AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
COACH USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 4141 76-0496471
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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)
------------------------
COPY TO:
Douglas M. Cerny
Coach USA, Inc.
One Riverway - Suite 600
Houston, Texas 77056-1903
(888) COACH-US
------------------------
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. [X]
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value......... $53,959,347.75 $ 16,352
=====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) on the basis of the average of the high and low
prices of the Common Stock reported on the New York Stock Exchange on May
15, 1997.
------------------------
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
MAY 21, 1997
1,931,481 SHARES
[LOGO]
COMMON STOCK
------------------------
This Prospectus covers 1,931,481 shares of common stock, $.01 par value
(the "Common Stock"), which may be offered by certain stockholders (the
"Selling Stockholders") of Coach USA, Inc. (the "Company") from time to time
directly or through one or more broker-dealers, in one or more transactions on
the New York Stock Exchange ("NYSE"), otherwise in the over-the-counter
market, in negotiated transactions or otherwise, or through a combination of
such methods, at fixed prices, which may be changed, at market prices or at
negotiated prices. All of the shares to be sold by any of the Selling
Stockholders were issued pursuant to the acquisition by the Company of various
businesses which were previously owned by the Selling Stockholders. The Company
will not receive any of the proceeds from the sale of any shares by the Selling
Stockholders. All expenses of registration of the shares which may be offered
hereby under the Securities Act of 1933, as amended (the "Securities Act")
will be paid by the Company (other than underwriting discounts and selling
commissions, and fees and expense of advisers to the Selling Stockholders).
As of May 20, 1997 the Company had 18,215,229 shares of its Common Stock
outstanding, of which 7,705,000 are registered and available for unrestricted
trading on the NYSE. The shares of Common Stock offered hereby have been
approved for trading on the New York Stock Exchange. On May 20, 1997, the
closing price of the Common Stock on the New York Stock Exchange was $26 5/8 per
share as published in THE WALL STREET JOURNAL on May 21, 1997.
The Company is a Delaware corporation and all references herein to the
Company refer to the Company and its subsidiaries.
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.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
AVAILABLE 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-3 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 NYSE. Proxy statements and
other information concerning the Company can also be inspected at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated herein by reference.
(i) the Company's Annual Report on Form 10-K for the year ended December
31, 1996;
(ii) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(iii) the description of the Common Stock contained in the Company's
registration statement on Form 8-A (File No. 1-12939) filed with the
Commission on April 29, 1997 pursuant to Section 12 of the Exchange
Act; and
(iv) the Company's report on Form 8-K, filed with the Commission on
September 13, 1996, as amended by the Company's Form 8-K/A filed
with the Commission on November 12, 1996.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the shares shall be
deemed to be incorporated herein by reference and to be a part hereof from the
date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of the documents, including exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
made to: Coach USA, Inc., One Riverway, Suite 600, Houston, Texas 77056,
Attention: Corporate Secretary; telephone 1-888-COACH-US.
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RISK FACTORS
AN INVESTMENT IN THE COMPANY INVOLVES A SIGNIFICANT DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS IN
ADDITION TO OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN
INVESTMENT IN THE COMMON STOCK. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS CONCERNING THE COMPANY'S OPERATIONS, ECONOMIC PERFORMANCE AND
FINANCIAL CONDITION, INCLUDING, IN PARTICULAR, THE LIKELIHOOD OF THE COMPANY'S
SUCCESS IN DEVELOPING AND EXPANDING ITS BUSINESS. THESE STATEMENTS ARE BASED
UPON A NUMBER OF ASSUMPTIONS AND ESTIMATES THAT ARE INHERENTLY SUBJECT TO
SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
CONTROL OF THE COMPANY, AND REFLECT FUTURE BUSINESS DECISIONS THAT ARE SUBJECT
TO CHANGE. SOME OF THESE ASSUMPTIONS INEVITABLY WILL NOT MATERIALIZE, AND
UNANTICIPATED EVENTS WILL OCCUR THAT WILL AFFECT THE COMPANY'S RESULTS.
EFFECTS OF LEVERAGE
The Company is highly leveraged. On December 31, 1996, the Company had
total indebtedness of approximately $131.5 million. The Company's ability to
make scheduled payments of principal of, or to pay the interest or liquidated
damages, if any, on, or to refinance, its indebtedness, or to fund planned
capital expenditures or future acquisitions will depend on its future
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond its control. Based upon the current level of operations and anticipated
cost savings and revenue growth, management believes that cash flow from
operations and available cash, together with available borrowings under the
Company's $181 million revolving credit facility ("the Credit Facility"), will
be adequate to meet the Company's anticipated future requirements for working
capital, budgeted capital expenditures, acquisitions and scheduled payments of
principal and interest on its indebtedness for the next several years. The
Company may, however, need to refinance all or a portion of the principal of its
indebtedness on or prior to maturity. There can be no assurance that the
Company's business will generate sufficient cash flow from operations or that
anticipated revenue growth and operating improvements will be realized or that
future borrowings will be available under the Credit Facility in an amount
sufficient to enable the Company to service its indebtedness, make anticipated
capital expenditures or fund future acquisitions. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all.
LIMITED COMBINED OPERATING HISTORY
The Company was founded in September 1995 but conducted no operations and
generated no revenues prior to the closing of the initial public offering. The
Company acquired six founding companies (the "Founding Companies")
simultaneously with the closing of the initial public offering. Prior to their
acquisition by the Company, the Founding Companies and all subsequent
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 for approximately one year,
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 Company, the Founding Companies and the subsequent acquisitions
cover periods when the Company, the Founding Companies and the subsequent
acquisitions 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 subsequent acquisitions could have a material adverse effect on the
Company's business,
3
<PAGE>
financial condition and results of operations and would make it unlikely that
the Company's acquisition program could continue to be successful. See
"Management."
HOLDING COMPANY STRUCTURE
The Company conducts all of its operations through subsidiaries.
Accordingly, the Company relies on dividends and cash advances from its
subsidiaries to provide funds necessary to meet its obligations. The ability of
any such subsidiary to pay dividends or make cash advances is subject to
applicable laws and contractual restrictions, including restrictions under
credit agreements between such subsidiaries and third party lenders.
CAPITAL AVAILABILITY RISKS RELATED TO ACQUISITION FINANCING
The Company intends to continue to finance future acquisitions by issuing
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 maintain its acquisition program. If the Company does
not have sufficient cash resources, its growth could be limited unless it is
able to obtain additional capital through debt or equity financings. Although
the Company has established a line of credit which provides for aggregate credit
capacity of $221 million, there can be no assurance that the Company will be
able to obtain all the financing it will need in the future on terms the Company
deems acceptable.
The Credit Facility contains customary restrictive covenants, including
requiring the Company to maintain: consolidated Net Worth, as defined therein,
plus consolidated Subordinated Debt, as defined therein, at a level not less
than (i) the greater of 90% of the consolidated Net Worth of the Company as of
June 30, 1996, or $35,000,000, plus (ii) 90% of the Company's cumulative annual
consolidated net earnings, plus (iii) 100% of the net proceeds resulting from
sales or issuances of stock or subordinated debt; Tangible Net Worth, as defined
therein, of the Company at not less than 50% of the consolidated Net Worth of
the Company, and a Fixed Charge Coverage Ratio, as defined therein, of not less
than 1.25 to 1.0.
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. In addition, there can be no
assurance that the Founding Companies, the subsequent acquisitions or other
businesses acquired in the future will achieve anticipated revenues and
earnings. See "Business -- Business Strategy."
LABOR RELATIONS
The Company currently has approximately 6,000 employees, approximately
4,000 of whom are motorcoach drivers. At March 31, 1997, approximately 2,500 of
the Company's employees
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were 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."
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.
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."
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 in excess of $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 obtain, or a material delay in
obtaining, 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
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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."
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. As of May 15, 1997, the Company had received
Surface Transportation Board (the "STB") approval for all acquisitions
completed through February 1997. 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
acquisitions subsequent to February 1997. 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 currently has a competitive
advantage with respect to certain of its existing route authorities as a result
of this regulatory posture. Therefore, if New Jersey or another highly regulated
state in which the Company has operations were to reduce the level of
regulation, the Company's competitive advantage arising from such regulation
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
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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 excursion services and commuter and transit services. There are numerous
other companies that provide these services, a number of which are as large or
larger than the Company on a national or regional basis and thousands of which
are small, independent and serve local populations. 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 operating subsidiaries.
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."
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock traded on the Nasdaq National Market from May
14, 1996 to May 8, 1997, when it began trading on the NYSE. 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 $ 17 5/8
Third quarter........................ 27 1/2 18
Fourth quarter....................... 32 25
1997
First quarter........................ 34 1/4 28
Second quarter (through May 20)...... 31 1/4 25 3/16
At May 20, 1997, there were approximately 150 stockholders of record of the
Company's Common Stock. On May 20, 1997, the last reported sale price of the
Common Stock on the NYSE was $26 5/8 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.
8
<PAGE>
BUSINESS
The Company is the largest provider of motorcoach charter, tour and
sightseeing services and one of the five largest non-municipal providers of
commuter and transit motorcoach services in the United States. The Company also
provides airport ground transportation, paratransit and taxicab and other
related passenger ground transportation services. The Company operates across
the U.S., serving a broad customer base (no single customer accounted for more
than 3% of pro forma revenues in 1996) with a fleet of approximately 2,700
motorcoaches and other high occupancy vehicles. For the year ended December 31,
1996, the Company generated pro forma total operating revenues of $382.5
million.
