SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended MARCH 31, 1997 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______ to ______
Commission File Number: 1-12939
------------------
COACH USA, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0496471
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE RIVERWAY, SUITE 600
HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 888-0104
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock of the Registrant, par value $.01 per
share, outstanding at May 14, 1997 was 18,151,440.
<PAGE>
COACH USA, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item I - Financial Statements
COACH USA, INC. PRO FORMA COMBINED
Introduction to Pro Forma Combined Statements of Income........ 3
Pro Forma Combined Statements of Income........................ 4
Notes to Pro Forma Combined Statements of Income............... 5
COACH USA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets.......................... 6
Condensed Consolidated Statements of Income.................... 7
Condensed Consolidated Statements of Stockholders' Equity...... 8
Condensed Consolidated Statements of Cash Flows................ 9
Notes to Condensed Consolidated Financial Statements...........10
Item II - Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................16
PART II - OTHER INFORMATION
Item 2 - Changes in Securities.......................................20
(c)Recent Sales of Unregistered Securities.
Item 6 - Exhibits and Reports on Form 8-K............................20
(a)Exhibits.
27 Financial Data Schedule.
(b)Reports on Form 8-K.
Signature...............................................................21
2
<PAGE>
COACH USA, INC.
PART I, ITEM 1 -- FINANCIAL INFORMATION
GENERAL INFORMATION
INTRODUCTION TO PRO FORMA COMBINED STATEMENTS OF INCOME
In September 1995, Coach USA, Inc. ("Coach USA" or the "Company"), was
founded to create a national company providing motorcoach transportation
services, including charter and tour services, and related passenger ground
transportation services.
In May 1996, Coach USA acquired, simultaneously with the closing of an
initial public offering (the "Initial Public Offering"), six established
businesses. Consideration for these businesses consisted of a combination of
cash and common stock of Coach USA. These six businesses along with Coach USA
prior to the Initial Public Offering are referred to herein as the "Founding
Companies" and the transaction pursuant to which these six businesses were
acquired is referred to herein as the "Merger" or "Mergers." Coach USA acquired
nine additional businesses in 1996 and three additional businesses on February
28, 1997. Of these twelve additional businesses acquired (collectively the
"Acquisitions"), seven were accounted for as poolings-of-interests and are
referred to herein as the "Pooled Companies." The remaining five businesses
acquired were accounted for as purchases and are referred to herein as the
"Purchased Companies."
The accompanying pro forma combined statements of income of the Company for
the three months ended March 31, 1996 and 1997, respectively, include the
combined operations of the Pooled Companies and the Founding Companies from
January 1, 1996, and the Purchased Companies from the date of their acquisition.
The Founding Companies were not under common control or management through
May 1996. The Pooled Companies and Purchased Companies were not under common
control or management prior to their acquisition. This pro forma information may
not be indicative of the actual results if the transactions had occurred on the
dates indicated or which may be realized in the future. Neither expected
benefits and cost reductions anticipated by the Company nor future corporate
costs of Coach USA, nor interest expense savings as a result of the offering
proceeds have been reflected in the pro forma information for 1996.
Operating results for the interim periods are not necessarily indicative of
the results for full years. The results of the Company have historically been
subject to significant seasonal fluctuations. It is suggested that these pro
forma combined financial statements be read in conjunction with the consolidated
financial statements of the Company and the Founding Companies and the notes
thereto included in the Company's Annual Report on Form 10-K (File No. 28056),
as filed with the Securities and Exchange Commission ("SEC").
