COACH USA INC, 8-K, 1997-08-08

COACH USA INC
8-K, 1997-08-08
LOCAL & SUBURBAN TRANSIT & INTERURBAN HWY PASSENGER TRANS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): FEBRUARY 28, 1997

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COACH USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 0-28056 76-0496471
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
ONE RIVERWAY, SUITE 600
HOUSTON, TEXAS 77056-1903
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

1-888-COACH-US
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.

During the period February 28, 1997 to May 31, 1997, through individual
transactions, Coach USA, Inc. ("the Company" or the "Registrant") completed
the acquisition of all of the issued and outstanding capital stock of each of
(i) Antelope Valley Bus, Inc. ("Antelope"), (ii) Kerrville Bus Company, Inc.
("Kerrville"), (iii) Trentway-Wagar, Inc. ("Trentway"), (iv) Metro
Transportation Services, Inc. ("Metro") and (v) The Arrow Line, Inc.
("Arrow"), all of which are herein collectively referred to as the "Acquired
Businesses," and none of which individually constitutes a "significant
subsidiary." Total consideration for the acquisitions consisted of 1,742,969
shares of the Registrant's common stock, cash of $10.0 million and $10.0 million
of subordinated notes convertible into the Registrant's common stock. The
consideration was determined through negotiations between the Registrant and
representatives of the Acquired Businesses. For financial accounting purposes,
the acquisitions of Antelope, Trentway, Metro and Arrow have been accounted for
under the "pooling-of-interests" method, and the acquisition of Kerrville has
been accounted for under the purchase method.

Antelope, Trentway, Arrow and Kerrville provide motorcoach charter and tour
as well as sightseeing and airport-related ground passenger transportation
services and operate out of Lancaster, California, Toronto, Canada, Hartford,
Connecticut and Kerrville, Texas, respectively. Metro provides taxicab services
to independent contractors that operate vehicles under various trade names.
Metro has operations in and around Miami, Florida.

Immediately prior to the acquisitions, all of the issued and outstanding
shares of capital stock of the Acquired Businesses were owned by the individual
stockholders of the Acquired Businesses. The Registrant is unaware of any
pre-existing material relationships between such stockholders and the Registrant
or any of the Registrant's affiliates, directors or officers or any associate of
such directors or officers.

ITEM 5. OTHER EVENTS

The following Management's Discussion and Analysis appears in the Company's
Registration Statement on Form S-4 filed simultaneously herewith and relates to
the historical financial statements of the Company and the supplemental
financial statements of the Company.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The Company was founded in September 1995 to create a nationwide provider
of motorcoach and other ground transportation services. On May 17, 1996, the
Company acquired, simultaneously with the closing of the Company's initial
public offering, six companies (the "Founding Companies"). Through the
remainder of 1996 and the first quarter of 1997, the Company acquired twelve
additional businesses. The acquisition of seven of these businesses has been
accounted for under the pooling-of-interests method of accounting (the "Pooled
Companies") and the remaining five have been accounted for under the purchase
method of accounting (the "Purchased Companies").

The Company's motorcoach revenues are derived from fares charged to
individual passengers and fees charged under contracts to provide motorcoach
services. Taxicab operation revenues are derived from fees and other services
charged to independent taxicab operators. Operating expenses consist primarily
of salaries and benefits for motorcoach drivers and mechanics, depreciation,
maintenance, fuel, oil, insurance and commissions to agents. General and
administrative expenses consist primarily of compensation and related benefits
to the owners and certain key employees of the Founding Companies and the Pooled
Companies, administrative salaries and benefits, marketing, communications and
professional fees.

SELECTED CONSOLIDATED FINANCIAL DATA

The following consolidated financial information represents the operations
of the Pooled Companies for all periods presented and the Founding Companies and
the Company for the seven months ended December 31, 1996 and the Purchased
Companies since their date of acquisition. This financial information

1
<PAGE>
has been derived from the Consolidated Financial Statements of the Company. Pro
forma net income before extraordinary items gives effect to (i) certain
reductions in salaries and benefits attributed to pre-acquisition periods, as
well as a non-recurring, non-cash charge recorded by the Company (collectively,
the "Compensation Differential"); (ii) the elimination of non-recurring
pooling costs associated with the 1996 acquisitions; and (iii) the tax impact of
the Compensation Differential in each period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues................... $ 76,046 $ 77,633 $ 88,060 $ 103,403 $ 205,838 $ 28,294 $ 69,311
Gross profit..................... 18,665 17,329 22,600 28,401 53,540 7,060 14,925
Operating income................. 5,278 4,997 7,377 11,629 27,968 2,749 6,570
Income before extraordinary
items.......................... 631 899 1,343 2,952 10,817 450 1,969
PRO FORMA:
Operating income................. 7,762 6,817 9,825 14,483 35,138 3,333 6,794
Income before extraordinary
items.......................... 2,281 2,446 2,953 4,409 15,246 1,098 2,150
BALANCE SHEET DATA:
Working capital (deficit)........ $ (5,901) $ (6,390) $ (6,759) $ (7,847) $ (7,499) $ (8,835) $ (20,789)
Total assets..................... 66,587 69,764 86,562 102,607 299,950 109,942 416,124
Total debt, including current
portion........................ 47,008 45,905 62,080 72,217 108,983(1) 77,279 166,820(2)
Stockholders' equity (deficit)... (238) 1,647 2,270 4,379 109,926 4,342 111,806
</TABLE>
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(1) Does not include $22.5 million of convertible debt issued in connection with
the acquisitions of the Purchased Companies.

(2) Does not include $36.8 million of convertible debt issued in connection with
the acquisitions of the Purchased Companies.

HISTORICAL RESULTS FOR THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1997

Revenues increased by 145% to $69.3 million for the three months ended
March 1997. The increase in revenues was largely due to the revenues of the
Founding Companies of $24.5 million and revenues of the Purchased Companies of
approximately $14.1 million, and incremental increases at certain Pooled
Companies.

Operating expenses increased 156% to $54.4 million for the three months
ended March 31, 1997. The increase in operating expenses was the result of the
increased operations.

General and administrative expenses increased 94% as compared to the three
months ended March 31, 1996. The increase in general and administrative expenses
in the three month period ended March 31, 1997 was primarily due to the overall
increase in operations and the establishment of the corporate management group
required to execute the acquisition program and to manage the consolidated group
of companies.

Interest expense increased $1.3 million as compared to the three months
ending March 31, 1996, due to the higher level of debt related to additional
equipment and debt related to the Purchased Companies, partially offset by
repayment of debt through the use of proceeds of the Initial Public Offering, a
secondary offering of Common Stock, and due to lower rates from the $181 million
credit facility (the "Credit Facility").

Net income before extraordinary items increased during the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996
primarily due to the acquisitions of the Founding Companies and Purchased
Companies and the effects of increased purchasing power on lowering certain
costs.

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<PAGE>
HISTORICAL RESULTS FOR 1995 COMPARED TO 1996

Total revenues increased $102.4 million, or 99.1%, to $205.8 million for
the year 1996. The increase in revenues was largely due to: (i) the acquisition
of the Founding Companies with revenues of $72.9 million, (ii) the acquisition
of the Purchased Companies with revenues of $12.7 million, (iii) an increase in
taxicab service revenues of $7.3 million, primarily attributable to internal
expansion, (iv) an increase of $3.8 million in special destination services
revenues primarily to the Louisiana casinos, and (v) an increase of $4.1 million
in per capita tour revenue attributable in part to the acquisition of the
Company's Los Angeles operations in 1995.

Operating expenses increased 103.1% to $152.3 million for 1996. The
increase in operating expenses was consistent with increased operations
throughout the Company. The remaining increase was due to higher fuel costs in
1996, offset by savings in the Company's insurance program.

General and administrative expenses in 1996, after elimination of the
Compensation Differential and the elimination of non-recurring pooling costs
associated with the 1996 acquisitions, increased $4.5 million, or 32.2%, from
$13.9 million in 1995 to $18.4 million in 1996. The increase in general and
administrative expenses was largely due to the increase in operations and an
increase related to the establishment of the corporate management group required
to execute the acquisition program and to manage the consolidated group of
companies.

Interest expense increased $3.2 million in 1996 as compared to 1995 due to
the higher level of debt related to additional equipment and subordinated debt
related to the Purchased Companies, partially offset by the repayment of debt
through the use of proceeds of the Initial Public Offering, a secondary stock
offering and due to lower rates from the Credit Facility.

Pro forma net income (before giving effect to the extraordinary gain),
which has been adjusted for the Compensation Differential and the pro forma
provision for taxes, increased during 1996 as compared to 1995 primarily due to
continued revenue growth and the effects of increased purchasing power.

The extraordinary items recorded in 1996 include an extraordinary gain that
was recognized in connection with the mergers of the Pooled Companies with the
Company in August 1996 and extraordinary losses related to prepayment penalties
on certain debt retired. Obligations due to stockholders of $17.2 million were
retired in exchange for shares of 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 Common Stock. In addition,
extraordinary losses of $1.5 million, net of taxes, for prepayment penalties on
certain retired debt were recorded in 1996.

HISTORICAL RESULTS FOR 1994 COMPARED TO 1995

Total revenues increased $15.3 million, or 17.4%, from $88.1 million in
1994 to $103.4 million in 1995. The increase was largely due to an increase in
motorcoach charter and special destination revenues of $6.6 million, primarily
attributable to increased service to the Louisiana casinos, an increase in
taxicab service revenues of $2.9 million, partially attributable to the purchase
of additional taxicab operations in Austin, Texas in July 1995, and an increase
in per capita revenue of $2.5 million partially attributable to the acquisition
of the Company's Los Angeles operations in 1995.