The motorcoach industry is highly fragmented with approximately 5,000
motorcoach operators which collectively generated approximately $20 billion in
revenues in 1996. 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 Company operates primarily in the first two categories,
which collectively generated approximately $19 billion in revenues in 1996. The
Company believes 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, privatization, outsourcing, expanding metropolitan
areas and increasing airport congestion.
The Company enjoys a number of business attributes that position it to
benefit, both financially and operationally, from the consolidation of this
highly fragmented industry. The Company believes that it can continue to achieve
significant economies of scale as it acquires and integrates additional
motorcoach operators (such as savings in insurance, equipment purchases,
financing and the centralization of certain administrative functions), which
should provide continued margin expansion. The Company also believes that by
continuing to remove the burden and attention-diverting responsibility of
administrative and support functions, the management of the operating companies
and any other acquired businesses will be able to focus on pursuing new business
opportunities and improving equipment utilization and yields. The Company is
diversified from the standpoint of geography, customer base and type of
business, characteristics which provide it with insulation from disruption in
any particular area, customer or business. In addition, the Company benefits
from a strong balance sheet as a result of its two 1996 equity offerings in
which it raised $96.6 million, as well as from using the Company's Common Stock
as a significant component of the consideration for its acquisitions.
INDUSTRY OVERVIEW
The motorcoach industry is highly fragmented with approximately 5,000
motorcoach operators, which collectively generated approximately $20 billion in
revenues in 1996. 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.
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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 among 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 these 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 ("ADA"). The Company believes that this
growth will continue to accelerate primarily from a decrease in Federal funds
available to subsidize operations and the increasing capital cost of acquiring
equipment. As an example of the privatization trend, in February 1997 the
Company was awarded a three-year commuter service contract in the Seattle,
Washington area, which is expected to generate approximately $6 million in
revenues annually and which may be extended at the option of the customer for
two additional one-year periods.
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 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.
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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 by
implementing its three part growth strategy:
ACQUISITION STRATEGY
ENTER 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 its existing operating subsidiaries, are leaders in their regional markets.
EXPAND 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.
The Company has used Common Stock and convertible securities to finance
approximately 71% of the acquisition consideration to date and plans to continue
using its Common Stock for acquisitions as appropriate in the future. In
anticipation of such use, the Company has registered 3.5 million additional
shares of Common Stock under the Securities Act.
INTERNAL GROWTH STRATEGY
OFFER OF A FULL RANGE OF SERVICES IN EACH REGION. The Company intends to
increase growth in each of its regions by adding complementary services, as
appropriate, including motorcoach charter, tour and sightseeing, commuter and
transit, airport ground transportation, paratransit and taxicab services. Many
of the acquired companies do not offer all of such services and will benefit
from the expertise of affiliated operations.
DEVELOP PRIVATIZATION AND OUTSOURCING. The Company believes that the trend
toward governmental privatization and corporate 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. For example, in early 1997, the
Company was awarded a three-year, $19 million commuter service contract in the
Seattle, Washington area.
ESTABLISH 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.
ECONOMIES OF SCALE
CENTRALIZE 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
acquired companies 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. The Company
believes that by continuing to remove the burden and attention-diverting
responsibility of administrative and support functions, the management of the
operating companies and any other
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acquired businesses will be able to focus on pursuing new business opportunities
and improving equipment utilization and yields.
INCREASE OPERATING EFFICIENCIES. The Company believes that there are
opportunities to eliminate redundant facilities and equipment through
coordination among its current operations as well as operations to be acquired
in the future. The Company also expects to continue to benefit from
cross-marketing, increased equipment utilization and implementation of best
practices throughout its operating regions.
ACQUISITION PROGRAM
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.
The Company acquired the six Founding Companies simultaneously with the
completion of its initial public offering. The Founding Companies include four
companies in New Jersey, and one each in San Francisco and Phoenix. Through the
remainder of fiscal 1996, the Company completed the acquisition of eight
additional motorcoach service businesses and one additional taxicab service
business. Subsequent to December 31, 1996, the Company acquired six additional
motorcoach businesses and the acquisitions of two other companies are currently
pending. These acquisitions increase the Company's presence in New Jersey and
the northeastern United States and expand the Company's operations into Florida,
Texas, Nevada, southern California, Wyoming and North Carolina.
The Company believes that it can successfully implement its acquisition
program 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 current operating subsidiaries, 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 current operating
subsidiaries have leadership roles in both 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 thereby attracting interest from local and
regional operators.
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.
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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. Certain transit privatization contracts
provide equipment and insurance to the Company. 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.
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, Colorado Springs, Denver, Houston, Las Vegas, Los Angeles, Miami, Newark
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.
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SPECIALIZED DESTINATION ROUTE. The Company provides specialized
destination route services, including daily scheduled service to casinos in New
Jersey, Louisiana, Nevada and Connecticut. 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
operating subsidiaries. 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. Commuter service is provided daily.
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 range from three to five 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, many of whom are transported to the hospital or
doctor's office on a regular basis for treatment. 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.
TAXICAB SERVICES
The majority of the taxicabs included in the Company's taxicab service
operations 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 are employees of the Company. In
addition to the daily or 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
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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 3% of pro forma revenues in 1996. 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.
The Company has begun to establish a targeted national sales and marketing
campaign for its recreation and excursion services. The focus of this campaign
is 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 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. Most locations
have operations centers 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
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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 operating companies 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
On a pro forma basis and as of March 31, 1997, the Company operated
approximately 2,700 motorcoaches and other high occupancy vehicles.
Approximately 400 of these motorcoaches are provided by various transit
authorities for nominal rent, with the Company assuming full responsibility for
maintenance and repairs. These motorcoaches are provided under contracts to
perform transit and commuter services and must be returned to the transit
authorities in the event the contracts for them are not renewed. In addition,
approximately 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 depending on the
vehicles' location and use. 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 based on its ability
to redeploy its motorcoach fleet. 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.
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The Company's taxicab service operations provide dispatch and related
services to a fleet of over 1,350 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.
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 shares
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 operating companies
individually.
FACILITIES
At March 31, 1997, the Company's facilities consisted 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 [eight] of the facilities on
which motorcoach or taxicab operations are located. The remaining facilities are
leased, including some from related parties. 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
As of March 31, 1997 and on a pro forma basis the Company had approximately
6,000 employees, of whom approximately 4,000 are motorcoach drivers and
approximately 900 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
4,500 are full-time employees. The Company's taxicab and paratransit services
are provided through independent contractor drivers that are not employees of
the Company.
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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.
At March 31, 1997, several different unions represented approximately 2,500
employees of the Company, of whom approximately 2,200 were motorcoach drivers.
The Company is a party to a number of different collective bargaining agreements
which expire at various dates through 2000. In the last 10 years, the various
operating companies 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.
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 loss deductibles per incident ranging from $5,000 to $250,000.
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. As such, any claim within the deductible
per incident would be a financial obligation of the Company.
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
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companies and, to a more limited extent, airlines, Amtrak and commuter rail
service providers. A number of the Company's competitors are as large or larger
than the Company on a national or regional basis and some of these competitors
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, independent regional or local 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 from time to time 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 regulatory functions were
transferred as of that date to 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 Company's operating companies 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 STB 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
19
<PAGE>
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 it has conducted its 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 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. 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 the Company,
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. The Company filed a petition with the STB seeking such
exemption in order to permit the acquisition by the Company 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. As of May 15, 1997,
the Company had received STB approval for all acquisitions completed through
February 1997.
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 several of the
Company's facilities. The Company also conducts motorcoach washing at certain of
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. There
20
<PAGE>
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, in
most instances, each of the stockholders of the applicable business acquired by
the Company 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 such a business 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 operating companies
have disclosed that from time to time they have spilled or released certain
hazardous substances in the course of operating their businesses.
The Company 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. The Company is not currently a party
to any such claims or proceedings.
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.
21
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of May 15, 1997 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
Douglas M. Cerny.................... 38 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.................... 40 Senior Vice President and Chief
Financial Officer; Director
Gerald Mercadante................... 50 Senior Vice President -- Northeast
Region Operations; Director;
President of Leisure
Charles D. Busskohl................. 64 Director; Chairman and Chief
Executive Officer of Arrow
Steven S. Harter.................... 34 Director
William J. Lynch.................... 54 Director
Paul M. Verrochi.................... 48 Director
Thomas A. Werbe..................... 45 Director; President of Gray Line SF
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.
Douglas M. Cerny has been Senior Vice President, General Counsel and
Secretary of the Company since January 1996. From February 1994 through January
1996, he was Vice President and General Counsel of Medical Review Systems, Inc.,
a privately held health care cost-containment services company which was
acquired by Equifax, Inc. in March 1995. Between March 1995 and January 1996,
Mr. Cerny provided operational support in the transition of operations to
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
22
<PAGE>
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 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. Since February 1992, he has been a Principal of Exel Holdings,
Ltd., and since March 1996, he has been a Principal of Exel Motorcoach Partners,
LLC, a privately-held investment firm he co-founded. Mr. Verrochi formerly
served as Chairman of the Board of American Medical Response, Inc., a publicly
traded provider of ambulance services, from its inception in February 1992 to
February 1997 when it was acquired by Laidlaw, Inc. 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.
The Board of Directors is divided into three classes of four, three 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.