3
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA )
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1996 1997
REVENUES.....................................................$52,515 $69,311
OPERATING EXPENSES........................................... 42,778 54,386
------- -------
Gross profit........................................... 9,737 14,925
GENERAL AND ADMINISTRATIVE EXPENSES.......................... 9,330 7,920
GOODWILL AMORTIZATION........................................ 47 318
ACQUISITION RELATED COSTS.................................... -- 117
------- -------
Operating income....................................... 360 6,570
INTEREST EXPENSE............................................. 2,587 3,199
------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS.... (2,227) 3,371
PROVISION FOR INCOME TAXES................................... 45 1,402
------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS..................... (2,272) 1,969
EXTRAORDINARY ITEMS (NET OF INCOME TAXES).................... -- 89
------- -------
NET INCOME (LOSS)............................................$(2,272) $ 1,880
======= =======
PRO FORMA ADJUSTMENTS:
Income (loss) before extraordinary items..................$(2,272) $ 1,969
Pro forma compensation and interest differential.......... 3,592 107
Acquisition related costs................................. -- 117
Less: Pro forma provision for income taxes............... 504 43
------- -------
PRO FORMA INCOME BEFORE EXTRAORDINARY ITEMS..................$ 816 $ 2,150
======= =======
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING....................... 13,372 18,513
======= =======
PRO FORMA INCOME PER COMMON AND COMMON
EQUIVALENT SHARE BEFORE EXTRAORDINARY ITEMS..................$ .06 $ .12
The accompanying notes are an integral part of these pro forma combined
statements of income.
4
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED STATEMENTS OF INCOME
BACKGROUND AND ORGANIZATION
The Founding Companies and Pooled Companies have been managed prior to
their acquisitions as independent private companies. Therefore, general and
administrative expenses and interest expense for the periods presented reflect
compensation and related benefits that owners received from their respective
businesses prior to acquisition. Additional pro forma adjustments have been
presented for the purpose of reflecting net income as if the merger of the
Founding Companies and the acquisition of the Pooled Companies had occurred
January 1, 1996. Certain stockholders agreed to reductions in salaries, benefits
and the conversion of outstanding debt to equity in connection with the
Acquisitions. Certain stockholders also have entered into employment agreements
which provide for a set base salary, participation in future incentive bonus
plans, certain other benefits and two-year covenants not to compete following
termination of such person's employment.
The pro forma data presents compensation at the level that certain
stockholders of the Company agreed to receive from the Companies subsequent to
the Merger and Pooled Company acquisitions as well as a non-recurring non-cash
charge recorded by the Company in March 1996. In addition, the pro forma data
presents the reduction of interest expense related to the conversion of
stockholders' debt to equity at one of the Pooled Companies and the incremental
provision for income taxes as if all entities had been subject to federal and
state income taxes and for the impact of the compensation differential and
interest reduction discussed above.
PRO FORMA NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The computation of pro forma net income per common and common equivalent
share for the three months ended March 31, 1996 is based upon 13,371,675
weighted average shares outstanding which 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 Initial Public
Offering, (iii) 1,700,714 of the 4,140,000 shares sold in the Initial Public
Offering to pay the cash portion of the consideration for the Founding
Companies, (iv) 118,142 of the 4,140,000 shares sold in the Initial Public
Offering attributed to excess S Corporation distributions, (v) 3,862,369 shares
issued in connection with the acquisition of the Pooled Companies, and (vi)
425,039 shares issued in connection with the conversion of indebtedness to
equity at one of the Pooled Companies.
The computation of pro forma net income per common and common equivalent
share for the three months ended March 31, 1997 is based upon 18,512,629
weighted average shares outstanding, common and common equivalent share, which
include (i) 17,777,126 shares issued and outstanding for the entire three month
period, (ii) 981 shares issued to minority interest of the Pooled Companies, and
(iii) 734,522 shares representing the weighted average portion of shares for the
dilution attributable to outstanding options to purchase the Company's common
stock, using the treasury stock method.