Operating expenses increased $9.5 million, or 14.6%, from $65.5 million in
1994 to $75.0 million in 1995, but declined as a percentage of revenues from
74.3% in 1994 to 72.5% in 1995. The dollar increase was largely due to an
increase in operating expenses of $3.8 million, primarily attributable to
increased service to the Louisiana casinos, and $2.1 million, primarily
attributable to higher per capita sales.

General and administrative expenses, after elimination of the Compensation
Differential, increased $1.1 million, or 8.9%, from $12.8 million in 1994 to
$13.9 million in 1995. This increase was consistent with the increase in
revenues.

Interest expense increased $1.7 million, or 35.1%, from $4.9 million in
1994 to $6.6 million in 1995. The increase was largely due to higher levels of
debt during 1995 as a result of equipment purchases.

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Net income, adjusted for the Compensation Differential and taxes, increased
$1.4 million, from $3.0 million in 1994 to $4.4 million in 1995, and represented
3.4% of revenues in 1994 compared to 4.3% of revenues in 1995.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by historical operating activities was $6.6 million, $7.4
million, $9.0 million and $25.8 million for 1994, 1995, 1996, and the three
months ended March 31, 1997 respectively.

Cash used in historical investing activities was $21.7 million, $12.4
million, $54.4 million and $55.7 million for 1994, 1995, 1996, and the three
months ended March 31, 1997 respectively. Cash used in investing activities was
primarily for additions and replacements of motorcoaches and for expansion of
facilities, net of sales of property and equipment. In addition, in 1996 and
1997 the Company paid $34.8 million and $26.1 million, respectively, in cash for
the Founding Companies and Purchased Companies, net of cash acquired.

Cash provided by historical financing activities was $13.8 million, $6.6
million, $43.4 million, and $35.0 million for 1994, 1995, 1996, and the three
months ended March 31, 1997, respectively. Cash provided by financing activities
for 1995 was primarily attributable to the issuance of $7.6 million of long-term
obligations, net of repayments, partially offset by $1.1 million in S
Corporation distributions paid to the former owners of the Pooled Companies.
Cash provided by financing activities of $43.4 million for 1996 was primarily
attributable to $48.1 million from the Initial Public Offering and $48.5 million
from its second public offering partially offset by $51.4 million of net
payments on long-term obligations and $1.8 million in S Corporation
distributions paid to the former owners of the Pooled Companies. Cash provided
by financing activities of $35.0 million for the three months ended March 31,
1997 related to borrowings under the Company's credit agreement used to pay down
existing debt and finance equipment additions.

Cash and cash equivalents decreased $1.3 million and $1.9 million for 1994
and 1996, respectively. For 1995 and the three months ended March 31, 1997, cash
and cash equivalents increased $1.6 million and $5.1 million.

Capital expenditures during 1994, 1995, 1996 and the three months ended
March 31, 1997 were $23.4 million, $15.4 million, $29.3 million and $32.0
million, respectively. These expenditures were primarily incurred to purchase
motorcoaches and other vehicles and were principally financed with debt and cash
flows from operations. Capital expenditures are net of trade-ins and proceeds
and related gains or losses from sales of property and equipment plus the cost
of assets acquired under capital leases. As of December 31, 1996, the Company
had entered into commitments to purchase 108 motorcoaches for approximately
$32.6 million. The Company expects to finance additional vehicle purchases
primarily from cash flows from operations, trade-ins of older equipment
supplemented, as necessary, with borrowings under the Credit Facility.

In November and December 1996, the Company sold 2,084,307 shares of Common
Stock in a public offering, resulting in net proceeds of approximately $48.5
million. The net proceeds were used to repay outstanding debt freeing the
existing credit facility for additional working capital and general corporate
purposes, including acquisitions.

From January 1, 1997 through June 30, 1997 the Company completed the
acquisition of eleven companies. These eleven companies have aggregate annual
revenues of approximately $180 million and the Company has paid, or agreed to
pay, aggregate consideration consisting of approximately $42.8 million in cash,
1,958,280 shares of Common Stock, $22.1 million in aggregate principal amount of
subordinated notes convertible into 586,367 shares of Common Stock, as well as
the assumption of certain indebtedness. Six of the eleven completed acquisitions
were accounted for as poolings-of-interest while the other five were accounted
for as purchases. The recently acquired companies include America Charters of
Gastonia, North Carolina, Antelope Valley Bus, Inc. of Lancaster, California,
The Arrow Line, Inc. of Hartford, Connecticut, Gray Line of Fort Lauderdale,
Florida, Gray Line of Montreal, Canada, International Express Corp. of
Minneapolis, Minnesota, Kerrville Bus Company of Kerrville, Texas, Metro
Transportation Services, Inc. of Miami, Florida, MTC, Inc. of Phoenix, Arizona,
Red & Tan Enterprises of Bergenfield,

4
<PAGE>
New Jersey and Trentway-Wagar, Inc. of Toronto, Canada. The Company believes
that each of these acquisitions is consistent with its strategy of entering new
markets and expanding in existing markets.

The Credit Facility provides for a revolving facility of $181 million
through a syndicate of eight banks, and allows the Company to have borrowings of
up to $40 million (in addition to Subordinated Debt (as defined therein))
outside the Credit Facility. The Company has recently announced that it
anticipates that such facility will be amended to provide for borrowings of up
to $300 million and additional senior borrowings outside such facility of up to
$80 million. The Credit Facility is secured by substantially all of the assets
of the Company and matures August 14, 1999 at which time all amounts then
outstanding become due. Interest on outstanding borrowings is charged, at the
Company's option, at the banks' prime rate plus up to 1.0% or the London
Interbank Offered Rate ("LIBOR") plus 1.0% to 2.25% (7.44% at March 31, 1997),
both as determined by the ratio of the Company's funded debt to cash flow (as
defined). A commitment fee ranging from 0.25% to 0.50% is payable on the unused
portion of the Credit Facility. Under the terms of the Credit Facility, the
Company must maintain certain minimum financial ratios. The Credit Facility
restricts the Company's ability to make distributions, including but not limited
to prohibiting the Company from declaring or paying any dividends. As of March
31, 1997, the Company had a total of $166.8 million outstanding under the Credit
Facility and other sources and had utilized $4.9 million of the facility for
letters of credit securing certain insurance obligations and performance bonds,
resulting in a borrowing availability of $49.3 million under the Credit Facility
and other sources. The Company's obligations under the Credit Facility are
guaranteed by substantially all of the domestic subsidiaries of the Company.

The obligations of the lenders under the Credit Facility to advance funds
is subject to the satisfaction of certain conditions customary in agreements of
this type. In addition, the Company and its subsidiaries are subject to certain
customary affirmative and negative covenants contained in the Credit Facility,
including, without limitation, covenants that restrict, subject to specified
exceptions, (i) incurring additional indebtedness and other obligations; (ii) a
merger or consolidation with any other person, or a liquidation, dissolution or
winding up; (iii) acquisitions; (iv) distributions in respect to its shares of
capital stock; (v) engaging in transactions with affiliates; (vi) investing
funds of the Company; (vii) granting of liens to secure any other indebtedness
(including the Notes) and (viii) changing the character of its lines of
business. Many of these covenants will be more restrictive than those in favor
of holders of the Notes as described herein and as set forth in the Indenture.

Moreover, the Credit Facility requires the Company to meet certain
financial tests, including: 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 million, plus (ii) 90% of the Company's cumulative annual
consolidated net earnings, plus (iii) 100% of the net proceeds resulting from
any sale, issuance or assumption of stock or Subordinated Debt (as defined
therein); consolidated Tangible Net Worth, as defined therein, of the Company at
not less than 40% of the consolidated Net Worth of the Company; a ratio of
consolidated Funded Debt, as defined therein, of the Company less the
Subordinated Debt, as defined therein, of the Company to the consolidated
EBITDA, as defined therein, of the Company of no greater than 3.0 to 1.0; and a
Fixed Charge Coverage Ratio, as defined therein, of not less than 1.25 to 1.0.
At March 31, 1997, on a pro forma as adjusted basis (see "Selected Consolidated
Pro Forma Financial Data"), the Company's consolidated Net Worth plus the
consolidated Subordinated Debt exceeded the net worth test by $4.0 million, the
consolidated Tangible Net Worth was 45.7% of the consolidated Net Worth and the
Fixed Charge Coverage Ratio was 1.28. The Company believes it will be in
compliance with such covenants on the date of closing of the Offering. The
Indenture will contain restrictions on the Company's ability to incur additional
indebtedness, and other contractual arrangements to which the Company may become
subject in the future could contain similar restrictions.

The Credit Facility also provides for customary events of default.
Occurrence of any of such events of default could result in acceleration of the
Company's obligations under the Credit Facility and foreclosure

5
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on the collateral securing such obligations, with material adverse results to
holders of the Notes. See "Risk Factors -- Holding Company Structure and
Subordination of Notes and Guarantees."

In September 1996, the Company entered into an interest rate cap agreement
with a bank. The agreement has a term of one year and a notional amount of $50
million. The agreement provides that if the 90 day LIBOR rate exceeds 6.5% for
certain measurement periods, the bank will pay to the Company the difference
between such rate and 6.5%. As of March 31, 1997, the 90-day LIBOR rate was
5.81%. The cost of the agreement is being amortized over its term.

The Company's ability to make scheduled payments of principal or interest
on its indebtedness (including the 9 3/8% Senior Subordinated Notes due 2007
(the "Notes")), 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 Credit Facility, will be adequate to meet the Company's anticipated
future requirements for working capital and budgeted capital expenditures. 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.

SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA

The following supplemental consolidated financial information represents
the operations of the Pooled Companies for all periods presented and the
Founding Companies and the Company for the seven months ended December 31, 1996
and the Purchased Companies since their date of acquisition. This financial
information has been derived from the Supplemental Consolidated Financial
Statements of the Company. Pro forma net income before extraordinary items gives
effect to (i) the Compensation Differential; (ii) the elimination of
non-recurring pooling costs associated with the 1996 acquisitions; and (iii) the
tax impact of the Compensation Differential in each period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues...................... $ 116,318 $ 135,342 $ 127,484 $ 147,042 $ 258,130 $ 37,617 $ 79,868
Gross profit........................ 25,222 26,309 28,542 37,579 63,995 7,707 15,631
Operating income.................... 7,442 8,571 8,326 14,586 31,984 1,909 5,732
Income before extraordinary items... 834 2,076 1,271 3,971 12,392 (116) 1,280
PRO FORMA:
Operating income.................... 10,535 11,017 11,635 18,303 40,089 2,741 6,128
Income before extraordinary items... 2,847 3,997 3,395 5,937 17,484 679 1,563
BALANCE SHEET DATA:
Working capital (deficit)........... $ (8,551) $ (9,308) $ (9,390) $ (10,341) $ (13,477) $ (11,984) $ (25,681)
Total assets........................ 85,262 90,541 105,828 123,367 329,818 129,371 445,129
Total debt, including current
portion........................... 57,698 56,911 73,917 83,105 124,827(1) 87,971 183,485(2)
Stockholders' equity................ 2,479 4,546 2,463 5,590 112,579 4,846 113,766
</TABLE>
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(1) Does not include $22.5 million of convertible debt issued in connection with
the acquisitions of the Purchased Companies.

(2) Does not include $36.8 million of convertible debt issued in connection with
the acquisitions of the Purchased Companies.

6
<PAGE>
HISTORICAL RESULTS FOR THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1997

Revenues increased by 112.3% to $79.9 million for the three months ended
March 1997. The increase in revenues was largely due to the revenues of the
Founding Companies of $24.5 million and revenues of the Purchased Companies of
approximately $14.1 million, and incremental increases at certain Pooled
Companies.

Operating expenses increased 114.8% to $64.2 million for the three months
ended March 31, 1997. The increase in operating expenses was the result of the
increased operations.

General and administrative expenses increased 70.7% as compared to the
three months ended March 31, 1996. The increase in general and administrative
expenses in the three month period ended March 31, 1997 was primarily due to the
overall increase in operations and the establishment of the corporate management
group required to execute the acquisition program and to manage the consolidated
group of companies.

Interest expense increased $1.5 million as compared to the three months
ending March 31, 1996, due to the higher level of debt related to additional
equipment and debt related to the Purchased Companies, partially offset by
repayment of debt through the use of proceeds of the Initial Public Offering, a
secondary offering of Common Stock, and due to lower rates from the Credit
Facility.

HISTORICAL RESULTS FOR 1995 COMPARED TO 1996

Total revenues increased $111.1 million, or 75.5%, to $258.1 million for
the year 1996. The increase in revenues was largely due to: (i) the acquisitions
of the Founding Companies with revenues of $72.9 million, (ii) the acquisition
of the Purchased Companies with revenues of $12.7 million, (iii) an increase in
taxicab service revenues of $7.3 million, primarily attributable to internal
expansion, (iv) an increase of $3.8 million in special destination services
revenues primarily to the Louisiana casinos, and (v) an increase of $4.1 million
in per capita tour revenue attributable in part to the acquisition of the
Company's Los Angeles operations in 1995.

Operating expenses increased 77.4% to $194.1 million for 1996. The increase
in operating expenses was consistent with increased operations throughout the
Company. The remaining increase was due to higher fuel costs in 1996, offset by
savings in the Company's insurance program.

General and administrative expenses in 1996, after elimination of the
Compensation Differential and the elimination of non-recurring pooling costs
associated with the 1996 acquisitions, increased $4.6 million, or 24.0%, from
$19.3 million in 1995 to $23.9 million in 1996. The increase in general and
administrative expenses was largely due to the increase in operations and an
increase related to the establishment of the corporate management group required
to execute the acquisition program and to manage the consolidated group of
companies.

Interest expense increased $3.1 million in 1996 as compared to 1995 due to
the higher level of debt related to additional equipment and subordinated debt
related to the Purchased Companies, partially offset by the repayment of debt
through the use of proceeds of the Initial Public Offering, Secondary Stock
Offering and due to lower rates from the Credit Facility.

The extraordinary items recorded in 1996 include an extraordinary gain that
was recognized in connection with the mergers of the Pooled Companies with the
Company in August 1996 and extraordinary

7
<PAGE>
losses related to prepayment penalties on certain debt retired. Obligations due
to stockholders of $17.2 million were retired in exchange for shares of 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 Common Stock. In addition, extraordinary losses of $1.5 million,
net of taxes, for prepayment penalties on certain retired debt were recorded in
1996.

HISTORICAL RESULTS FOR 1994 COMPARED TO 1995

Total revenues increased $19.6 million, or 15.3%, from $127.5 million in
1994 to $147.0 million in 1995. The increase was largely due to an increase in
motorcoach charter and special destination revenues of $6.6 million, primarily
attributable to increased service to the Louisiana casinos, an increase in
taxicab service revenues of $2.9 million, partially attributable to the purchase
of additional taxicab operations in Austin, Texas in July 1997, and an increase
in per capita revenue of $2.5 million partially attributable to the acquisition
of the Company's Los Angeles operations in 1995.

Operating expenses increased $10.5 million, or 10.6%, from $98.9 million in
1994 to $109.5 million in 1995, but declined as a percentage of revenues from
77.6% in 1994 to 74.4% in 1995. The dollar increase was largely due to an
increase in operating expenses of $3.8 million, primarily attributable to
increased service to the Louisiana casinos, and $2.1 million, primarily
attributable to higher per capita sales.

General and administrative expenses, after elimination of the Compensation
Differential, increased $2.4 million, or 14.0%, from $16.9 million in 1994 to
$19.3 million in 1995. This increase was consistent with the increase in
revenues.

Interest expense increased $1.8 million, or 30.7%, from $5.7 million in
1994 to $7.5 million in 1995. The increase was largely due to higher levels of
debt during 1995 as a result of equipment purchases.

Net income, adjusted for the Compensation Differential and taxes, increased
$2.5 million, from $3.4 million in 1994 to $5.9 million in 1995, and represented
2.7% of revenues in 1994 compared to 4.0% of revenues in 1995.

SEASONALITY

The timing of certain holidays, weather conditions and seasonal vacation
patterns may cause the Company's quarterly results of operations to fluctuate
significantly. The Company expects to realize higher revenues, operating income
and net income during the second and third quarters and lower revenues,
operating income and net income during the first and fourth quarters.

INFLATION

Inflation has not had a material impact on the Company's results of
operations.

8
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

(a) Financial Statements.

-- Coach USA, Inc. and Subsidiaries Supplemental Consolidated Financial
Statements

-- Kerrville Bus Company, Inc. Financial Statements

(b) Pro Forma Financial Statements (unaudited).

Unaudited pro forma financial information is presented as follows:

-- Pro forma combined balance sheet as of March 31, 1997.

-- Pro forma combined statement of income for the year ended December 31,
1996.

-- Pro forma combined statement of income for the three months ended March
31, 1997.

23.1 Consent of Arthur Andersen LLP

27 Financial Data Schedule

9
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

COACH USA, INC.
By: /s/ DOUGLAS M. CERNY
DOUGLAS M. CERNY
SENIOR VICE PRESIDENT AND
GENERAL COUNSEL

Dated: August 8, 1997

10
<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
Supplemental Consolidated Balance Sheets ........................... F-10
Supplemental Consolidated Statements of Income ..................... F-11
Supplemental Consolidated Statements of Stockholders' Equity ....... F-12
Supplemental Consolidated Statements of Cash Flows ................. F-13
Notes to Supplemental Consolidated Financial Statements ............ F-14
KERRVILLE BUS COMPANY, INC ..............................................
Independent Auditors' Report ....................................... F-29
Financial Statements:
Balance Sheet ...................................................... F-30
Statement of Operations ............................................ F-31
Statement of Stockholder's Equity .................................. F-32
Statement of Cash Flows ............................................ F-33
Notes to Financial Statements ...................................... F-34

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
six companies (the "Founding Companies") simultaneously with the closing of
the Company's initial public offering on May 14, 1996, the acquisitions of ten
companies accounted for as poolings-of-interests from May 1996 through May 31,
1997 (the "Pooled Companies"), five companies accounted for as purchases from
May 1996 through March 31, 1997 (the "Purchased Companies"), five additional
companies acquired subsequent to March 31, 1997 (the five collectively referred
to as the "Subsequent Acquisitions"), the issuance of $150 million aggregate
principal amount of 9 3/8% Senior Subordinated Notes due 2007 (the "Notes")
and application of the net proceeds therefrom. 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 supplemental consolidated financial
statements of Coach USA (including the Pooled Companies) presented elsewhere in
this filing, combined with the Founding Companies through May 31, 1996, the
Purchased Companies through their date of acquisition, and the Subsequent
Acquisitions 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 convertible subordinated
notes and debt incurred to fund the cash price of the Purchased Companies and
Subsequent Acquisitions; (v) the incremental provision for income taxes for S
Corporations, the owner's compensation differential and changes in interest
expense; and (vi) the additional interest and debt amortization expenses
contemplated from the issuance of the Notes as if the transactions were
consummated as of January 1, 1996.