23
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of May 15, 1997
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. The information
presented under "Shares Beneficially Owned After Offering" assumes that all of
the shares offered by the Selling Stockholders will be sold.
<TABLE>
<CAPTION>
SHARES SHARES SHARES
BENEFICIALLY OWNED BEING BENEFICIALLY OWNED
PRIOR TO OFFERING OFFERED AFTER OFFERING
----------------------- ------- -----------------------
NAME NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Richard H. Kristinik(1).............. 240,000 1.3% 0 240,000 1.3%
John Mercadante, Jr.(2).............. 397,425 2.2 25,000 372,425 2.1
Douglas M. Cerny(3).................. 109,000 * 0 109,000 *
Frank P. Gallagher(4)................ 197,810 1.1 18,000 179,810 1.0
Lawrence K. King(3).................. 134,000 * 0 134,000 *
Gerald Mercadante(5)................. 1,056,400 5.8 105,000 951,400 5.2
Charles D. Busskohl(6)............... 413,141 2.3 12,000 401,141 2.2
Steven S. Harter(7).................. 348,095 1.9 0 348,095 1.9
William J. Lynch(8).................. 33,468 * 0 33,468 *
Paul M. Verrochi(9).................. 95,000 * 0 95,000 *
Thomas A. Werbe(10).................. 326,038 1.8 0 326,038 1.8
Kenneth Kuchin(11)................... 1,115,219 6.1 220,000 895,219 4.9
George D. Kamins..................... 876,272 4.8 249,046 627,226 3.4
Joseph Chernow....................... 90,511 * 25,724 64,787 *
Equus II Incorporated................ 143,112 * 70,125 72,987 *
Rogers Investments, Ltd.............. 293,580 1.6 43,384 250,196 1.4
Estate of Sidney Kuchin.............. 131,165 * 131,165 0 --
Gerard O'Connell(12)................. 240,000 1.3 117,600 122,400 *
Paul O'Connell(12)................... 240,000 1.3 117,600 122,400 *
William R. O'Connell Family Trust.... 240,000 1.3 117,600 122,400 *
O'Connell Brothers Land
Partnership........................ 38,095 * 18,667 19,428 *
Wayne Worthen........................ 71,369 * 36,700 34,669 *
Sandra Worthen....................... 64,370 * 33,271 31,099 *
Brian Worthen........................ 19,198 * 9,407 9,791 *
Gregory Worthen...................... 19,198 * 9,407 9,791 *
Beula Worthen Trust.................. 4,565 * 4,565 0 --
Carl Berman.......................... 107,000 * 52,430 54,570 *
Thomas Freeman....................... 107,000 * 52,430 54,570 *
James Carter(13)..................... 271,291 1.4 132,933 138,358 *
Ronald Carter(14).................... 98,895 * 48,459 50,436 *
Patsy Carter Smith................... 966 * 473 493 *
Whitford Carter Trust................ 172,397 * 84,475 87,922 *
James and Ronald Carter and
Whitford Carter Trust.............. 34,484 * 16,897 17,587 *
Daniel Mercadante.................... 186,423 1.0 36,423 150,000 *
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
24
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES SHARES
BENEFICIALLY OWNED BEING BENEFICIALLY OWNED
PRIOR TO OFFERING OFFERED AFTER OFFERING
----------------------- ------- -----------------------
NAME NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Alice Gallagher...................... 169,010 * 33,000 136,010 *
John Gallagher....................... 169,010 * 33,000 136,010 *
Lisa Gallagher....................... 16,039 * 3,000 13,039 *
Luann Wowkanech...................... 132,475 * 32,000 100,475 *
Ronald Stanfa........................ 175,000 * 25,000 150,000 *
John T. Campbell Revocable Trust..... 23,335 * 7,000 8,374 *
Basil Bourque Profit Sharing Trust... 7,484 * 2,000 5,484 *
Tricia Stanfa........................ 3,907 * 2,000 1,907 *
Shellie LePori....................... 5,700 * 5,700 0 -
All executive officers and directors
as a group (10 persons)............ 3,350,377 18.4 160,000 3,190,377 17.5
</TABLE>
- ------------
* Less than 1%.
(1) These shares are held by the Kristinik Family Partnership, of which Mr.
Kristinik is a general partner. Includes 40,000 shares which may be
acquired upon the exercise of options exercisable within 60 days.
(2) 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.
(3) Includes 20,000 shares which may be acquired upon the exercise of options
exercisable within 60 days.
(4) 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 and of which 3,000 of such shares are being offered hereunder.
Does not include 100,000 shares which may be acquired upon the exercise of
options not exercisable within 60 days.
(5) Includes 177,183 shares held by Mr. Mercadante's spouse of which 9,240 are
being offered hereunder, as to which shares Mr. Mercadante disclaims
beneficial ownership and includes 52,500 shares held by the G.E. Mercadante
1997 Charitable Remainder Unitrust of which Mr. Mercadante is a beneficiary
and all of such shares are being offered hereunder. The remaining 43,260
shares are being offered by Mr. Mercadante.
(6) These shares are held by two family trusts for which Mr. Busskohl is a
trustee.
(7) 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 33,714 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.
(8) 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.
(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 and 85,000 shares held in a trust for the benefit
of Mr. Verrochi's children, as to which shares Mr. Verrochi disclaims
beneficial ownership.
(10) These shares are held by the Robert K. Werbe Grantor Retained Annuity Trust
for which Mr. Thomas Werbe is a trustee.
(11) Includes 150,000 shares held by the Kuchin Charitable Remainder Trust of
which Mr. Kuchin is a beneficiary, all of which are being offered hereunder
and also includes
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
25
<PAGE>
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.
(12) All of these shares are held by two family trusts for which Mr. O'Connell
is a trustee.
(13) All of these shares are held by a family trust and a limited liability
corporation for which Mr. Carter is a trustee and beneficial owner,
respectively.
(14) All of these shares are held by two family trusts for which Mr. Carter is a
trustee.
PLAN OF DISTRIBUTION
The shares of Common Stock registered hereunder and owned by the Selling
Stockholders may be offered and sold by means of this Prospectus from time to
time as market conditions permit in the over-the-counter market, or otherwise,
at prices and terms then prevailing or at prices related to the then-current
market price, or in negotiated transactions. These shares may be sold by one or
more of the following methods, without limitation: (a) a block trade in which a
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) face-to-face transactions between sellers and purchasers without a
broker/dealer. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from Selling
Stockholders in amounts to be negotiated.
The Selling Stockholders and any broker/dealers who act in connection with
the sale of the Shares hereunder may be deemed to be "underwriters" within the
meaning of 2(11) of the Securities Act, and any commissions received by them and
profit on any resale of the Shares as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Company has
agreed to indemnify the Selling Stockholders and any securities broker/dealers
who may be deemed to be underwriters against certain liabilities, including
liabilities under the Securities Act as underwriters or otherwise.
The Company has advised the Selling Stockholders that they and any
securities broker/dealers or others who may be deemed to be statutory
underwriters will be subject to the Prospectus delivery requirements under the
Securities Act. The Company has also advised each Selling Stockholder that in
the event of a "distribution" of the shares owned by the Selling Stockholder,
such Selling Stockholder, any "affiliated purchasers", and any broker/dealer
or other person who participates in such distribution may be subject to Rule
10b-6 under the Securities Exchange Act of 1934 ("1934 Act") until their
participation in that distribution is completed. A "distribution" is defined
in Rule 10b-6 as an offering of securities "that is distinguished from ordinary
trading transactions by the magnitude of the offering and the presence of
special selling efforts and selling methods". The Company has also advised the
Selling Stockholders that Rule 10b-7 under the 1934 Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging,
fixing or stabilizing the price of the Common Stock in connection with this
offering.
Rule 10b-6 makes it unlawful for any person who is participating in a
distribution to bid for or purchase stock of the same class as is the subject of
the distribution. If Rule 10b-6 applies to the offer and sale of any of the
Shares, then participating broker/dealers will be obligated to cease
market-making activities nine business days prior to their participation in the
offer and sale of such Shares and may not recommence market-making activities
until their participation in the distribution has been completed. If Rule 10b-6
applies to one or more of the principal market-makers in the Company's Common
Stock, the market price of such stock could be adversely affected.
26
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus has been passed upon for the Company by Douglas M. Cerny, General
Counsel to the Company.
Mr. Cerny owns 89,000 shares of Common Stock of the Company and holds
options to purchase 100,000 shares of Common Stock which are not exercisable
within the next 60 days.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements included elsewhere in this Prospectus or
incorporated by reference herein have been audited by Arthur Andersen LLP,
independnet public accountants, and 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.
27
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
------
COACH USA, INC. PRO FORMA COMBINED
Introduction to Unaudited Pro Forma Combined
Financial Statements ....................................... F-2
Pro Forma Combined Balance Sheet (unaudited) .................... F-3
Notes to Pro Forma Combined Balance Sheet (unaudited) ........... F-4
Pro Forma Combined Statements of Income (unaudited) ............. F-5
Notes to Pro Forma Combined Statements of Income (unaudited) .... F-7
COACH USA, INC. AND SUBSIDIARIES
Report of Independent Public Accountants ........................ F-9
Consolidated Balance Sheets ..................................... F-10
Consolidated Statements of Income ............................... F-11
Consolidated Statements of Stockholders' Equity ................. F-12
Consolidated Statements of Cash Flows ........................... F-13
Notes to Consolidated Financial Statements ...................... F-14
F-1
<PAGE>
COACH USA, INC.