5
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, March 31,
1996 1997
-------- --------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 1,470 $ 6,544
Accounts receivable, less allowance of $2,096 and
$ 2,213............................................. 18,659 22,526
Notes receivable, current portion .................... 2,811 4,098
Inventories .......................................... 8,758 9,701
Prepaid expenses and other current assets ............ 12,628 14,925
-------- --------
Total current assets ............................. 44,326 57,794
PROPERTY AND EQUIPMENT, net ............................... 210,754 269,925
NOTES RECEIVABLE, less allowance of $500 and $500 ......... 4,231 5,013
GOODWILL, NET ............................................. 30,142 72,447
OTHER ASSETS, NET ......................................... 10,497 10,945
-------- --------
Total assets ..................................... $299,950 $416,124
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations .......... $ 14,877 $ 6,452
Accounts payable and accrued liabilities ............. 36,948 72,131
-------- --------
Total current liabilities ........................ 51,825 78,583
LONG-TERM OBLIGATIONS, net of current maturities .......... 98,106 160,368
CONVERTIBLE SUBORDINATED NOTES, net of current maturities.. 18,500 36,830
DEFERRED INCOME TAXES ..................................... 21,593 28,537
-------- --------
Total liabilities ................................ 190,024 304,318
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock $.01 par, 30,000,000 shares authorized,
17,777,126 and 17,778,107 shares issued and
outstanding ....................................... 178 178
Additional paid-in capital ........................... 101,325 101,325
Retained earnings .................................... 8,423 10,303
-------- --------
Total stockholders' equity ....................... 109,926 111,806
-------- --------
Total liabilities and stockholders' equity ....... $299,950 $416,124
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA )
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1996 1997
-------- --------
REVENUES.......................................................$ 28,294 $ 69,311
OPERATING EXPENSES............................................. 21,234 54,386
Gross profit............................................ 7,060 14,925
GENERAL AND ADMINISTRATIVE EXPENSES............................ 4,311 8,238
ACQUISITION RELATED COSTS...................................... -- 117
-------- --------
Operating income........................................ 2,749 6,570
INTEREST EXPENSE............................................... 1,868 3,199
-------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS......................................... 881 3,371
PROVISION FOR INCOME TAXES..................................... 431 1,402
-------- --------
INCOME BEFORE EXTRAORDINARY ITEMS.............................. 450 1,969
EXTRAORDINARY ITEMS (NET OF INCOME TAXES)...................... -- 89
-------- --------
NET INCOME.....................................................$ 450 $ 1,880
======== ========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING................................ 3,862 18,513
======== ========
INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
INCOME BEFORE EXTRAORDINARY ITEMS...........................$ .12 $ .10
EXTRAORDINARY ITEMS......................................... -- --
NET INCOME .................................................$ .12 $ .10
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
----------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 ..................................... 3,863 $ 39 $ 5,160 $ (820) $ 4,379
Issuance of Common Stock:
Proceeds of stock offerings ................................ 6,224 62 96,502 -- 96,564
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 Companies'
Shareholders ............................................... -- -- (23,810) -- (23,810)
Reorganization ................................................ -- -- 4,402 (4,402) --
Conversion from S Corporation to C Corporation
for Founding Companies ..................................... -- -- -- (5,426) (5,426)
Conversion of debt to equity .................................. 425 4 10,198 -- 10,202
S Corporation dividends paid by certain Pooled
Companies .................................................. -- -- -- (1,838) (1,838)
Adjustment to conform fiscal year ends of Pooled
Companies .................................................. -- -- -- 267 267
Net income .................................................... -- -- -- 13,540 13,540
Capital contributions equal to the current income
taxes of S Corporations .................................... -- -- 341 -- 341
Other ......................................................... -- -- 154 -- 154
------ ------ --------- -------- ---------
BALANCE AT DECEMBER 31, 1996 ..................................... 17,777 178 101,325 8,423 109,926
Net income (unaudited) ........................................ 1 -- -- 1,880 1,880
------ ------ --------- -------- ---------
BALANCE AT MARCH 31, 1997 (unaudited) ............................ 17,778 $ 178 $ 101,325 $ 10,303 $ 111,806
====== ====== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
8
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1996 1997
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 450 $ 1,880
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization ....................... 2,213 5,288
Deferred tax provision .............................. 521 1,930
Changes in operating assets and liabilities-
Accounts receivable, net ......................... 37 (56)
Inventories ...................................... (826) (372)
Notes receivable ................................. (2,618) (2,069)
Prepaid expenses and other current assets ........ 15 (1,149)
Accounts payable and accrued liabilities ......... 1,822 20,278
Other ............................................ 309 93
------- --------
Net cash provided by operating activities ..... 1,923 25,823
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment .................... (4,058) (31,672)
Proceeds from sales of property and equipment .......... -- 2,057
Cash consideration paid for Purchased Companies,
net of cash acquired ................................. -- (26,128)
------- --------
Net cash used in investing activities ......... (4,058) (55,743)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations ............ (2,276) (34,384)
Proceeds from issuance of long-term obligations ........ 4,048 69,378
S Corporation dividends paid by certain Pooled Companies (487) --
------- --------
Net cash provided by financing activities ..... 1,285 34,994
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...... (850) 5,074
CASH AND CASH EQUIVALENTS, beginning of period ............ 3,411 1,470
------- --------
CASH AND CASH EQUIVALENTS, end of period .................. $ 2,561 $ 6,544
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest .............................. $ 82 $ 3,520
Cash paid for income taxes .......................... 1,647 477
Assets acquired under capital leases ................ 2,981 2,355
Debt issued for Purchased Companies ................. -- 18,330
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
9
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
In September 1995, Coach USA, Inc. ("Coach USA" or the "Company") was
founded to create a national company providing motorcoach transportation
services, including charter and tour services, and related passenger ground
transportation services.