These pro forma combined financial statements should be read in conjunction
with the supplemental 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)
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------------------------------
SUPPLEMENTAL SUBSEQUENT PRO FORMA
COACH USA ACQUISITIONS ADJUSTMENTS PRO FORMA
------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 6,836 $ 415 $ $ 7,251
Accounts receivable, less
allowance..................... 26,003 1,740 27,743
Notes receivable, current
portion....................... 4,098 -- 4,098
Inventories..................... 10,650 2,605 13,255
Prepaid expenses and other
current assets................ 16,096 667 16,763
------------- ------------- ------------ ----------
Total current assets....... 63,683 5,427 69,110
PROPERTY AND EQUIPMENT, net.......... 285,338 23,238 308,576
NOTES RECEIVABLE, less allowance..... 5,013 -- 5,013
GOODWILL, net........................ 72,757 16,790 89,547
OTHER ASSETS, net.................... 18,338 74 5,150 23,562
------------- ------------- ------------ ----------
Total assets............... $ 445,129 $45,529 $ 5,150 $495,808
============= ============= ============ ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations................... $ 8,898 $ 4,386 $ $ 13,284
Accounts payable and accrued
liabilities................... 80,466 8,214 88,680
------------- ------------- ------------ ----------
Total current
liabilities............. 89,364 12,600 101,964
LONG-TERM OBLIGATIONS, net of current
maturities......................... 174,587 15,980 (144,850) 45,717
SENIOR SUBORDINATED NOTES............ -- -- 150,000 150,000
CONVERTIBLE SUBORDINATED NOTES....... 36,830 3,750 -- 40,580
DEFERRED INCOME TAXES................ 30,582 2,474 -- 33,056
------------- ------------- ------------ ----------
Total liabilities.......... 331,363 34,804 5,150 371,317
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock.................... 189 4 193
Additional paid-in capital...... 103,345 10,263 113,608
Cumulative translation
adjustment.................... (218) -- (218)
Retained earnings............... 10,450 458 10,908
------------- ------------- ------------ ----------
Total stockholders'
equity.................. 113,766 10,725 124,491
------------- ------------- ------------ ----------
Total liabilities and
stockholders' equity.... $ 445,129 $45,529 $ 5,150 $495,808
============= ============= ============ ==========
</TABLE>
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 supplemental
consolidated financial statements as of March 31, 1997 to give effect to the
acquisition of five companies subsequent to March 31, 1997 for total
consideration of $8.5 million in cash, 215,311 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.

The Pro Forma Adjustments reflect the application of the cash proceeds from
the issuance of the Notes, net of estimated offering costs of $5.2 million, to
reduce amounts outstanding under the revolving credit facility.

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
----------------------------------------------------------------------
SUBSEQUENT
ACQUISITIONS
AND
COMBINED PURCHASED
FOUNDING COMPANIES
COMPANIES THROUGH
SUPPLEMENTAL THROUGH DATE OF PRO FORMA
COACH USA MAY 31 ACQUISITION ADJUSTMENTS PRO FORMA
------------ --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES................................ $258,130 $44,938 $133,304 $ $ 436,372
OPERATING EXPENSES...................... 194,135 36,786 101,377 332,298
------------ --------- ------------ ----------- ---------
Gross profit....................... 63,995 8,152 31,927 104,074
GENERAL AND ADMINISTRATIVE EXPENSES..... 30,910 7,776 17,750 (8,430)(a) 49,923
1,917(b)
ACQUISITION RELATED COSTS............... 1,101 -- -- (1,101)(c) --
------------ --------- ------------ ----------- ---------
Operating income................... 31,984 376 14,177 7,614 54,151
OTHER (INCOME) EXPENSE:
Interest expense................... 10,603 1,359 5,004 (892)(d) 23,965
7,891(e)
Earnings from investment in
unconsolidated subsidiary........ -- -- (7,094) 7,094(f) --
------------ --------- ------------ ----------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEMS................... 21,381 (983) 16,267 (6,479) 30,186
PROVISION (BENEFIT) FOR
INCOME TAXES.......................... 8,989 42 6,102 (2,972)(g) 12,161
------------ --------- ------------ ----------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS................................. $ 12,392 $(1,025) $ 10,165 $(3,507) $ 18,025
============ ========= ============ =========== =========
PRO FORMA INCOME PER COMMON SHARE BEFORE
EXTRAORDINARY ITEMS................... $ 1.08
=========
WEIGHTED AVERAGE SHARES
OUTSTANDING(h)........................ 16,635
=========
</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
---------------------------------------------------------
SUBSEQUENT
ACQUISITIONS
AND
PURCHASED
COMPANIES
THROUGH
SUPPLEMENTAL DATE OF PRO FORMA
COACH USA ACQUISITION ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES............................. $ 79,868 $ 17,493 $ $97,361
OPERATING EXPENSES................... 64,237 15,503 79,740
------------ ------------ ----------- ---------
Gross profit.................... 15,631 1,990 17,621
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 9,782 2,721 (465)(a) 12,383
345(b)
ACQUISITION RELATED COSTS............ 117 -- (117)(c) --
------------ ------------ ----------- ---------
Operating income................ 5,732 (731) 237 5,238
OTHER (INCOME) EXPENSE:
Interest expense................ 3,508 430 1,471(d) 5,409
------------ ------------ ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS................ 2,224 (1,161) (1,234) (171)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 944 (546) (423)(e) (25)
------------ ------------ ----------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS.............................. $ 1,280 $ (615) $ (811) $ (146)
============ ============ =========== =========
PRO FORMA INCOME PER COMMON SHARE
BEFORE EXTRAORDINARY ITEMS......... $ (0.01)
=========
WEIGHTED AVERAGE SHARES
OUTSTANDING(f)..................... 19,893
=========
</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 for 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 (iii) the Purchased Companies through their respective date of acquisition
and (iv) the Subsequent Acquisitions.

(a) Adjusts compensation to the level the owners of the Founding, Pooled
and Purchased Companies, and Subsequent Acquisitions have agreed to
receive subsequent to their respective acquisition. Also adjusts
compensation to reverse a non-recurring, non-cash charge of $2.1
million 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 and capitalized debt offering
costs related to the issuance of the Notes using 40 year and 10 year
lives, respectively.

(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 the Notes and debt incurred to fund the
cash purchase price and convertible debt issued in conjunction with
the acquisition of the Purchased Companies and Subsequent
Acquisitions.

(f) One of the Purchased Companies acquired by Coach in 1997 previously
owned a 50% interest in another company which was acquired by Coach
USA in August 1996. This entry eliminates the earnings through August
1996 related to the 50% interest reported by the Purchased Company
prior to its acquisition by Coach USA.

(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, changes in interest expense
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 16,635,053 weighted average
shares outstanding which includes (a) 5,027,305 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 Company's 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) 215,311
shares representing shares attributed to the Subsequent Acquisitions,
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) -- (CONTINUED)

THREE MONTHS ENDED MARCH 31, 1997

(a) Adjusts compensation to the level the owners of the Pooled and
Purchased Companies and Subsequent Acquisitions have agreed to
receive subsequent to their respective acquisition.

(b) Records the amortization of goodwill and capitalized debt offering
cost using 40-year and 10 year lives, respectively.

(d) Records interest expense on the Notes and debt incurred to fund the
cash purchase price and convertible debt issued in conjunction with
the acquisition of the Purchased Companies and Subsequent
Acquisitions.

(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, changes in interest expense
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 19,892,876 weighted average
shares outstanding which include (a) 18,942,062 shares issued and
outstanding for the entire three month period, (b) 981 shares issued
to a minority interest, (c) 215,311 shares representing shares
attributed to the Subsequent Acquisitions 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 supplemental consolidated balance sheets
of Coach USA, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1996, and the related supplemental consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. The supplemental consolidated financial statements give
retroactive effect to the acquisition of four businesses acquired during the
period from January 1, 1997 through May 31, 1997 which were accounted for as
poolings-of-interests. These supplemental consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these supplemental 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 supplemental consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the supplemental
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 supplemental consolidated financial statements referred
to above present fairly, in all material respects, the supplemental consolidated
financial position of Coach USA, Inc. and subsidiaries as of December 31, 1995
and 1996, and the supplemental results of their operations and their cash flows
for each of the three years in the period ended December 31, 1996, after giving
retroactive effect to certain pooling-of-interests transactions, in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP
Houston, Texas
July 25, 1997

F-9
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31,
---------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 5,251 $ 2,786 $ 6,836
Accounts receivable, less allowance
of $1,452, $2,579 and $2,694..... 12,090 23,216 26,003
Inventories........................ 4,405 9,670 10,650
Notes receivable, current
portion.......................... 3,045 2,811 4,098
Prepaid expenses and other current
assets........................... 5,533 13,797 16,096
---------- ---------- -----------
Total current assets.......... 30,324 52,280 63,683
PROPERTY AND EQUIPMENT, net............. 77,674 224,830 285,338
NOTES RECEIVABLE, less allowance of
$500.................................. 1,978 4,231 5,013
GOODWILL, net........................... 480 30,561 72,757
OTHER ASSETS, net....................... 12,911 17,916 18,338
---------- ---------- -----------
Total assets.................. $ 123,367 $ 329,818 $ 445,129
========== ========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of convertible
subordinated notes............... $ -- $ 4,000 $ --
Current maturities of long-term
obligations...................... 14,427 15,872 8,898
Accounts payable and accrued
liabilities...................... 26,238 45,885 80,466
---------- ---------- -----------
Total current liabilities..... 40,665 65,757 89,364
LONG-TERM OBLIGATIONS, net of current
maturities............................ 52,211 108,955 174,587
CONVERTIBLE SUBORDINATED NOTES, net of
current maturities.................... -- 18,500 36,830
LONG-TERM OBLIGATIONS DUE TO
STOCKHOLDERS, net of current
maturities............................ 16,467 -- --
DEFERRED INCOME TAXES................... 8,434 24,027 30,582
---------- ---------- -----------
Total liabilities............. 117,777 217,239 331,363
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par, 30,000,000
shares authorized, 5,027,305,
18,942,062 and 18,943,043 shares
issued and outstanding,
respectively..................... 50 189 189
Additional paid-in capital......... 6,932 103,274 103,345
Cumulative translation
adjustment....................... (200) (209) (218)
Retained earnings (deficit)........ (1,192) 9,325 10,450
---------- ---------- -----------
Total stockholders' equity.... 5,590 112,579 113,766
---------- ---------- -----------
Total liabilities and
stockholders' equity....... $ 123,367 $ 329,818 $ 445,129
========== ========== ===========

The accompanying notes are an integral part of these supplemental consolidated
financial statements.