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of Coach
USA, Inc., ("Coach USA" or the "Company") give effect to the combination of the
Founding Companies, and the acquisitions of the Pooled Companies and Purchased
Companies. The Pro Forma Combined Balance Sheet reflects the transactions
occurring after March 31, 1997 as if they had occurred on March 31, 1997. The
Pro Forma Combined Statements of Income present the income statement data from
the consolidated financial statements of Coach USA (including all Pooled
Companies) presented elsewhere in this Prospectus, combined with the Founding
Companies through May 31, 1996 and the Purchased Companies through their date of
acquisition, and give effect to the following pro forma adjustments: (i) the
issuance of 425,039 shares of Coach USA Common Stock to the stockholders of a
Pooled Company to reflect the conversion of certain debt to equity; (ii) the
owner's compensation differential; (iii) the elimination of non-recurring
acquisition related costs; (iv) the interest expense on debt incurred to fund
the cash price of the Purchased Companies and convertible notes issued; and (v)
the incremental provision for income taxes for S Corporations, the owner's
compensation differential and changes in interest expense, as if the
transactions were consummated as of January 1, 1996.
These pro forma combined financial statements should be read in conjunction
with the consolidated financial statements of Coach USA.
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-2
<PAGE>
COACH USA, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
MARCH 31, 1997
------------------------------------------
PRO FORMA
COACH USA ADJUSTMENTS PRO FORMA
------------ ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..... $ 6,544 $ 142 $ 6,686
Accounts receivable, less
allowance .................. 22,526 1,612 24,138
Notes receivable, current
portion .................... 4,098 4,098
Inventories ................... 9,701 1,804 11,505
Prepaid expenses and other
current assets ............. 14,925 257 15,182
------------ ------------ ------------
Total current assets .... 57,794 3,815 61,609
PROPERTY AND EQUIPMENT, net ........ 269,925 21,146 291,071
NOTES RECEIVABLE, less allowance ... 5,013 5,013
GOODWILL, net ...................... 72,447 7,072 79,519
OTHER ASSETS, net .................. 10,945 46 10,991
------------ ------------ ------------
Total assets ............ $ 416,124 $ 32,079 $ 448,203
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations ................ $ 6,452 4,049 $ 10,501
Accounts payable and accrued
liabilities ................ 72,131 5,347 77,478
------------ ------------ ------------
Total current
liabilities ........... 78,583 9,396 87,979
------------ ------------ ------------
LONG-TERM OBLIGATIONS, net of
current maturities ............... 160,368 13,677 174,045
CONVERTIBLE SUBORDINATED NOTES ..... 36,830 3,750 40,580
DEFERRED INCOME TAXES .............. 28,537 2,474 31,011
------------ ------------ ------------
Total liabilities ....... 304,318 29,297 333,615
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock .................. 178 1 179
Additional paid-in capital .... 101,325 2,166 103,491
Retained earnings ............. 10,303 615 10,918
------------ ------------ ------------
Total stockholders'
equity ................ 111,806 2,782 114,588
------------ ------------ ------------
Total liabilities and
stockholders' equity .. $ 416,124 $ 32,079 $ 448,203
============ ============ ============
The accompanying notes are an integral part of this
pro forma combined balance sheet.
F-3
<PAGE>
COACH USA, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
The pro forma combined balance sheet adjusts the Coach USA consolidated
financial statements as of March 31, 1997 to give effect to the acquisition of
four companies subsequent to March 31, 1997 for total consideration of $8.5
million in cash, 163,304 shares of Common Stock and $3.8 million of subordinated
notes convertible into 102,128 shares of the Company's Common Stock, as if all
acquisitions had occurred on March 31, 1997.
F-4
<PAGE>
COACH USA, INC.
PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------------
COMBINED PURCHASED
FOUNDING COMPANIES
COMPANIES THROUGH
THROUGH DATE OF PRO FORMA
COACH USA MAY 31 ACQUISITION ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ........................ $ 205,838 $ 44,938 $ 131,683 $ $ 382,459
OPERATING EXPENSES .............. 152,298 36,786 100,454 289,538
------------ ------------ ------------ ------------ ------------
Gross profit ............... 53,540 8,152 31,229 92,921
GENERAL AND
ADMINISTRATIVE EXPENSES ....... 24,471 7,776 17,579 (7,495)(a) 43,733
1,402(b)
ACQUISITION RELATED COSTS ....... 1,101 -- -- (1,101)(c) --
------------ ------------ ------------ ------------ ------------
Operating income ........... 27,968 376 13,650 7,194 49,188
OTHER (INCOME) EXPENSE:
Interest expense ........... 9,467 1,359 4,838 (892)(d) 19,326
4,554(e)
Earnings from investment in
unconsolidated subsidiary -- -- (7,094) 7,094(f) --
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS ....... 18,501 (983) 15,906 (3,562) 29,862
PROVISION (BENEFIT) FOR INCOME
TAXES ......................... 7,684 42 5,957 (1,388)(g) 12,295
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS ........... $ 10,817 $ (1,025) $ 9,949 $ (2,174) $ 17,567
============ ============ ============ ============ ============
PRO FORMA INCOME PER COMMON SHARE
BEFORE EXTRAORDINARY ITEMS .... $ 1.14
============
WEIGHTED AVERAGE SHARES
OUTSTANDING(h) ................ 15,418
============
</TABLE>
The accompanying notes are an integral part of this
pro forma combined statement of income.
F-5
<PAGE>
COACH USA, INC.
PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------
PURCHASED
COMPANIES
THROUGH
DATE OF PRO FORMA
COACH USA ACQUISITION ADJUSTMENTS PRO FORMA
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES ........................ $ 69,311 $ 17,190 $ $ 86,501
OPERATING EXPENSES .............. 54,386 15,327 69,713
--------- --------- --------- ---------
Gross profit ............... 14,925 1,863 16,788
GENERAL AND
ADMINISTRATIVE EXPENSES ....... 8,238 2,658 (219)(a) 10,893
216(b)
ACQUISITION RELATED COSTS ....... 117 -- (117)(c) --
--------- --------- --------- ---------
Operating income (loss) .... 6,570 (795) 120 5,895
OTHER (INCOME) EXPENSE:
Interest expense ........... 3,199 391 767(d) 4,357
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS ....... 3,371 (1,186) (647) 1,538
PROVISION (BENEFIT) FOR INCOME
TAXES ......................... 1,402 (556) (195)(e) 651
--------- --------- --------- ---------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS ........... $ 1,969 $ (630) $ (452) $ 887
========= ========= ========= =========
PRO FORMA INCOME PER COMMON SHARE
BEFORE EXTRAORDINARY ITEMS .... $ .05
=========
WEIGHTED AVERAGE SHARES
OUTSTANDING(f) ................ 18,676
=========
</TABLE>
The accompanying notes are an integral part of this
pro forma combined statement of income.
F-6
<PAGE>
COACH USA, INC.
NOTES TO PRO FORMA COMBINED STATEMENTS OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
The Pro Forma Combined Statements of Income for the year ended December 31,
1996 and the three months ended March 31, 1997 include (i) Coach USA and
subsidiaries which reflects the Pooled Companies combined with the Founding
Companies from June 1, 1996 and the Purchased Companies from their respective
date of acquisition (ii) the Founding Companies for the period prior to June 1,
1996 and (iii) the Purchased Companies through their respective date of
acquisition, including four companies acquired subsequent to March 31, 1997.
(a) 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.
(b) Records the amortization of goodwill using a 40-year life.
(c) Eliminates non-recurring acquisition related costs.
(d) Records reduction of interest expense related to debt converted to
equity subsequent to the acquisition of one of the Pooled Companies
completed in August 1996.
(e) Records interest expense on debt incurred to fund the cash purchase
price and convertible debt issued in conjunction with the acquisition
of the Purchased Companies.
(f) Eliminates earnings in a previously unconsolidated subsidiary.
(g) Records the incremental provision for Federal and state income taxes
relating to the owner's 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 computation of unaudited pro forma combined net income per common
and common equivalent share before extraordinary items for the year
ended December 31, 1996 is based upon 15,418,110 weighted average
shares outstanding which includes (a) 3,862,369 shares attributed to
the acquisitions of the Pooled Companies, (b) 2,165,724 shares issued
prior to the Initial Public Offering, (c) 5,099,687 shares issued to
the stockholders of the Founding Companies, (d) 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; (e) 118,142
of the 4,140,000 shares sold in the Initial Public Offering to pay
excess S Corporation distributions, (f) the weighted average portion
of the remaining 2,321,144 shares issued in the Initial Public
Offering, (g) the weighted average portion of 425,039 shares issued in
connection with the conversion of indebtedness to equity at one of the
Pooled Companies, (h) the weighted average portion of the 2,084,307
shares sold in the secondary stock offering, (i) 163,304 shares
representing shares attributed to acquisitions subsequent to March 31,
1997, and (j) 227,743 shares representing the weighted average portion
of shares for the dilution attributable to outstanding options to
purchase common stock, using the treasury stock method.
F-7
<PAGE>
COACH USA, INC.
NOTES TO PRO FORMA COMBINED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997
(a) Adjusts compensation to the level the owners of the Pooled and
Purchased Companies have agreed to receive subsequent to their
respective acquisition.
(b) Records the amortization of goodwill using a 40-year life.
(c) Eliminates non-recurring acquisition related costs.
