast November 15, 1996
GERALD MERCADANTE Region Operations and Director
* Director November 15, 1996
CHARLES D. BUSSKOHL
* Director November 15, 1996
WILLIAM J. LYNCH
* Director November 15, 1996
PAUL M. VERROCHI
* Director November 15, 1996
THOMAS A. WERBE
*By:/s/DOUGLAS M. CERNY
ATTORNEY-IN-FACT
</TABLE>
II-7
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
November 15, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
BURNSIDE & RISHEBARGER PLLC
San Antonio, Texas
November 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FOUNDING COMPANIES COMBINED BALANCE SHEETS AND COMBINED
STATEMENTS OF INCOME, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,395,000
<SECURITIES> 0
<RECEIVABLES> 19,672,000
<ALLOWANCES> 1,401,000
<INVENTORY> 7,202,000
<CURRENT-ASSETS> 40,578,000
<PP&E> 231,993,000
<DEPRECIATION> 65,490,000
<TOTAL-ASSETS> 247,166,000
<CURRENT-LIABILITIES> 49,937,000
<BONDS> 0
0
0
<COMMON> 140,000
<OTHER-SE> 53,143,000
<TOTAL-LIABILITY-AND-EQUITY> 247,166,000
<SALES> 94,147,000
<TOTAL-REVENUES> 94,147,000
<CGS> 66,532,000
<TOTAL-COSTS> 79,021,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,761,000
<INCOME-PRETAX> 10,365,000
<INCOME-TAX> 4,306,000
<INCOME-CONTINUING> 6,059,000
<DISCONTINUED> 0
<EXTRAORDINARY> 4,205,000
<CHANGES> 0
<NET-INCOME> 10,264,000
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