In May 1996, Coach USA acquired, simultaneously with the closing of its
initial public offering (the "Initial Public Offering"), six established
businesses. Consideration for these businesses consisted of a combination of
cash and common stock of Coach USA (the "Common Stock"). These six businesses
along with Coach USA prior to the Initial Public Offering are referred to herein
as the "Founding Companies," and the transaction pursuant to which these six
businesses were acquired is referred to herein as the "Merger" or "Mergers."
Coach USA acquired nine additional businesses in 1996 and three additional
businesses on February 28, 1997. Of these twelve additional businesses acquired,
seven were accounted for as poolings-of-interests and are referred to herein as
the "Pooled Companies." The remaining five businesses were accounted for as
purchases and are referred to herein as the "Purchased Companies" (see Note 6).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Coach USA, the Founding Companies from June 1, 1996, the effective
date used to account for the acquisitions of the Founding Companies, the
Purchased Companies since their dates of acquisition, and give retroactive
effect to the acquisitions of the Pooled Companies. Accordingly, the historical
financial statements for the three months ended March 31, 1996 represent that of
the Pooled Companies prior to their acquisition by the Company. The Pooled
Companies, the Founding Companies from June 1, 1996, and the Purchased Companies
since date of acquisition, are collectively referred to herein as the "Company."
All significant intercompany transactions and balances have been eliminated in
consolidation.
INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the SEC. Certain information
and footnote disclosures, normally included in annual financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to those rules and regulations, although the
Company believes that the disclosures made are adequate to make the information
presented not misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to fairly present the
financial position, results of operations and cash flows with respect to the
interim consolidated financial statements, have been included. The results of
operations for the interim periods are not necessarily indicative of the results
for the entire fiscal year.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the audited financial statements and notes thereto of
the combined Founding Companies included in Coach USA's Annual Report on Form
10-K for the year ended December 31, 1996 filed with the SEC.
10
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
SEASONALITY
The timing of certain holidays, weather conditions and seasonal vacation
patterns may cause the Company's quarterly results of operations to fluctuate
significantly. The Company expects to realize higher revenues, operating income
and net income during the second and third quarters and lower revenues and net
income during the first and fourth quarters.
RECLASSIFICATIONS
Certain reclassifications have been made in prior periods to conform with
the current presentation. All significant intercompany transactions have been
eliminated in consolidation.
3. INCOME TAXES
Certain of the Founding Companies were S Corporations for income tax
purposes and, accordingly, any income tax liabilities for the periods prior to
the Merger are the responsibility of the respective stockholders. Effective with
the Merger, the S Corporations converted to C Corporations. Accordingly, an
estimated deferred tax liability of $5.4 million has been recorded to provide
for the estimated future income tax liability as a result of the differences
between the book and tax bases of the net assets of these former S Corporations.
4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The computation of net income per common and common equivalent share for
the three months ended March 31, 1996 is based upon 3,862,369 shares issued in
connection with the acquisition of the Pooled Companies.