(d) Records interest expense on debt incurred to fund the cash purchase
price and convertible debt issued in conjunction with the acquisition
of the Purchased Companies.
(e) Records the incremental provision for Federal and state income taxes
relating to the owner's 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.
(f) The computation of unaudited pro forma combined net income per common
and common equivalent share before extraordinary items for the three
months ended March 31, 1997 is based upon 18,675,933 weighted average
shares outstanding which include (a) 17,777,126 shares issued and
outstanding for the entire three month period, (b) 981 shares issued
to a minority interest, (c) 163,304 shares representing shares
attributed to acquisitions subsequent to March 31, 1997, and (d)
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.
F-8
<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, 1995 and 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 31, 1997
F-9
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-----------------------------
1995 1996
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................ $ 3,411 $ 1,470
Accounts receivable, less allowance
of $996 and $2,096 .................... 8,890 18,659
Inventories .............................. 3,641 8,758
Notes receivable, current portion ........ 3,045 2,811
Prepaid expenses and other current
assets ................................ 4,540 12,628
------------ ------------
Total current assets ............... 23,527 44,326
PROPERTY AND EQUIPMENT, net ................... 65,395 210,754
NOTES RECEIVABLE, less allowance of
$500 and $500 ......................... 1,978 4,231
GOODWILL, net ................................. 71 30,142
OTHER ASSETS, net ............................. 11,636 10,497
------------ ------------
Total assets ....................... $ 102,607 $ 299,950
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of convertible
subordinated notes .................... $ -- $ 4,000
Current maturities of long-term
obligations ........................... 12,065 10,877
Accounts payable and accrued
liabilities ........................... 19,309 36,948
------------ ------------
Total current liabilities .......... 31,374 51,825
LONG-TERM OBLIGATIONS, net of
current maturities .......................... 43,685 98,106
CONVERTIBLE SUBORDINATED NOTES, net of
current maturities .......................... -- 18,500
LONG-TERM OBLIGATIONS DUE TO
STOCKHOLDERS, net of current maturities ..... 16,467 --
DEFERRED INCOME TAXES ......................... 6,702 21,593
------------ ------------
Total liabilities .................. 98,228 190,024
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par, 30,000,000
shares authorized, 3,862,369 and
17,777,126 shares issued and
outstanding, respectively ............. 39 178
Additional paid-in capital ............... 5,160 101,325
Retained earnings (deficit) .............. (820) 8,423
------------ ------------
Total stockholders' equity ......... 4,379 109,926
------------ ------------
Total liabilities and
stockholders' equity ............ $ 102,607 $ 299,950
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
PRO FORMA
COMBINED
1994 1995 1996 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................................ $ 88,060 $ 103,403 $ 205,838 $ 250,776
OPERATING EXPENSES...................... 65,460 75,002 152,298 189,084
---------- ----------- ----------- -----------
Gross profit....................... 22,600 28,401 53,540 61,692
GENERAL AND ADMINISTRATIVE EXPENSES..... 15,223 16,772 24,471 26,554
ACQUISITION RELATED COSTS............... -- -- 1,101 --
---------- ----------- ----------- -----------
Operating income................... 7,377 11,629 27,968 35,138
INTEREST EXPENSE........................ 4,904 6,627 9,467 9,934
---------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS................... 2,473 5,002 18,501 25,204
PROVISION FOR INCOME TAXES.............. 1,130 2,050 7,684 9,958
---------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEMS....... 1,343 2,952 10,817 15,246
EXTRAORDINARY ITEMS, net of income
taxes................................. -- -- 2,723 2,723
---------- ----------- ----------- -----------
NET INCOME.............................. $ 1,343 $ 2,952 $ 13,540 $ 17,969
========== =========== =========== ===========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
INCOME BEFORE EXTRAORDINARY
ITEMS........................... $ .35 $ .76 $ .91 $ 1.00
EXTRAORDINARY ITEMS................ -- -- .23 .18
---------- ----------- ----------- -----------
NET INCOME......................... $ .35 $ .76 $ 1.14 $ 1.18
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
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, 1993............ 3,863 $ 39 $ 4,954 $ (3,346) $ 1,647
S Corporation dividends paid by
certain Pooled Companies........ -- -- -- (690) (690)
Net income......................... -- -- -- 1,343 1,343
Other.............................. -- -- (30) -- (30)
------ ------ ---------- -------- -------------
BALANCE AT DECEMBER 31, 1994............ 3,863 39 4,924 (2,693) 2,270
S Corporation dividends paid by
certain Pooled Companies........ -- -- -- (1,079) (1,079)
Net income......................... -- -- -- 2,952 2,952
Other.............................. -- -- 236 -- 236
------ ------ ---------- -------- -------------
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
====== ====== ========== ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 1,343 $ 2,952 $ 13,540
Adjustments to reconcile net income to
net cash provided by operating
activities --
Adjustment to conform fiscal
year ends of Pooled
Companies.................... -- -- 267
Extraordinary gain.............. -- -- (7,007)
Depreciation and amortization... 5,937 7,702 13,744
(Gain) loss on sale of assets... 216 (620) (350)
Deferred income tax provision... 1,206 1,743 7,026
Changes in operating assets and
liabilities, net of effect of
Purchased Companies --
Accounts receivable, net... 115 (1,337) (944)
Inventories................ (1,094) (2,593) (4,507)
Notes receivable, net...... 175 (1,828) (1,672)
Prepaid expenses and other
current assets......... (631) (611) (3,856)
Accounts payable and
accrued liabilities.... (1,523) 2,111 (6,761)
Other...................... 850 (163) (473)
----------- ----------- -------------
Net cash provided by
operating
activities.......... 6,594 7,356 9,007
----------- ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment... (22,926) (14,359) (25,714)
Proceeds from sales of property and
equipment.......................... 1,196 1,961 4,685
Cash consideration paid for the
Founding Companies, net of cash
acquired........................... -- -- (22,112)
Cash consideration paid for Purchased
Companies, net of cash acquired.... -- -- (12,666)
Proceeds from sales of investments.... -- -- 1,419
----------- ----------- -------------
Net cash used in
investing
activities.......... (21,730) (12,398) (54,388)
----------- ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations........................ (12,032) (18,544) (125,638)
Proceeds from issuance of long-term
obligations........................ 26,276 26,091 74,198
Sales of Common Stock................. -- -- 96,564
S Corporation Dividends paid by
certain Pooled Companies........... (690) (1,079) (1,838)
Other................................. 286 181 154
----------- ----------- -------------
Net cash provided by
financing
activities.......... 13,840 6,649 43,440
=========== =========== =============
NET INCREASE (DECREASE) IN CASH......... (1,296) 1,607 (1,941)
CASH AND CASH EQUIVALENTS, beginning of
year.................................. 3,100 1,804 3,411
----------- ----------- -------------
CASH AND CASH EQUIVALENTS, end of
year.................................. $ 1,804 $ 3,411 $ 1,470
=========== =========== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest............. $ 3,524 $ 5,329 $ 9,236
Cash paid for income taxes......... 410 125 4,732
Assets acquired under capital
leases........................... 1,931 2,404 7,891
Convertible debt issued for
Purchased Companies.............. -- -- 22,500
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<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 its
initial public offering (the 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 are referred to
herein as the "Founding Companies." Coach USA acquired nine additional
businesses in 1996. Of these nine additional businesses acquired, six were
accounted for as poolings-of-interests and, together with an additional business
acquired in February 1997 accounted for as a pooling-of-interests, are referred
to herein as the "Pooled Companies." The remaining three businesses 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, the Purchased
Companies since date of acquisition, 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 since date of
acquisition, are collectively referred to herein as the "Company." All
significant intercompany transactions and balances have been eliminated in
consolidation.
The unaudited pro forma combined statement of income for the year ended
December 31, 1996 includes the accounts of Coach USA and the Founding Companies
from January 1, 1996, the Purchased Companies since date of acquisition, and
gives retroactive effect to the acquisitions of the Pooled Companies. Certain
pro forma adjustments further discussed in Note 3 have been made to the
unaudited pro forma combined statement of income.
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. Unaudited revenues and net income for
these two companies for the two-month period ended December 31, 1995, were
approximately $6,292,000 and $267,000, respectively. Accordingly, an adjustment
is included in the consolidated statement of stockholders' equity for the net
income attributed to this two-month period.
F-14
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 cost for taxicabs held for sale or
on short-term leases are accounted for on the specific identification basis, and
both are reported at the lower of cost or market. Taxicabs held for sale are
depreciated over their estimated useful lives of 4.5 years. Depreciation and
amortization expense in the accompanying consolidated financial statements
includes $1,053,000, $1,457,000 and $1,940,000 of depreciation related to
taxicabs held for sale in 1994, 1995 and 1996.
NOTES RECEIVABLE
Notes receivable result from the sale of taxicabs to independent
contractors. The notes bear interest and are due in weekly installments over
periods ranging up to 42 months.
NOTES RECEIVABLE FROM STOCKHOLDERS
The Company had notes receivable from former stockholders of certain of the
Pooled Companies totaling $439,000 at December 31, 1995. These notes receivable
were unsecured, noninterest-bearing and payable on demand and were repaid in
full in connection with the respective mergers with Coach USA.
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 or
losses on the sale of equipment are included in operating expenses.
GOODWILL
Goodwill represents the excess of the aggregate price paid by the Company
in acquisitions accounted for as purchases over the fair market value of the net
tangible assets acquired. Goodwill is amortized on a straight-line basis
generally over 40 years.