F-10
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------ THREE MONTHS ENDED
PRO FORMA MARCH 31,
COMBINED --------------------
1994 1995 1996 1996 1996 1997
---------- ---------- ---------- ----------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES................................ $ 127,484 $ 147,042 $ 258,130 $ 303,068 $ 37,617 $ 79,868
OPERATING EXPENSES...................... 98,942 109,463 194,135 230,921 29,910 64,237
---------- ---------- ---------- ----------- --------- ---------
Gross profit....................... 28,542 37,579 63,995 72,147 7,707 15,631
GENERAL AND ADMINISTRATIVE EXPENSES..... 20,216 22,993 30,910 32,058 5,798 9,782
ACQUISITION RELATED COSTS............... -- -- 1,101 -- -- 117
---------- ---------- ---------- ----------- --------- ---------
Operating income................... 8,326 14,586 31,984 40,089 1,909 5,732
INTEREST EXPENSE........................ 5,759 7,526 10,603 11,070 2,046 3,508
---------- ---------- ---------- ----------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS................... 2,567 7,060 21,381 29,019 (137) 2,224
PROVISION (BENEFIT) FOR INCOME TAXES.... 1,296 3,089 8,989 11,535 (21) 944
---------- ---------- ---------- ----------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS................................. 1,271 3,971 12,392 17,484 (116) 1,280
EXTRAORDINARY ITEMS, net of income
taxes................................. -- -- 2,723 2,723 -- (89)
---------- ---------- ---------- ----------- --------- ---------
NET INCOME (LOSS)....................... $ 1,271 $ 3,971 $ 15,115 $ 20,207 $ (116) $ 1,191
========== ========== ========== =========== ========= =========
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
INCOME BEFORE EXTRAORDINARY
ITEMS............................ $ .25 $ .79 $ .95 $ 1.06 $ (.02) $ .07
EXTRAORDINARY ITEMS................ -- -- .20 .17 -- (.01)
---------- ---------- ---------- ----------- --------- ---------
NET INCOME (LOSS).................. $ .25 $ .79 $ 1.15 $ 1.23 $ (.02) $ .06
========== ========== ========== =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.

F-11
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE RETAINED TOTAL
------------------ PAID-IN TRANSLATION EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) EQUITY
--------- ------ ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993......... 5,028 $ 50 $ 8,809 $ (425) $ (3,888) $ 4,546
S Corporation dividends paid by
certain Pooled Companies...... -- -- -- -- (1,004) (1,004)
Net income...................... -- -- -- -- 1,271 1,271
Other........................... -- -- (2,113) 196 (433) (2,350)
--------- ------ ---------- ----------- --------- -------------
BALANCE AT DECEMBER 31, 1994......... 5,028 50 6,696 (229) (4,054) 2,463
S Corporation dividends paid by
certain Pooled Companies...... -- -- -- -- (1,109) (1,109)
Net income...................... -- -- -- -- 3,971 3,971
Other........................... -- -- 236 29 -- 236
--------- ------ ---------- ----------- --------- -------------
BALANCE AT DECEMBER 31, 1995......... 5,028 50 6,932 (200) (1,192) 5,590
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...... -- -- -- -- (2,139) (2,139)
Adjustment to conform fiscal
year ends of Pooled
Companies..................... -- -- -- -- 267 267
Net income...................... -- -- -- -- 15,115 15,115
Capital contributions equal to
the current income taxes of S
Corporations.................. -- -- 341 -- -- 341
Other........................... -- -- 331 (9) -- 322
--------- ------ ---------- ----------- --------- -------------
BALANCE AT DECEMBER 31, 1996......... 18,942 189 103,274 (209) 9,325 112,579
Net income (unaudited).......... -- -- -- -- 1,191 1,191
Other (unaudited)............... 1 -- 71 (9) (66) (4)
--------- ------ ---------- ----------- --------- -------------
BALANCE AT MARCH 31, 1997
(unaudited)........................ 18,943 $ 189 $ 103,345 $ (218) $ 10,450 $ 113,766
========= ====== ========== =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.

F-12
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ---------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 1,271 $ 3,971 $ 15,115 $ (116) $ 1,191
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities--
Adjustment to conform fiscal
year ends of Pooled
Companies.................. -- -- 267 -- --
Extraordinary gain............ -- -- (7,007) -- --
Depreciation and
amortization............... 7,538 9,085 15,338 2,555 5,729
(Gain) loss on sale of
assets..................... (28) (724) (797) (4) (423)
Deferred income tax
provision.................. 1,387 2,213 6,958 388 1,440
Changes in operating assets
and liabilities, net of
effect of Purchased
Companies --
Accounts receivable,
net................... 361 (2,538) (2,301) 719 1,024
Inventories.............. (1,095) (2,482) (4,655) (847) (409)
Notes receivable, net.... 175 (1,828) (1,672) (2,618) (2,069)
Prepaid expenses and
other current
assets................ (400) (728) (3,957) (89) (1,151)
Accounts payable and

accrued liabilities... (1,286) 2,778 (4,753) 1,529 19,692
Other.................... 808 (220) (410) 342 328
---------- ---------- ---------- --------- ----------
Net cash provided
by operating
activities....... 8,731 9,527 12,126 1,859 25,352
---------- ---------- ---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment........................ (24,987) (17,719) (34,951) (4,488) (35,500)
Proceeds from sales of property and
equipment........................ 4,423 4,364 10,978 3 4,530
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) -- (26,128)
Purchase of other non-current
assets........................... (323) (334) (4,103) -- --
---------- ---------- ---------- --------- ----------
Net cash used in
investing
activities....... (20,887) (13,689) (62,854) (4,485) (57,098)
---------- ---------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations...................... (15,723) (21,623) (131,927) (2,488) (35,226)
Proceeds from issuance of long-term
obligations...................... 30,797 28,221 85,443 4,064 71,041
Sales of Common Stock.............. -- -- 96,564 -- --
S Corporation Dividends paid by
certain Pooled Companies......... (1,123) (1,079) (1,838) (487) --
Other.............................. (1,973) 181 21 (142) (19)
---------- ---------- ---------- --------- ----------
Net cash provided
by financing
activities....... 11,978 5,700 48,263 947 35,796
---------- ---------- ---------- --------- ----------
NET INCREASE (DECREASE) IN CASH......... (178) 1,538 (2,465) (1,679) 4,050
CASH AND CASH EQUIVALENTS, beginning of
year.................................. 3,891 3,713 5,251 5,251 2,786
---------- ---------- ---------- --------- ----------
CASH AND CASH EQUIVALENTS, end of
year.................................. $ 3,713 $ 5,251 $ 2,786 $ 3,572 $ 6,836
========== ========== ========== ========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest............. $ 4,549 $ 6,575 $ 10,360 $ 1,861 $ 3,883
Cash paid for income taxes......... 493 427 4,966 82 477
Assets acquired under capital
leases........................... 1,931 2,404 7,891 2,981 2,355
Convertible debt issued for
Purchased Companies.............. -- -- 22,500 -- 18,330
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.

F-13
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL 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 four additional
business acquired in 1997 accounted for as a pooling-of-interests, are referred
to herein as the "Pooled Companies." The remaining three businesses acquired
in 1996, and two additional businesses acquired in February 1997 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 supplemental 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. These consolidated financial
statements are labeled as "supplemental" as they have been restated to include
the results of four companies acquired subsequent to December 31, 1996, which
were accounted for as poolings-of-interests for which post-acquisition operating
results have not yet been published. However, these supplemental consolidated
financial statements will be the same as the restated consolidated financial
statements that will be issued after post-acquisition operating results have
been published. 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 their 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.

INTERIM FINANCIAL INFORMATION

The interim consolidated financial statements are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
consolidated financial statements, have been included. The results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.

F-14
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL 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 supplemental 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.

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

F-15
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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............ $1,457 $-- $ 859 $ (1,077) $1,239
Year ended December 31, 1995............ 1,239 -- 974 (761) 1,452
Year ended December 31, 1996............ 1,452 955 1,010 (838) 2,579
</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.

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 supplemental 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.

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 and for the three months ended March
31, 1996 includes 5,027,305 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 13,088,000 weighted average
shares outstanding which includes (a) the 5,027,305 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

F-16
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 net income per share for the three months ended March
31, 1997 is based upon 19,677,565 weighted average shares outstanding which
include (i) 18,943,043 shares issued and outstanding for the entire three month
period, (ii) 981 shares issued to a minority interest of one of the Pooled
Companies, and (iii) 734,522 shares representing the weighted average portion of
shares for the dilution attributable to outstanding options to purchase common
stock, using the treasury stock method.

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
16,419,742 weighted average shares outstanding which includes (a) the 5,027,305
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 of which one share is issued and outstanding as further
discussed in Note 3.