The computation of net income per share for the three months ended March
31, 1997 is based upon 18,512,629 weighted average shares outstanding which
include (i) 17,778,107 shares issued and outstanding for the entire three month
period, and (ii) 981 shares issued to minority interest of one of the Pooled
Companies, and (iii) 734,522 shares representing the weighted average portion of
shares for the dilution attributable to outstanding options to purchase common
stock, using the treasury stock method.
Fully diluted net income per common and common equivalent share is equal to
primary earnings per share for all periods presented.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No.
128 revises the methodology to be used in computing earnings per share (EPS)
such that the computations required for primary and fully diluted EPS are to be
replaced with "basic" and "diluted" EPS. Basic EPS is computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the year. Diluted EPS is computed in the same manner as fully diluted
EPS, except that, among other changes, the average share price for the period is
used in all cases when applying the treasury stock method to potentially
dilutive outstanding options.
11
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
The Company will adopt SFAS No. 128 effective December 15, 1997, and will
restate EPS for all periods presented. The Company anticipates that the amounts
reported for basic EPS for the unaudited three months ended March 31, 1996 and
1997 will be $0.12 and $0.11, and that basic EPS for the unaudited pro forma
three months ended March 31, 1996 and 1997 will be $0.06 and $0.12. The Company
anticipates that the amounts reported for diluted EPS for the unaudited three
months ended March 31, 1996 and 1997 will be $0.12 and $0.10 and that diluted
EPS for the unaudited pro forma three months ended March 31, 1996 and 1997 will
be $0.06 and $0.12.
5. LONG TERM OBLIGATIONS
In February 1997, the Company amended and restated its Credit Facility. The
Credit Facility, as amended, provides for a revolving facility of $181 million
through a syndicate of eight banks, and allows the Company to have borrowings of
up to $40 million (in addition to fully subordinated debt provided that certain
financial tests are met) outside the Credit Facility. The Credit Facility is
secured by substantially all of the assets of the Company and matures August 14,
1999, at which time all amounts then outstanding become due. 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% (7.44% at March 31, 1997), both as determined by the ratio of the
Company's funded debt to cash flow (as defined). A commitment fee ranging from
0.25% to 0.50% is payable on the unused portion of the Credit Facility. Under
the terms of the Credit Facility, the Company must maintain certain minimum
financial ratios. The Credit Facility prohibits the payment of cash dividends.
As of April 30, 1997, the Company had a total of $173.2 million outstanding
under the Credit Facility and other sources 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 $42.9 million under
the Credit Facility and other sources. The Company's obligations under the
Credit Facility are guaranteed by the subsidiaries of the Company.
The obligations of the lenders under the Credit Facility to advance funds
is subject to the satisfaction of certain conditions customary in agreements of
this type. In addition, the Company and its subsidiaries are subject to certain
customary affirmative and negative covenants contained in the Credit Facility.
In addition, the Credit Facility requires that the Company adhere to certain
specified financial covenants, including minimum net worth and tangible net
worth levels, minimum fixed charge coverage ratios, and maximum capital
expenditure levels.
In connection with the February acquisitions, Coach USA issued $18.3
million in 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 5.2 percent and are convertible by the holder into shares of the Company's
Common Stock at a
12
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
weighted average price of $37.90 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 $8.3 million of principal
payments in 1999 and 10.0 million of principle payments in 2000 (convertible
into 484,239 shares of Common Stock).
6. BUSINESS COMBINATIONS
POOLINGS
During 1996 and the first quarter of 1997, the Company acquired all of the
outstanding stock of seven companies in exchange for 3,862,369 shares of Common
Stock. These companies provide motorcoach transportation and taxicab services.
These acquisitions have been accounted for as poolings-of-interests and the
results of operations of these seven companies are included for all periods
presented herein.