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 40
years. Annual renewal fees are charged to expense as incurred.
The Company applies Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Management continually evaluates whether events or
circumstances have occurred that indicate that the remaining estimated useful
lives of property and equipment, other identifiable intangible assets and
goodwill may warrant revision or that the remaining balances may not be
recoverable.
F-15
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
The Company provides services to a broad range of geographical regions. The
Company's credit risk primarily consists of receivables from a variety of
customers, including casinos and various other tourism-based companies and
governmental units. 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 independent taxicab contractors
and provides allowances as deemed necessary.
The activity in the allowance for doubtful accounts is as follows (in
thousands):
<TABLE>
<CAPTION>
BEGINNING
BALANCE OF
BALANCE AT FOUNDING AND CHARGED TO BALANCE AT
BEGINNING PURCHASED COSTS AND END OF
OF PERIOD COMPANIES EXPENSES WRITE-OFFS PERIOD
---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994............ $1,088 $-- $ 821 $ (1,049) $ 860
Year ended December 31, 1995............ 860 -- 870 (734) 996
Year ended December 31, 1996............ 996 955 931 (786) 2,096
</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 interest method over the term of
the notes. 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 $1.0 million, $0.6 million and $0.7 million in 1994,
1995 and 1996, respectively, and is included in revenues in the accompanying
consolidated 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 income 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 realized or
settled.
Certain of the Pooled Companies were S Corporations for income tax purposes
and, accordingly, any income tax liabilities for the periods prior to the
acquisition date are the responsibility of the respective stockholders. For
purposes of these consolidated financial statements, federal and state income
taxes have been provided as if these companies had filed C Corporation tax
returns for the pre-acquisition periods. The current income tax expense of these
S Corporations is reflected in the consolidated financial statements in the
provision for income taxes and as an increase to additional paid-in capital.
USE OF ESTIMATES
The preparation of financial statements 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-16
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The computation of net income per common and common equivalent share for
the years ended December 31, 1994 and 1995 includes 3,862,369 shares issued in
connection with the acquisitions of the Pooled Companies.
The computation of net income per common and common equivalent share for
the year ended December 31, 1996 is based upon 11,923,064 weighted average
shares outstanding which includes (a) the 3,862,369 shares discussed above, (b)
the weighted average portion of the 2,165,724 shares issued prior to the Initial
Public Offering, (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 the 425,039 shares issued in connection with the conversion
of indebtedness to equity at one of the Pooled Companies, (f) the weighted
average portion of the 2,084,307 shares sold in a secondary stock offering, and
(g) 305,605 shares representing the weighted average portion of shares for the
dilution attributable to outstanding options to purchase common stock, using the
treasury stock method.
The computation of unaudited pro forma combined net income per common and
common equivalent share for the year ended December 31, 1996 is based upon
15,254,806 weighted average shares outstanding which includes (a) the 3,862,369
shares discussed above, (b) the 2,165,724 shares issued prior to the Initial
Public Offering, (c) 5,099,687 shares issued to the stockholders of the Founding
Companies, (d) 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; (e) 118,142 of the 4,140,000 shares sold in the Initial Public
Offering to pay excess S Corporation distributions, (f) the weighted average of
the remaining 2,321,144 shares issued in the Initial Public Offering, (g) the
weighted average portion of 425,039 shares issued in connection with the
conversion of indebtedness to equity at one of the Pooled Companies, (h) the
weighted average portion of the 2,084,307 shares sold in the secondary stock
offering, and (i) 227,743 shares representing the weighted 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.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued 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.
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 years ended December 31, 1994, 1995 and 1996 will
be $0.35, $0.76 and $1.17, and that basic EPS for the unaudited pro forma twelve
months ended December 31, 1996 will be $1.20. The Company anticipates that the
amounts reported for diluted EPS for the years ended December 31, 1994, 1995 and
1996 will be $0.35, $0.76 and $1.14 and that diluted EPS for the unaudited pro
forma twelve months ended December 31, 1996 will be $1.18.
F-17
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. BUSINESS COMBINATIONS:
The Founding Companies were merged with Coach USA effective June 1, 1996,
for financial reporting purposes. The unaudited pro forma combined data
presented below consists of the income statement data as presented in these
consolidated financial statements combined with the Founding Companies,
including certain pro forma adjustments further discussed below, as if the
Founding Companies were combined with the Pooled Companies and Coach USA as of
January 1, 1995 (in thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------- -------------
(UNAUDITED)
Revenues............................. $ 216,892 $ 250,776
Income before extraordinary items.... 11,140 15,246
Income per share before extraordinary
items.............................. .83 1.00
POOLINGS
During 1996 and through February 28, 1997, the Company acquired all of the
outstanding stock of the Pooled Companies in exchange for 3,862,369 shares of
Common Stock. Six of these companies provide motorcoach transportation services
and one provides primarily 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.
The consolidated financial statements for 1994 and 1995 represent the
operations of the Pooled Companies prior to their acquisition by the Company.
The combined revenues, income before extraordinary items, and net income of the
Pooled Companies for the preacquisition period in 1996 were $107.7 million, $4.9
million and $4.8 million, respectively. In addition, the Consolidated Statements
of Cash Flows reflect an acquisition by one of the Pooled Companies during the
pre acquisition period in 1996 which was accounted for as a purchase for a total
cash price of $323,000.
The following table reconciles the consolidated revenues and net income of
the Company included in these financial statements after giving retroactive
effect to the pooling-of-interests transaction completed in February 1997 with
the consolidated revenues and net income previously reported in the Company's
1996 Form 10-K filing (in thousands, except per share data).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1994 1995 1996
------------------ ------------------ -------------------
NET NET NET
REVENUES INCOME REVENUES INCOME REVENUES INCOME
-------- ------ -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
As previously reported in
10-K................... $ 68,421 $ 649 $ 83,925 $2,411 $185,728 $12,915
Subsequent Pooling....... 19,639 694 19,478 541 20,110 625
-------- ------ -------- ------ -------- -------
After Subsequent
Pooling................ $ 88,060 $1,343 $103,403 $2,952 $205,838 $13,540
======== ====== ======== ====== ======== =======
Net income per share --
After Subsequent
Pooling............. $ .35 $ .76 $ 1.14
====== ====== =======
</TABLE>
F-18
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PURCHASES
On August 29, 1996, the Company acquired three businesses which were
accounted for as purchases. The aggregate consideration paid in these
transactions was $14.5 million in cash and $22.5 million in the form of
subordinated notes convertible into 750,460 shares of Common Stock. The
accompanying consolidated balance sheet as of December 31, 1996 includes
allocations of the respective purchase prices and is subject to final
adjustment. The allocations resulted in goodwill recognized of $30.3 million
representing the excess of purchase price over fair value of the net assets
acquired. In conjunction with the acquisitions, liabilities were assumed as
follows (in thousands):
Fair value of assets acquired, net of cash acquired ............ $ 63,963
Goodwill ....................................................... 30,341
Cash paid, net of cash acquired ................................ (12,343)
Issuance of convertible notes .................................. (22,500)
--------
Liabilities assumed ............................................ $ 59,461
========
The following table sets forth further adjustments to the unaudited pro
forma income statement data above to present the effect of the acquisitions of
the companies accounted for as purchases through December 31, 1996 on the
Company's results of operations for the years ended December 31, 1995 and 1996.
The following unaudited pro forma income statement data includes the Founding
Companies and the Pooled Companies, plus all Purchased Companies through 1996 as
if the acquisitions were effective on the first day of the year being reported
(in thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(UNAUDITED)
Revenues ....................................... $ 252,744 $ 276,796
Income before extraordinary items .............. 12,531 16,153
Income per share before extraordinary items .... .94 1.06
Pro forma adjustments included in the preceding tables regarding the
Founding Companies, the Pooled Companies and the Purchased Companies primarily
relate to (a) owners' compensation differential, (b) adjustments to depreciation
and amortization due to the purchase price allocations, (c) adjustments of
historical interest expense related to certain subordinated debt and cash
payments related to the Purchased Companies, (d) elimination of interest on debt
converted to equity of one of the Pooled Companies, (e) elimination of merger
costs in connection with the acquisition of the Pooled Companies, and (f)
adjustments to the federal and state income tax provisions based on the combined
operations.
The pro forma 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.
Through March 31, 1997, the Company acquired two additional companies
accounted for as purchases. The aggregate consideration paid in these
transactions was $34.3 million in cash and $18.3 million of subordinated notes
convertible into 484,239 shares of the Company's Common Stock.
F-19
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following (in
thousands):
DECEMBER 31
---------------------
1995 1996
--------- ----------
Prepaid insurance....................... $ 1,410 $ 2,757
Deferred income tax asset, current...... 1,283 3,392
Prepaid licenses, registrations and
other taxes........................... 918 3,683
Other................................... 929 2,796
--------- ----------
$ 4,540 $ 12,628
========= ==========
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
DECEMBER 31
ESTIMATED ------------------------
USEFUL LIVES 1995 1996
------------ ----------- -----------
(YEARS)
Transportation equipment............. 3-15 $ 79,681 $ 241,371
Building and leasehold
improvements....................... 5-31.5 6,624 11,527
Computer equipment................... 5-7 7,960 9,022
Other................................ 3-10 2,519 12,496
----------- -----------
96,784 274,416
Less -- Accumulated depreciation..... (31,389) (63,662)
----------- -----------
$ 65,395 $ 210,754
=========== ===========
Included in transportation equipment at December 31, 1995 and 1996, are
approximately $10.9 million and $21.0 million, respectively, of assets held
under capital leases.