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 $0.25, $0.79 and $1.18, and that basic EPS for the unaudited pro forma twelve
months ended December 31, 1996 will be $1.25. The Company anticipates that the
amounts reported for diluted EPS for the years ended December 31, 1994, 1995 and
1996 will be $0.25, $0.79 and $1.15 and that diluted EPS for the unaudited pro
forma twelve months ended December 31, 1996 will be $1.23.

F-17
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL 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 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............................. $260,531 $303,068
Income before extraordinary items.... 12,668 17,484
Income per share before extraordinary
items.............................. .87 1.06

POOLINGS

During 1996 and through May 31, 1997, the Company acquired all of the
outstanding stock of the Pooled Companies in exchange for 5,027,305 shares of
Common Stock. Eight of these companies provide motorcoach transportation
services and two provide primarily taxicab and paratransit services. These
acquisitions have been accounted for as poolings-of-interests and the results of
operations of these ten companies are included for all periods presented herein.

In connection with the acquisition of one of the Pooled Companies, the
former stockholders of the Pooled Company received shares ("Dividend Access
Shares") of a wholly owned subsidiary of the Company, in lieu of receiving
Common Stock. The Company has agreed to issue shares of Common Stock to the
holders of the Dividend Access Shares upon their redemption to the subsidiary.
These Dividend Access Shares have been treated as outstanding shares of Common
Stock for purposes of these supplemental financial statements. Also in
connection with the acquisition of the Pooled Company, one share of Coach Series
A Voting Preferred Stock was issued by the Company which entitles each holder of
the Dividend Access Shares to vote their shares as if they held an equal number
of shares of Common Stock.

The supplemental 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 $160.0
million, $6.5 million and $6.4 million, respectively. In addition, the
Supplemental 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.

F-18
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table reconciles the consolidated revenues and net income of
the Company after giving retroactive effect to the four pooling-of-interest
transactions completed from January 1, 1997 through May 31, 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 Poolings.................. 59,063 622 63,117 1,560 72,402 2,200
---------- --------- ---------- --------- ---------- ---------
After Subsequent Poolings............ $ 127,484 $ 1,271 $ 147,042 $ 3,971 $ 258,130 $ 15,115
========== ========= ========== ========= ========== =========
Net income per share -- After
Subsequent Poolings................ $ .25 $ .79 $ 1.15
========= ========= =========
</TABLE>
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):

YEAR ENDED
DECEMBER 31, 1996
-----------------
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 Purchased Companies 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 December 31, 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............................. $296,383 $329,088
Income before extraordinary items.... 14,059 18,391
Income per share before extraordinary
items.............................. .97 1.12

Pro forma adjustments included in the preceding tables regarding the
Founding 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

F-19
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 combined results presented above are not necessarily
indicative of actual results which might have occurred had the operations and
management teams of the Company, the Founding Companies, the Pooled Companies
and the Purchased Companies been combined at the beginning of the periods
presented.

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.

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:

Prepaid expenses and other current assets consist of the following (in
thousands):

DECEMBER 31
--------------------
1995 1996
--------- ---------
(UNAUDITED)
Prepaid insurance....................... $ 1,583 $ 2,967
Deferred income tax asset, current...... 1,614 3,798
Prepaid licenses, registrations and
other taxes........................... 1,207 4,004
Other................................... 1,129 3,028
--------- ---------
$ 5,533 $ 13,797
========= =========

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 $ 96,148 $ 259,591
Building and leasehold improvements.... 5-31.5 9,076 14,339
Computer equipment..................... 5-7 8,202 9,440
Other.................................. 3-10 4,257 14,086
---------- ----------
117,683 297,456
Less -- Accumulated depreciation....... (40,009) (72,626)
---------- ----------
$ 77,674 $ 224,830
========== ==========

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.

F-20
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. OTHER ASSETS:

Other assets consist of the following (in thousands):

DECEMBER 31
--------------------
1995 1996
--------- ---------
Licenses, net of accumulated
amortization of $ -- and $69.......... $ -- $ 5,425
Taxicab permits, net of accumulated
amortization of $2,194 and $2,298..... 4,263 4,159
Noncurrent deferred income tax asset.... 6,752 5,145
Other, net of accumulated amortization
of $931 and $1,158.................... 1,896 3,187
--------- ---------
$ 12,911 $ 17,916
========= =========

Amortization expense related to other assets for the years ended December
31, 1995 and 1996 was $247,000 and $416,000, respectively.

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

Accounts payable and accrued liabilities consist of the following (in
thousands):

DECEMBER 31
--------------------
1995 1996
--------- ---------
(UNAUDITED)
Trade accounts payable.................. $ 5,710 $ 10,762
Accrued insurance claims................ 8,357 15,721
Accrued compensation.................... 3,877 5,709
Due to affiliates....................... 791 180
Property and other taxes................ 1,647 3,048
Accrued interest payable................ 889 860
Deferred revenue........................ 951 1,515
Other................................... 4,016 8,090
--------- ---------
$ 26,238 $ 45,885
========= =========

F-21
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.............................. 45,473 30,543
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................................... 13,202 15,878
---------- ----------
Total Long-term Obligations............. 83,705 124,827
Less -- Current maturities.............. (14,427) (15,872)
Less -- Accrued Interest................ (600) --
---------- ----------
$ 68,678 $ 108,955
========== ==========

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 OBILIGATIONS
--------- -------------
Year ending December 31 --
1997............................ $ 13,305 $ 4,201
1998............................ 9,197 3,341
1999............................ 68,703 3,221
2000............................ 7,040 3,976
2001............................ 3,795 2,858
Thereafter...................... 4,750 6,404
--------- -------------
$106,790 $ 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

F-22
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 to former owners of the Purchased Companies as partial
consideration of the acquisition purchase price. The convertible subordinated
notes bear interest, payable quarterly, at a weighted average interest rate of
5.0% and are convertible by the holder into shares of the Company's Common Stock
at a weighted average price of $29.98 per share. The convertible subordinated
notes are redeemable for cash at the option of the Company at any time after one
year of issuance. The terms of the convertible subordinated notes require $4.0
million of principal payments in 1997 and $18.5 million in 1999.

Management estimates that the fair value of its debt obligations is
$127,250,000, compared to the historical value of $129,290,000 at December 31,
1996. The estimated fair value was determined by applying an estimated discount
rate to the scheduled cash payments under the obligations.

F-23
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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):

DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Current --
Federal............................ $ (172) $ 757 $ 1,909
State.............................. 81 119 247
--------- --------- ---------
(91) 876 2,156
--------- --------- ---------
Deferred --
Federal............................ 1,303 1,915 5,533
State.............................. 84 298 1,300
--------- --------- ---------
1,387 2,213 6,833
--------- --------- ---------
Provision for income taxes before
extraordinary items................... 1,296 3,089 8,989
--------- --------- ---------
Extraordinary Items --
Current............................ -- -- 1,690
Deferred........................... -- -- 125
--------- --------- ---------
-- -- 1,815
--------- --------- ---------
$ 1,296 $ 3,089 $ 10,804
========= ========= =========

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.

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.......... $ 13,029 $ 35,082
Other........................... 593 724
---------- ----------
Total deferred income tax
liabilities.............. 13,622 35,806
---------- ----------
Deferred income tax assets --
Accounts receivable/allowance
for doubtful accounts......... (276) (986)
Accrued liabilities/expenses.... (6,802) (10,411)
Net operating losses............ (4,340) (4,253)
Other assets.................... (2,074) (1,965)
Tax credits..................... (268) (2,775)
Other........................... (302) (936)
---------- ----------
Total deferred income tax
assets................... (14,062) (21,326)
Less -- Valuation allowance.......... 5 904
---------- ----------
Net deferred income tax
(assets) liabilities..... $ (435) $ 15,384
========== ==========

F-24
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following (in thousands):

DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------

Tax at federal statutory rate........ $ 918 $ 2,472 $ 9,072
Add (deduct) --
State income taxes, net of
federal benefit.......... 132 270 1,073
Nondeductible expenses..... 174 231 461
Tax-exempt income.......... (9) (3) --
Other...................... 81 119 198
--------- --------- ---------
$ 1,296 $ 3,089 $ 10,804
========= ========= =========

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.

10. COMMITMENTS AND CONTINGENCIES:

PURCHASE COMMITMENTS

As of December 31, 1996, the Company had entered into commitments to
purchase 113 motorcoaches for approximately $34,324,000. 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 had 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 $2,081,000, $2,254,000 and $2,932,000, 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............................ $ 8,408
1998............................ 7,100
1999............................ 6,183
2000............................ 4,903
2001............................ 2,649
Thereafter...................... 16,260
---------
$ 45,503
=========

F-25
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 1996, one of the Pooled Companies had entered into
commitments to purchase an additional 29 motorcoaches for approximately
$9,510,000. Subsequent to December 31, 1996, the Pooled Company renegotiated its
commitments to accept the equipment under operating leases which provide for
annual rental payments of approximately $1,164,000.

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. As of May 15, 1997, the STB
had exempted from regulatory approval requirements each of the acquisition
transactions involving federally-regulated interstate motorcoach operators
entered into by the Company through February 1997. However, acquisitions
subsequent to March 1, 1997 and future acquisitions of other motorcoach
operators must be approved or exempted from the need for regulatory approval by
the STB. There can be no assurance that the Company will be able to obtain such
approval or exemption with respect to such acquisitions.

ESTIMATED INSURANCE CLAIMS PAYABLE

The primary risks in the Company's operations are bodily injury and
property damage to third parties and workers' compensation. The Company has
commercial liability insurance policies that provide coverage by the insurance
company, subject to deductibles ranging from $5,000 to $250,000. The Company is
consolidating its insurance program under a program which provides for
deductibles ranging from $100,000 to $250,000. As such, any claim within the
deductible per incident would be the financial obligation of the Company.