PURCHASES
On August 29, 1996 and February 28, 1997, the Company completed three
acquisitions and two acquisitions, respectively, accounted for as purchases. The
aggregate consideration paid in these transactions consisted of $48.8 million in
cash and $40.8 million of notes convertible into 1,234,699 shares of Common
Stock. The accompanying balance sheet as of December 31, 1996 and March 31, 1997
include preliminary allocations of the respective purchase prices and are
subject to final adjustment. The preliminary allocations reflected liabilities
in excess of assets of $73.1 million, which has been recorded as Goodwill and is
being amortized over 40 years. Set forth below are unaudited pro forma combined
revenue and income data reflecting the pro forma effect of these acquisitions on
the Company's results of operations for the three months ended March 31, 1996
and 1997. The unaudited data presented below consists of the income statement
data as presented in these condensed consolidated financial statements plus (i)
the income statement data of the Founding Companies for the periods prior to
June 1, 1996 and (ii) all Purchased Companies as if the acquisitions were
effective on the first day of the year being reported. The revenue and net
income data are in thousands.
For the Three
Year Ended Months Ended
December 31, March 31,
1996 1997
-------- -------
(unaudited)
Revenues ............................................ $347,452 $79,373
Income before extraordinary items ................... 17,286 1,374
Income per share before extraordinary items ......... 1.13 .07
Pro forma adjustments included in the amounts above primarily relate to:
(a) reductions in former owners and certain key employees salary and benefits;
(b) adjustment to depreciation and amortization expense due to the purchase
price allocations; (c) adjustment to the federal and state income tax provisions
based on the combined operations; (d) elimination of historical interest expense
related to certain obligations converted to equity, and (e) to record interest
expense on cash expended and the convertible subordinated notes issued in the
acquisitions of the Purchased Companies.
13
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
The pro forma combined results presented above are not necessarily
indicative of actual results which might have occurred had the operations and
management teams of the Company, the Founding Companies, the Pooled Companies
and the Purchased Companies been combined at the beginning of the periods
presented.
7. COMMITMENTS AND CONTINGENCIES
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided for certain of these
actions in the accompanying consolidated financial statements. In the opinion of
management, uninsured losses, if any, resulting from the ultimate resolution of
these matters will not be material to the Company's financial position or
results of operations.
REGULATORY MATTERS
The Surface Transportation Board ("STB") must approve or exempt any
consolidation or merger of two or more regulated interstate motorcoach operators
or the acquisition of one such operator by another. There can be no assurance
that the Company will be able to obtain such approval or exemption with respect
to the acquisitions completed in December 1996, February 1997 or future
acquisitions.
ESTIMATED INSURANCE CLAIMS PAYABLE
The primary risks in the Company's operations are bodily injury and
property damage to third parties and workers' compensation. The Company has
commercial liability insurance policies that provide coverage by the insurance
company, subject to deductibles ranging from $5,000 to $250,000. The Company is
consolidating its insurance program under a 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 represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policies for claims occurring through March 31, 1997. The accrual
is based on known facts and historical trends. Management believes such accrual
to be adequate.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements will
expire at various times through 2000.
COMMITMENTS
The Company has entered into agreements with Exel Motorcoach Partnership
("Exel") whereby Exel will provide introductions to other motorcoach businesses
and other consulting services for a term of three years. The consideration to be
paid to Exel will be approximately $100,000 per year. In addition, Exel
14
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
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. A
director of the Company is a principal of Exel.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
This filing contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based on
current plans and expectations of the Company and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the
forward-looking statements. Important factors that could cause actual results to
differ include, among others, risks associated with acquisitions, fluctuations
in operating results because of acquisitions and variations in stock prices,
changes in government regulations, competition, and risks of operations and
growth of the newly acquired businesses.