6. OTHER ASSETS:
Other assets consist of the following (in thousands):
DECEMBER 31
----------------------
1995 1996
---------- ----------
Taxicab permits, net of accumulated
amortization of $2,194 and $2,298..... $ 4,263 $ 4,159
Noncurrent deferred income tax asset.... 6,089 3,782
Other, net of accumulated amortization
of $672 and $838...................... 1,284 2,556
---------- ----------
$ 11,636 $ 10,497
========== ==========
Amortization expense related to other assets for the years ended December
31, 1995 and 1996 was $201,000 and $270,000, respectively.
F-20
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following (in
thousands):
DECEMBER 31
----------------------
1995 1996
---------- ----------
Trade accounts payable.................. $ 3,900 $ 8,721
Accrued insurance claims................ 6,608 13,847
Accrued compensation.................... 2,929 4,422
Due to affiliates....................... 642 --
Property and other taxes................ 941 1,237
Accrued interest payable................ 889 849
Deferred revenue........................ 883 1,448
Other................................... 2,517 6,424
---------- ----------
$ 19,309 $ 36,948
========== ==========
8. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
------------------------
1995 1996
----------- -----------
(IN THOUSANDS)
Revolving credit facility with a bank
syndicate, interest at LIBOR plus
1.50% (7.03% at December 31, 1996),
secured by substantially all of the
assets of the Company................. $ -- $ 60,110
Notes payable to finance companies,
interest rates ranging from 7.70% to
15.00%, due in monthly installments of
$567,098, maturing at various dates
through 2011; secured by certain
transportation equipment and real
property.............................. 38,971 20,728
Obligations under capital leases of
certain transportation equipment,
implicit interest rates ranging from
5.00% to 11.00%, due in monthly
installments of $344,508, maturing at
various dates through 2003............ 6,643 18,037
Various notes payable to stockholders,
including $600 of accrued interest
payable in 1996....................... 18,387 259
Other................................... 8,816 9,849
----------- -----------
Total Long-term Obligations............. 72,817 108,983
Less -- Current maturities.............. (12,065) (10,877)
Less -- Accrued Interest................ (600) --
----------- -----------
$ 60,152 $ 98,106
=========== ===========
F-21
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, future principal payments of long-term debt and
minimum lease payments under capital lease obligations are as follows (in
thousands):
LONG-TERM CAPITAL LEASE
DEBT OBLIGATIONS
--------- -------------
Year ending December 31 --
1997............................... $ 8,300 $ 4,201
1998............................... 4,998 3,341
1999............................... 65,189 3,221
2000............................... 4,816 3,976
2001............................... 3,247 2,858
Thereafter......................... 4,397 6,404
--------- -------------
$ 90,947 24,001
=========
Less -- Amounts representing
interest........................ (5,964)
-------------
$ 18,037
=============
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 and February 1997, the Company amended and restated the
credit agreement. The credit agreement, as amended, provides for a revolving
credit facility of $181 million through a syndicate of eight banks and allows
for an additional $40 million of debt outside the credit facility (in addition
to the convertible subordinated notes). 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 secured by
substantially all of the assets of the Company 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 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. A commitment fee ranging from 0.25% to 0.50% 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 December 31, 1996, the Company had a total
of $109.0 million outstanding under the revolving and other outside credit
facilities and had utilized $5.0 million of the facility for letters of credit
securing certain insurance obligations and performance bonds, resulting in a
borrowing availability of $16.0 million under the revolving and other outside
credit facilities.
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 principal
amount of $50 million. The agreement provides that if the 90-day LIBOR rate
exceeds 6.5% for certain measurement periods, the bank will pay to the Company
the difference between such rate and 6.5%. The cost of the agreement is being
amortized over its term.
CONVERTIBLE SUBORDINATED NOTES
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
F-22
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 January of 1997 and $18.5 million in 1999.
Management estimates that the fair value of its debt obligations is
$112,619,000, compared to the historical value of $114,659,000 at December 31,
1996. The estimated fair value was determined by applying an estimated discount
rate to the scheduled cash payments under the obligations.
9. INCOME TAXES:
The Company has implemented SFAS No. 109, "Accounting for Income Taxes,"
which provides for a liability approach to accounting for income taxes. The
provision for income taxes consists of the following (in thousands):
YEAR ENDED DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Current --
Federal............................ $ (129) $ 335 $ 612
State.............................. 53 (28) 171
--------- --------- ---------
(76) 307 783
--------- --------- ---------
Deferred --
Federal............................ 1,115 1,464 5,663
State.............................. 91 279 1,238
--------- --------- ---------
1,206 1,743 6,901
--------- --------- ---------
Provision for income taxes before
extraordinary
items................................. 1,130 2,050 7,684
--------- --------- ---------
Extraordinary Items --
Current............................ -- -- 1,690
Deferred........................... -- -- 125
--------- --------- ---------
-- -- 1,815
--------- --------- ---------
$ 1,130 $ 2,050 $ 9,499
========= ========= =========
Deferred income 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 the 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-23
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax liabilities and assets are as follows
(in thousands):
DECEMBER 31
------------------------
1995 1996
----------- -----------
Deferred income tax liabilities --
Property and equipment............. $ 9,529 $ 30,648
Other.............................. 558 679
----------- -----------
Total deferred income tax
liabilities................ 10,087 31,327
----------- -----------
Deferred income tax assets --
Accounts receivable/allowance for
doubtful accounts............... (148) (854)
Accrued liabilities/expenses....... (5,190) (8,574)
Net operating losses............... (3,357) (2,520)
Other assets....................... (2,074) (1,965)
Tax credits........................ (268) (2,775)
Other.............................. (227) (824)
----------- -----------
Total deferred income tax
assets..................... (11,264) (17,512)
Less -- Valuation allowance............. 5 904
----------- -----------
Net deferred income tax
(assets) liabilities....... $ (1,172) $ 14,719
=========== ===========
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):
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Tax at federal statutory rate........ $ 866 $ 1,751 $ 8,064
Add (deduct) --
State income taxes, net of
federal benefit........... 119 162 983
Nondeductible expenses.... 124 155 383
Tax-exempt income......... (9) (3) --
Other..................... 30 (15) 69
--------- --------- ---------
$ 1,130 $ 2,050 $ 9,499
========= ========= =========
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 1997 to 2010. The Company also has tax credit carryforwards which have been
partially offset by a valuation allowance. Certain tax 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.
F-24
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENTS
As of December 31, 1996, the Company has entered into commitments to
purchase 108 motorcoaches for approximately $32,636,000. The Company intends to
sell or trade-in a number of older motorcoaches and finance the balance of the
new motorcoaches under the revolving and other outside credit facilities. In
addition, at December 31, 1996, the Company has entered into a commitment to
purchase certain property for approximately $1,050,000.
LEASES
The Company leases certain facilities and equipment under cancelable and
noncancelable operating leases. Rental expense for the years ended December 31,
1994, 1995 and 1996 was $1,808,000, $1,952,000 and $3,594,000, respectively.
Concurrent with the acquisitions of certain Founding and Purchased Companies,
the Company entered into various agreements with previous owners to lease land
and buildings used in the Company's operations. The terms of these leases range
from May 1996 through October 2030 and provide for certain escalations in the
rent expense each year. Included in the 1996 rent expenses above is
approximately $467,000 of rent paid to these related parties. The following
represents future minimum rental payments under noncancelable operating leases
(in thousands):
Year ending December 31 --
1997............................ $ 3,224
1998............................ 2,424
1999............................ 2,182
2000............................ 2,019
2001............................ 1,557
Thereafter...................... 16,260
----------
$ 27,666
==========
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 accruals for certain of
these actions in the accompanying supplemental consolidated financial
statements. In the opinion of management, uninsured losses, if any, resulting
from the ultimate resolution of these matters will not have a material effect on
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 Pooled
Companies acquired in August 1996 and the Purchased Companies. 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
F-25
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exemption with respect to future acquisitions, including the acquisitions of
businesses in December 1996 and acquisitions subsequent to year-end.
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 December 31, 1996. The
accrual is based on known facts and historical trends. Management believes such
accrual to be adequate.
EMPLOYEE BENEFIT PLANS
The Company maintains certain 401(k) plans which allow eligible employees
to defer a portion of their income through contributions to the plans. The
Company contributed $69,000, $85,000 and $246,000 to its plans during the year
ended December 31, 1994, 1995 and 1996, respectively.
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 provide 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, and decreasing to a level of 1% of the consideration in excess of
$4,000,000 paid for such business. A director of the Company is a principal of
Exel. In connection with several acquisitions, the Company paid Exel commissions
of $503,600 in 1996, based on the formula outlined above.
RISK FACTORS
The Company's stock began trading publicly on May 14, 1996. An investment
in shares of Common Stock involves a high degree of risk, including, among
others, those risks related to the Company's limited combined operating history,
risks related to acquisition financing and implementation of the Company's
acquisition strategy, seasonality of the motor coach business, fuel price
volatility, potential exposure to environmental liabilities and reliance on key
personnel.