The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policies for claims occurring through 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 $251,000, $365,000 and $506,000 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

F-26
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

The Company and Exel have subsequently agreed to the termination of this
agreement, whereby Exel shall receive, upon completion of the next acquisition
of a motorcoach business identified by Exel with aggregate consideration paid in
excess of $5.0 million, $275,000 in cash and the grant of a warrant to purchase
100,000 shares of Company Common Stock at an exercise price of $26 per share.
The warrant will be exercisable beginning six months from the date of the
agreement to terminate and expire two years from the date of the agreement to
terminate.

RISK FACTORS

An investment in shares of Common Stock or debt obligations of the Company
involve a high degree of risk, including, among others, those risks related to
the effects of leverage of the Company, the Company's limited combined operating
history, risks related to acquisition financing and implementation of the
Company's acquisition strategy, seasonality of the motorcoach business, fuel
price volatility, potential exposure to environmental liabilities, and reliance
on key personnel.

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

F-27
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.......................... $ 15,115
Pro forma............................ $ 13,598
Earnings Per Share As reported.......................... $ 1.15
Pro forma............................ $ 1.04

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. SUBSEQUENT EVENTS:

Subsequent to March 31, 1997, the Company acquired five companies in
addition to the three Pooled Companies. The aggregate consideration for these
transactions was $8.5 million in cash, 215,311 shares of the Company's 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 regulatory approval, for
consideration amounting to 300,000 shares of the Company's common stock.

The Company completed the sale of $150 million 9 3/8% Senior Subordinated
Notes due 2007 during the second quarter of 1997.

The Company has recently announced that it anticipates the $181 million
Credit Facility will be amended to provide for borrowings of up to $300 million
and additional borrowings outside such facility of up to $80 million.

F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT

Kerrville Bus Company, Inc.

We have audited the accompanying balance sheet of Kerrville Bus Company,
Inc. (the "Company") as of December 31, 1996 and the related statements of
operations, stockholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the financial statements provides a reasonable
basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.

Burnside & Rishebarger PLLC

February 22, 1997

F-29
<PAGE>
KERRVILLE BUS COMPANY, INC.
BALANCE SHEET
(IN THOUSANDS)

DECEMBER 31,
NOTES 1996
-------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... 1 $ 123
Short-term investments............. 1 67
Accounts receivable, less
allowance......................... 10 2,341
Current portion of note
receivable........................ 2 2,000
Inventory.......................... 1 513
Prepaid expenses and other current
assets............................ 713
------------
Total current assets.......... 5,757
------------
PROPERTY AND EQUIPMENT, net............. 5, 7, 10 20,371
NOTE RECEIVABLE, less current portion... 2, 10 6,513
OTHER ASSETS............................ 3 951
------------
Total assets.................. $ 33,592
============

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt.............................. 5 $ 1,855
Accounts payable and accrued
liabilities....................... 4 2,238
------------
Total current liabilities..... 4,093
------------
LONG-TERM OBLIGATIONS, net of current
maturities............................ 5 12,340
DEFERRED INCOME TAXES................... 1, 8 550
------------
Total liabilities............. 16,983
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock -- $100 par value;
100,000 shares authorized and 10
shares issued and outstanding..... 1 1
Additional paid-in capital......... 4,719
Retained earnings.................. 11,889
------------
Total stockholder's equity......... 16,609
------------
Total liabilities and
stockholder's equity....... $ 33,592
============

The accompanying notes are an integral part of these financial statements.

F-30
<PAGE>
KERRVILLE BUS COMPANY, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)

YEAR ENDED
DECEMBER 31,
NOTES 1996
----- ------------
REVENUES................................ $ 21,668
OPERATING EXPENSES...................... 1, 4 16,314
------------
Gross Profit....................... 5,354
GENERAL AND ADMINISTRATIVE EXPENSES..... 2,381
------------
Operating Income................... 2,973
------------
OTHER INCOME (EXPENSE):
Equity in earnings of former
subsidiary............................ 2 635
Gain on sale of former subsidiary....... 2 5,727
Interest expense........................ 8 (1,277)
Other, net.............................. 1 409
------------
Total................................... 5,494
------------
NET INCOME.............................. $ 8,467
============

The accompanying notes are an integral part of these financial statements.

F-31
<PAGE>
KERRVILLE BUS COMPANY, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
NOTES STOCK CAPITAL EARNINGS TOTAL
----- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995.............. 1, 8 $ 1 $ 4,719 $ 4,033 $ 8,753
Net Income.............................. 8,467 8,467
Dividends, including cash dividends of
$290,853 and distribution of
receivable from shareholder of
$320,000.............................. 10 (611) (611)
------ ------- -------- -------
BALANCE, December 31, 1996.............. 1, 8 $ 1 $ 4,719 $ 11,889 $16,609
====== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-32
<PAGE>
KERRVILLE BUS COMPANY, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED
DECEMBER 31,
NOTES 1996
----- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $ 8,467
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and
amortization............. 1 1,229
Gain on disposal of
property and equipment,
net...................... 1 (360)
Gain on sale of former
subsidiary............... 2 (5,727)
Equity in earnings of
former subsidiary........ 2 (635)
Change in assets and liabilities:
Increase in accounts
receivable..................... (614)
Increase in materials and
supplies....................... 1 (50)
Increase in prepaid expenses.... (83)
Increase in deposits............ (140)
Decrease in other assets........ 208
Increase in accounts payable.... 98
Decrease in accrued wages....... (22)
Decrease in accrued payroll and
property taxes................. (60)
Decrease in accrued interest.... (49)
Decrease in current portion of
federal built-in gain tax...... 1, 6 (126)
Decrease in other liabilities... (94)
------------
Net cash provided by
operating
activities.......... 2,042
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposal of
property and equipment............. 1,917
Increase in investments.............. (36)
Increase in short-term investments... 1 (4)
------------
Net cash provided by
investing
activities.......... 1,877
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank overdraft........... (3)
Payment of cash dividends............ (290)
Principal payments on long-term
debt................................. 3 (1,694)
Principal payments on capitalized
leases............................... 5 (1,949)
------------
Net cash used in
financing
activities.......... (3,936)
------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................ (17)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR.................. 140
------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR............................... 1 $ 123
============

The accompanying notes are an integral part of these financial statements.

F-33
<PAGE>
KERRVILLE BUS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION --

Kerrville Bus Company, Inc. (the "Company") generates its revenues
primarily by providing charter services and intercity bus routes in Texas and
surrounding states. The Company's unconsolidated subsidiary generates its
revenues primarily in the Las Vegas, Nevada area by providing shuttle (see Note
10) and charter services.

UNCONSOLIDATED SUBSIDIARY --

Generally accepted accounting principles require consolidation of a
subsidiary if it is controlled by its parent company. This unconsolidated
subsidiary was sold during the year (see Note 2). Since neither the 50% owners
of K-T Contract Services, Inc. ("K-T") are deemed by management of either
company to control that subsidiary, it is accounted for on the equity method of
accounting (see Note 14). The equity method followed allows the parent company
to record its investment at cost adjusted for its share of profits and
dividends. All intercompany transactions are eliminated.

PROPERTY, DEPRECIATION AND AMORTIZATION --

The Company uses the straight-line method and the following estimated
service lives in computing depreciation and amortization:

ESTIMATED
SERVICE LIVES COST
-------------- --------------
(IN THOUSANDS)
Buses................................... 5 to 10 years $ 26,322
Buildings............................... 25 to 40 years 3,026
Other................................... 0 to 10 years 3,770
Less -- Accumulated Depreciation........ -- (12,747)
--------------
$ 20,371
==============

Effective January 1, 1995 the Company increased the estimated useful lives
on certain buses from nine to ten years and increased the salvage value from 25%
to 50% of cost. These revisions were made to more properly reflect true economic
lives of the assets and to better align the Company's depreciated value with
Management's estimates of market value.

Expenditures for maintenance and repairs are charged to operating expenses
as incurred; expenditures for renewals and replacements are capitalized. When
property is sold or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss on disposition
is included in results of operations.

FEDERAL INCOME TAXES --

Effective January 1, 1991, the Company elected to be treated as an S
Corporation, which is not subject to Federal income taxes at the corporate
level. Accordingly, no provision for Federal income taxes relating to current
operations of the parent company has been recorded in the accompanying financial
statements.

As a result of the change in tax status, deferred Federal income taxes of
$1,226,633 were established which was the estimated Federal income taxes the
Company may be subject to for any net recognized built-in gains after January 1,
1991 relating to assets purchased prior to the change in tax status. The
remaining balance at December 31, 1996 is a $549,601 deferred liability.

F-34
<PAGE>
KERRVILLE BUS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996

Inventory consists primarily of diesel fuel and bus parts and are carried
at the lower of first-in, first-out cost or market.

Goodwill is being amortized over a forty year period.

CASH AND CASH EQUIVALENTS --

For purposes of reporting cash flows, the Company considers all highly
liquid investments with a remaining maturity at the date of purchase of three
months or less to be cash equivalents.

Short-term Investments consist of various investments and certificates of
deposit and are carried at cost.

ESTIMATES AND ASSUMPTIONS --

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results could differ from those estimates.

NEW ACCOUNTING STANDARDS --

In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS 121), which is effective January 1, 1996. SFAS 121 requires that
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Under SFAS 121, a loss is to be recognized to the extent that the
fair value of an impaired asset is less than the asset's carrying amount. The
Company's adoption of SFAS 121 as of January 1, 1996 did not have any current
effect on the financial condition or results of operations.