Coach USA was founded in September 1995 to create a nationwide provider of
motorcoach and other ground transportation services. On May 17, 1996, Coach USA
acquired, simultaneously with the closing of the Initial Public Offering, the
six Founding Companies. Through the remainder of 1996 and the first quarter of
1997, the Company acquired twelve additional businesses. The acquisition of
seven of these businesses has been accounted for under the pooling-of-interests
method of accounting and the remaining five have been accounted for under the
purchase method of accounting. As a result, the pro forma combined financial
statements, including the pro forma combined results discussed below, include
the historical financial statements of the Founding Companies and the Company
(including the Pooled Companies) for all periods presented at historical cost
and the Purchased Companies from the date of acquisition, as if these companies
had always been members of the same operating group and give effect to (i) the
Compensation Differential; (ii) the elimination of merger costs related to
pooled acquisitions; (iii) certain tax adjustments related to the taxation of
certain Founding Companies and Pooled Companies as S Corporations prior to the
consummation of the mergers of the Founding Companies and the subsequent
acquisitions; and (iv) 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 its ability to borrow at
lower interest rates than the Founding Companies and the subsequent
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 for the periods prior to the Initial Public Offering and subsequent
acquisitions have been included in the pro forma financial information discussed
below. As a result, 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, the Pooled
Companies, and the Purchased Companies, administrative salaries and benefits,
marketing, communications and professional fees.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS -- PRO FORMA COMBINED (UNAUDITED)
Three Months Ended
MARCH 31,
1996 1997
------- -------
Revenues....................................................$52,515 $69,311
Operating Expenses.......................................... 42,778 54,386
Gross Profit............................................. 9,737 14,925
General and Administrative Expenses......................... 6,122 8,131
Interest Expense............................................ 2,250 3,199
------- -------
Income Before Income Taxes and Extraordinary Items.......... 1,365 3,595
Provision for Income Taxes.................................. 549 1,445
------- -------
Pro Forma Income Before Extraordinary Items.................$ 816 $ 2,150
======= =======
The pro forma combined results discussed below occurred when the combined
Founding Companies were under common control and management from June 1, 1996,
and the Pooled and Purchased Companies were under common control from the date
of their respective acquisitions. During all other periods reflected, the
companies were not under common control or management and may not be comparable
to, or indicative of, future performance.
COMBINED RESULTS FOR THREE MONTHS ENDED MARCH 1996 COMPARED TO 1997
Revenues increased by 32.0% to $69.3 million for the three months ended
March 31, 1997. The increase in revenues was largely due to the revenues of the
Purchased Companies of approximately $14.1 million, and incremental increases at
certain other locations.
Operating expenses increased 27.1% to $54.4 million for the three months
ended March 31, 1997. The increase in operating expenses was the result of the
increased operations offset by savings in the Company's insurance program and
parts buying program.
General and administrative expenses, after elimination of the Compensation
Differential and acquisition related costs, increased 32.8% as compared to the
three months ended March 31, 1996. The increase in general and administrative
expenses in the three month period ended March 31, 1997 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 and the overall increase in operations and $0.3
million of cost associated with goodwill amortization related to the
acquisitions of the Purchased Companies.
Interest expense increased $0.9 million as compared to the three months
ended March 31, 1996, due to the higher level of debt related to additional
equipment and debt related to the Purchased Companies, partially offset by the
repayment of debt through the use of proceeds of the Initial Public Offering, a
secondary offering of Common Stock, and due to lower interest rates for
borrowing under the Credit Facility.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Pro forma net income before extraordinary items, which has been adjusted
for the Compensation Differential and the pro forma provision for taxes,
increased during the three months ended March 31, 1997 as compared to the three
months ended March 31, 1996 primarily due to continued revenue growth and the
effects of increased purchasing power on lowering certain costs.
RESULTS OF OPERATIONS -- HISTORICAL (UNAUDITED)
Three Months Ended
MARCH 31,
1996 1997
------- -------
Revenues....................................................$28,294 $69,311
Operating Expenses.......................................... 21,234 54,386
Gross Profit............................................. 7,060 14,925
General and Administrative Expenses......................... 4,311 8,355
Interest Expense............................................ 1,868 3,199
------- -------
Income Before Income Taxes and Extraordinary Items.......... 881 3,371
Provision for Income Taxes.................................. 431 1,402
------- -------
Income Before Extraordinary Items...........................$ 450 $ 1,969
======= =======
The historical results include historical results of the Pooled Companies
in both periods, the Founding Companies from June 1, 1996 and the Purchased
Companies from their respective dates of acquisitions.
HISTORICAL RESULTS FOR THREE MONTHS ENDED MARCH 1996 COMPARED TO 1997
Revenues increased by 145% to $69.3 million for the three months ended
March 31, 1997. The increase in revenues was largely due to the revenues of the
Founding Companies of $24.5 million and revenues of the Purchased Companies of
$14.1 million, and incremental increases at certain Pooled Companies.