F-26
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. EMPLOYEE STOCK OPTION PLAN:
The Company's 1996 Long-Term Incentive Plan provides for the granting of
options to key employees to purchase an aggregate of not more than the greater
of 1,500,000 shares or 15% of the total number of shares of the Company's Common
Stock outstanding at the time of grant at fair market value on the date of
grant. One-fifth of granted options generally become exercisable after one year,
and continue to become exercisable in one-fifth increments each year thereafter.
The options expire after ten years from the date of grant if unexercised.
Outstanding options may be canceled and reissued under terms specified in the
plan.
The following table summarizes activity under the Company's stock option
plans:
1996
------------
Options outstanding, beginning of
year.................................. --
Granted (exercise price per share)
1996 ($14.00 to $27.25)......... 1,807,017
Forfeited (exercise price per
share)
1996 ($14.00 to $23.75)......... (15,500)
------------
Options outstanding, end of year........ 1,791,517
============
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
supplemental consolidated statements of income if no intrinsic value of the
option exists at the date of grant. 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 is required as to what net income and earnings per share
would have been had the new accounting method been followed. While the Company
did not adopt SFAS No. 123 for accounting purposes, it has implemented the
disclosure requirements below which include annual pro forma disclosures of its
effects on options granted since the initial grant in May 1996. Had compensation
cost for these plans been determined consistent with SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the following pro
forma amounts (in thousands except per share data):
1996
----------
Net Earnings As reported............................. $ 13,540
Pro forma............................... $ 12,023
Earnings Per Share As reported............................. $ 1.14
Pro forma............................... $ 1.01
F-27
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effects of applying SFAS No. 123 in the pro forma disclosure may not be
indicative of future amounts as additional awards in future years are
anticipated. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:
Expected dividend yield................. 0.00%
Expected stock price volatility......... 34.59% - 34.78%
Risk free interest rate................. 6.43% - 6.96%
Expected life of options................ 10 years
Options outstanding at December 31, 1996, had exercise prices ranging from
$14.00 to $27.25, a weighted average remaining contractual life of 9.5 years, a
weighted average fair value of $14.29 per option and a weighted average exercise
price of $17.71 per option.
12. EXTRAORDINARY ITEMS:
In connection with the merger of a Pooled Company 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. This
gain was partially offset by extraordinary losses of approximately $1.5 million,
net of taxes, resulting from early extinguishment of debt at certain other
companies.
13. EVENTS SUBSEQUENT TO THE DATE OF AUDITORS' REPORT (UNAUDITED):
Subsequent to March 31, 1997, the Company acquired three additional
companies and has entered into a definitive agreement to acquire an additional
company, which is expected to close in the second quarter of 1997. The aggregate
consideration for these transactions was $8.5 million in cash, 163,304
shares of Common Stock, and $3.8 million of subordinated notes convertible into
102,128 shares of the Company's Common Stock. The Company has entered into an
agreement to acquire an additional business, which is subject to approval, for
consideration amounting to 300,000 shares of the Company's Common Stock.
F-28
<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. 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
----
Available Information ..................................................... 2
Incorporation of Certain Documents by Reference ........................... 2
Risk Factors .............................................................. 3
Price Range of Common Stock and Dividend Policy ........................... 8
Business .................................................................. 9
Management ................................................................ 22
Principal and Selling Stockholders ........................................ 24
Plan of Distribution ...................................................... 26
Legal Matters ............................................................. 27
Independent Public Accountants ............................................ 27
Index to Financial Statements ............................................. F-1
================================================================================
================================================================================
------------------------
1,931,481 SHARES
COACH USA, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
, 1997
================================================================================
<PAGE>
PART II
All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meanings assigned to them in the Prospectus which forms
a part of this Registration Statement.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. 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 and the New York Stock Exchange Listing Fee) are estimated.
SEC Registration Fee ........................................... $16,352
Blue Sky Fees and Expenses ..................................... 5,000
Printing and Engraving Costs ................................... 2,000
Legal Fees and Expenses ........................................ 20,000
Accounting Fees and Expenses ................................... 20,000
Transfer Agent and Registrar Fees and Expenses ................. 4,000
Miscellaneous .................................................. 4,403
-------
Total ............................................... $71,755
=======
ITEM 15. 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
II-1
<PAGE>
dividends or unlawful stock repurchases or redemptions, or (d) for transactions
from which directors derive improper personal benefit.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
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 Exhibit 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)
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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.1 -- 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)
5.1 -- Opinion of Douglas M. Cerny
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Burnside &. Rishebarger PLLC
23.3 -- Consent of Douglas M. Cerny (contained in Exhibit 5.1)
27 -- Financial Data Schedule
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include
any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement.
(2) That 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 deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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 deemed to be the initial bona fide offering thereof.
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 foregoing provisions, 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 of 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.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 21ST DAY OF MAY,
1997.
COACH USA, INC.
By: /s/ RICHARD H. KRISTINIK
RICHARD H. KRISTINIK
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard H. Kristinik, Lawrence K. King and
Douglas M. Cerny and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities, to sign, execute and file this
registration statement under the Securities Act and any and all amendments
(including, without limitation, post-effective amendments and any amendment or
amendments or additional registration statements filed pursuant to Rule 462
under the Securities Act increasing the amount of securities for which
registration is being sought) to this registration statement, and to file the
same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, to sign any and all
applications, registration statements, notices or other documents necessary or
advisable to comply with the applicable state security laws, and to file the
same, together with other documents in connection therewith, with the
appropriate state securities authorities, granting unto said attorney-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ---------------------------------------------------------------------------------------- -------------
<S> <C> <C>
/s/RICHARD H. KRISTINIK Chairman of the Board and Chief May 21, 1997
RICHARD H. KRISTINIK Executive Officer (Principal
Executive Officer)
/s/LAWRENCE K. KING Senior Vice President, Chief May 21, 1997
LAWRENCE K. KING Financial Officer and Director
(Principal Financial and Accounting
Officer)
/s/STEVEN S. HARTER Director May 21, 1997
STEVEN S. HARTER
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ---------------------------------------------------------------------------------------- -------------
<S> <C> <C>
/s/JOHN MERCADANTE, JR. President, Chief Operating Officer May 21, 1997
JOHN MERCADANTE, JR. and Director
/s/FRANK P. GALLAGHER Senior Vice President -- Corporate May 21, 1997
FRANK P. GALLAGHER Development and Director
/s/GERALD MERCADANTE Senior Vice President -- Northeast May 21, 1997
GERALD MERCADANTE Region Operations and Director
/s/CHARLES D. BUSSKOHL Director May 16, 1997
CHARLES D. BUSSKOHL
/s/WILLIAM J. LYNCH Director May 21, 1997
WILLIAM J. LYNCH
/s/PAUL M. VERROCHI Director May 21, 1997
PAUL M. VERROCHI
/s/THOMAS A. WERBE Director May 21, 1997
THOMAS A. WERBE
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------------------------ ------------------------------------------------------------------------------------------ -------------
<C> <S> <C>
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 Exhibit 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)
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).
4.1 -- 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)
5.1 -- Opinion of Douglas M. Cerny
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Burnside &. Rishebarger PLLC
23.3 -- Consent of Douglas M. Cerny (contained in Exhibit 5.1)
27 -- Financial Data Schedule
</TABLE>
EXHIBIT 5.1
May 20, 1997
Coach USA, Inc.
One Riverway, Suite 600
Houston, Texas 77056-1903
Re: Registration of Shares Pursuant to Registration Statement on Form S-1
Ladies and Gentlemen:
I am the Senior Vice President and General Counsel of Coach USA, Inc., a
Delaware corporation (the "Company"), and have acted as counsel to the Company
in connection with the preparation and filing with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), of a
Registration Statement on Form S-3 (the "Registration Statement") relating to
an aggregate of 1,931,481 shares of the Company's Common Stock, par value $.01
per share, to be sold by certain selling shareholders.
In so acting, I have examined originals, or copies certified or otherwise
identified to my satisfaction, of the Amended and Restated Certificate of
Incorporation of the company, the By-laws of the Company and such other
documents, records, certificates and other instruments as in my judgment are
necessary or appropriate for purposes of this opinion.
Based on the foregoing, I am of the opinion that the Shares have been duly
authorized and validly issued by the Company and are fully paid for an
non-assessable.
I render this opinion as a member of the Bar of the State of Texas and
express no opinion as to any law other than the General Corporation Law of the
State of Delaware.
I consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of my name under the caption "Legal Matters" in the
Registration Statement. In giving this consent, I do not admit that I am acting
within the category of persons whose consent is required under Section 7 of the
Act.
Very truly yours,
Douglas M. Cerny
General Counsel
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
May 20, 1997
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
May 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 6544
<SECURITIES> 0
<RECEIVABLES> 28837
<ALLOWANCES> (2213)
<INVENTORY> 9701
<CURRENT-ASSETS> 57794
<PP&E> 344537
<DEPRECIATION> (74612)
<TOTAL-ASSETS> 416124
<CURRENT-LIABILITIES> 78583
<BONDS> 0
0
0
<COMMON> 178
<OTHER-SE> 111628
<TOTAL-LIABILITY-AND-EQUITY> 416124
<SALES> 69311
<TOTAL-REVENUES> 69311
<CGS> 54386
<TOTAL-COSTS> 62741
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE>3199
<INCOME-PRETAX> 3371
<INCOME-TAX> 1402
<INCOME-CONTINUING>1969
<DISCONTINUED> 0
<EXTRAORDINARY> 89
<CHANGES> 0
<NET-INCOME> 1880
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
</TABLE>