2. SALE OF INVESTMENT IN UNCONSOLIDATED ENTITY

Investment in unconsolidated entity consists of the Company's cost and
equity of K-T Contract Services, Inc. which represents a 50% ownership. On
August 31, 1996, the Company sold its investment in K-T Contract Services, Inc.
for $8,513,200 in the form of convertible subordinated debentures earning
interest at 5%. The Company collected and distributed to its shareholder
$2,000,000 subsequent to December 31, 1996 leaving a balance of $6,513,200 which
is expected to be distributed to its shareholder. The gain on sale (in
thousands) is as follows:

Balance, January 1, 1996................ $ 2,226
Equity in earnings as of August 31, 1996
(unaudited)........................... 635
Intercompany eliminations............... (75)
---------
Balance, August 31, 1996................ 2,786
Consideration on sale................... 8,513
---------
Gain on sale of investment.............. $ 5,727
=========

F-35
<PAGE>
KERRVILLE BUS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996

3. OTHER ASSETS

Other assets as of December 31, 1996 consist of the following (in
thousands):

Investment.............................. $ 36
Goodwill, net of accumulated
amortization of $117.................. 254
Long-term related party receivable...... 377
Other................................... 284
---------
$ 951
=========

4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities as of December 31, 1996 consist of
the following (in thousands):

Bank overdraft.......................... $ 203
Trade accounts payable.................. 514
Accrued wages........................... 653
Accrued payroll and property taxes...... 262
Accrued interest........................ 96
Other................................... 510
---------
$ 2,238
=========

5. LONG-TERM OBLIGATIONS

Long-term obligations at December 31, 1996 consist of the following:

1996
---------------
(IN THOUSANDS)
Notes payable to Gelco Commercial
Transportation, due in monthly
installments of $6,189 at December
31, 1996, including interest from
8.5% to 12.29%, with the remaining
principal and any accrued interest
due at maturity from May 1997 to
November 1998 at December 31, 1995
and 1994, collateralized by certain
buses.............................. $ 77
Notes payable to Dial Corporation,
due in monthly installments of
$33,927 at December 31, 1996 plus
interest at 2% above Citibank prime
rate, with the remaining principal
and any accrued interest due on
March 2000 to November 2002,
collateralized by certain buses.... 3,599
Notes payable to Textron, due in
monthly installments of $39,384,
including interest at 9.80%, due
from March 1996 thru February 2003,
collateralized by certain buses.... 2,737
Notes payable to Texas Commerce Bank,
Austin, Texas, due in monthly
installments of $2,889 plus
interest at prime with the unpaid
principal due November 30, 2003,
collateralized by certain land and
buildings.......................... 260
Note payable to Cessna Finance
Corporation, due in monthly
installments of $5,309 including
interest at 9%, due October 2003,
collateralized by
aircraft........................... 322
Other................................ 57
---------------
Total long-term obligations..... 7,052
Less -- Current Maturities........... (743)
---------------
$ 6,309
===============

F-36
<PAGE>
KERRVILLE BUS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996

Scheduled principal payments on the notes are as follows:

1997................................. $ 743
1998................................. 753
1999................................. 750
2000................................. 2,540
2001................................. 438
Thereafter........................... 1,828
---------
Total........................... $ 7,052
=========

6. PENSION PLAN

The Company has a defined contribution plan covering eligible union
employees. The employer makes a contribution equal to 1.5% of eligible
compensation except for employees with more than fifteen years of service for
which the contribution is 2% of eligible compensation. Contributions to this
plan during 1996 were approximately $85,419.

7. LEASES

CAPITALIZED LEASES

The Company leases certain buses under terms which essentially constitute a
purchase of the buses. The lease terms call for monthly payments on each bus and
provide the Company the option to purchase the buses at the end of the lease.
Certain of the leases also call for the Company to guarantee a residual value to
the lessor.

The present values of the required rentals and residual value guarantees
have been capitalized and the obligations recorded using the lower of the
interest rate implicit in the lease or the Company's incremental borrowing rate.
The assets are amortized over their estimated service lives of five to twelve
years and interest on the outstanding lease obligation is charged to expense
during each period.

Following is a schedule of future minimum lease payments (including
guaranteed residual value payments) under capitalized leases as of December 31,
1996 (in thousands):

1997.................................... $ 1,664
1998.................................... 1,478
1999.................................... 3,758
2000.................................... 320
2001.................................... 320
Thereafter.............................. 1,377
---------
8,917
Less amounts representing interest at
8.25% to 12%.......................... (1,774)
---------
Total obligations under capital
leases................................ 7,143
Less current portion.................... (1,112)
---------
Long-term obligations under capital
leases................................ $ 6,031
=========

At December 31, 1996 these capitalized leases had a net book value of
$8,470,012.

F-37
<PAGE>
KERRVILLE BUS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996

OPERATING LEASES

The Company has various terminal, facility, parking, computer and general
office facility rental agreements in effect primarily on a year-to-year basis.
The combined annual rentals during 1996 were $145,972, and are included in rent,
station, and administrative and general expenses.

The Company also leases several buses with expiration dates on the leases
through 1998 including buses leased to affiliated companies that were acquired
by an unrelated company in 1996 (see Note 2). The leases have been accounted for
as operating leases. Included in net rent expenses for 1996 was $1,282,500
related to these leases. Minimum future lease payments under these leases are as
follows (in thousands):

1997................................. $ 1,500
1998................................. 625
---------
Total........................... $ 2,125
=========

In addition, the Company leases several buses with one year lease contracts
with fifteen day cancellations to an affiliated company. Included in net rent
expense were $1,013,590 related to these leases.

8. FEDERAL INCOME TAXES

Deferred income taxes and benefits under SFAS No. 109 are provided for
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and certain built-in gains subject to
tax. Temporary differences and the resulting deferred tax assets and liabilities
at December 31, 1996 is as follows (in thousands):

Deferred tax liability -- Resulting
from depreciable assets............ $ 550

9. COMMITMENTS AND CONTINGENCIES

The Company has commitments and contingencies in the normal course of
business for which management expects no material adverse effect. The Company is
a party to lawsuits which its attorney is unable to evaluate but which the
Company intends to vigorously contest.

The Company has entered into certain restrictive covenants and agreements
with lessors. The agreements with lessors contain requirements concerning
financial reporting, minimum cash flow ratios, capital expenditure limits,
limits on indebtedness, limits on dividends, various administrative
requirements, insurance requirements, and certain other restrictive covenants.

10. RELATED PARTY TRANSACTIONS

The Company has entered into various transactions with other entities in
which the Company's stockholder has an interest. The stockholder believes such
transactions are conducted using substantially the same terms as are utilized
for unrelated entities. The transactions include equipment leasing and
servicing, advances and other items.

11. CONCENTRATIONS OF RISK

The Company is subject to the risks associated with the bus business
including realizability of costs, although management is not aware of any
immediate risk of loss from its significant concentration of business that
would, if suddenly eliminated, severely impact operations. The Company's primary
operations are in Texas and surrounding states.

F-38
<PAGE>
KERRVILLE BUS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996

12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NON-CASH INFORMATION

Cash paid during the year for interest was $1,496,980.

During 1996, the Company distributed a $320,000 receivable arising prior to
1996 from its shareholder to such shareholder as a non-cash dividend.

13. SUBSEQUENT EVENTS

Subsequent to December 31, 1996, the Company's sole shareholder agreed in
principle to sell all of the outstanding stock of the Company. No definitive
agreements have been made.

14. ESTIMATED REIMBURSEMENTS DUE FROM GREYHOUND LINES, INC.

During 1996, the Company identified a receivable due when tickets are
reissued to passengers on interline routes. A large number of reissued tickets
had incorrectly identified Kerrville Bus Company as the carrier in which the
ticket was sold. This caused other carriers on the interline routes to bill
Kerrville Bus Company for a portion of the route. The Company estimates the
$342,240 was incorrectly billed to the Company and that it is entitled
reimbursement. The estimate was calculated by applying a percentage of valid
reissues to all of 1996 reissued tickets using a factor developed by Greyhound
Lines, Inc. in an analysis of a single month's ticket reissues from Kerrville
Bus Company. The management of Kerrville Bus Company believes such estimate to
be conservative and collectible.

F-39
<PAGE>
INDEX TO EXHIBITS

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------------------------ ------------------------------------------------------
23.1 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 8-K, into the Company's previously filed
registration statements on Form S-3 (File No. 333-27575), on Form S-8 (File No.
333-30155) and on Form S-8 (File No. 333-30157).

ARTHUR ANDERSEN LLP

Houston, Texas
August 8, 1997

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,836,000
<SECURITIES> 0
<RECEIVABLES> 28,697,000
<ALLOWANCES> (2,694,000)
<INVENTORY> 10,650,000
<CURRENT-ASSETS> 63,683,000
<PP&E> 363,693,000
<DEPRECIATION> (78,355,000)
<TOTAL-ASSETS> 445,129,000
<CURRENT-LIABILITIES> 89,364,000
<BONDS> 36,830,000
0
0
<COMMON> 189,000
<OTHER-SE> 113,577,000
<TOTAL-LIABILITY-AND-EQUITY> 445,129,000
<SALES> 79,868,000
<TOTAL-REVENUES> 79,868,000
<CGS> 64,237,000
<TOTAL-COSTS> 74,019,000
<OTHER-EXPENSES> 117,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,508,000
<INCOME-PRETAX> 2,224,000
<INCOME-TAX> 944,000
<INCOME-CONTINUING> 1,280,000
<DISCONTINUED> 0
<EXTRAORDINARY> 89,000
<CHANGES> 0
<NET-INCOME> 1,191,000
<EPS-PRIMARY> .06
<EPS-DILUTED> .06

</TABLE>