Operating expenses increased 156% to $54.4 million for the three months
ended March 31, 1997. The increase in operating expenses was the result of the
increased operations.
General and administrative expenses increased 94% as compared to the three
months ended March 31, 1996. The increase in general and administrative expenses
in the three month period ended March 31, 1997 was primarily due to the overall
increase in operations and the establishment of the corporate management group
required to execute the acquisition program and to manage the consolidated group
of companies.
Interest expense increased $1.3 million as compared to the three months
ended March 31, 1996, due to the higher level of debt related to additional
equipment and debt related to the Founding Companies and the Purchased
Companies, partially offset by the repayment of debt through the use of proceeds
of the Initial Public Offering, a secondary offering of Common Stock, and due to
lower rates from the Credit Facility.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Net income before extraordinary items increased during the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996
primarily due to the acquisitions of the Founding Companies and Purchased
Companies and the effects of increased purchasing power on lowering certain
costs.
LIQUIDITY AND CAPITAL RESOURCES -- PRO FORMA COMBINED
Net cash provided by operating activities was $25.8 million for the three
months ended March 31, 1997. Capital expenditures during the period totaled
$31.7 million. The majority of the capital expenditures were for the purchase of
motorcoach equipment for fleet additions. Also, during the three months ended
March 31, 1997, the Company had net new borrowings of $35.0 million. These
proceeds were used in part for $26.1 million of cash consideration used in
purchasing two companies in February 1997.
In February 1997, the Company amended and restated its Credit Facility.
The Credit Facility, as amended, provides for a revolving facility of $181
million through a syndicate of eight banks, and allows the Company to have
borrowings of up to $40 million (in addition to fully subordinated debt provided
that certain financial tests are met) outside the Credit Facility. The Credit
Facility is secured by substantially all of the assets of the Company and
matures August 14, 1999, at which time all amounts then outstanding become due.
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% (7.44% at March 31, 1997), both as determined by the ratio of
the Company's funded debt to cash flow (as defined). A commitment fee ranging
from 0.25% to 0.50% is payable on the unused portion of the Credit Facility.
Under the terms of the Credit Facility, the Company must maintain certain
minimum financial ratios. The Credit Facility prohibits the payment of cash
dividends. As of April 30, 1997, the Company had a total of $173.2 million
outstanding under the Credit Facility and other sources 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
$42.9 million under the Credit Facility and other sources. The Company's
obligations under the Credit Facility are guaranteed by the subsidiaries of the
Company.
The obligations of the lenders under the Credit Facility to advance funds
is subject to the satisfaction of certain conditions customary in agreements of
this type. In addition, the Company and its subsidiaries are subject to certain
customary affirmative and negative covenants contained in the Credit Facility.
In addition, the Credit Facility requires that the Company adhere to certain
specified financial covenants, including minimum net worth and tangible net
worth levels, minimum fixed charge coverage ratios, and maximum capital
expenditure levels.
Management believes that the Company's revolving credit facility, its cash
flows from operations, and shares of Common Stock available under its shelf
registration statement will provide sufficient liquidity or acquisition currency
to execute the Company's acquisition and internal growth plans for the next 12
months. Should the Company accelerate its acquisition program, the Company may
need to seek additional financing through the public or private sale of equity
or debt securities. There can be no assurance that the Company could secure such
financing if and when it is needed or on terms the Company deems acceptable.
19
<PAGE>
COACH USA, INC.
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
In connection with the acquisition of all of the outstanding capital
stock of Antelope Valley Bus, Inc. of Lancaster, California on
February 28, 1997 the Company issued 578,033 shares of common stock to
the three beneficial owners of Antelope. These shares of Company
common stock were not registered under the Securities Act of 1933. The
shares were issued in reliance upon the exemption provided by Section
4 (2) of the Securities Act for transactions not involving a public
offering.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Coach USA, Inc., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COACH USA, INC.
Dated: May 14, 1997 By: Lawrence K. King
Name: Lawrence K. King
Title:Senior Vice President and Chief
Financial Officer
21
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