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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO.: 0-28056
COACH USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 76-0496471
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
ONE RIVERWAY, SUITE 600
HOUSTON, TEXAS 77056-1903
(888) COACH-US
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, $.01 par value Nasdaq National Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of March 24, 1997, the aggregate market value of the 14,807,730 shares
of the registrant's common stock held by non-affiliates of the registrant was
$444,231,900, based on the $30.00 last sale price of the registrant's common
stock on the Nasdaq National Market on that date.
As of March 24, 1997, 18,078,107 shares of the registrant's common stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III
(other than the required information regarding executive officers) is
incorporated by reference from the registrant's definitive proxy statement,
which will be filed with the Commission not later than 120 days following
December 31, 1996.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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PART I
ITEM 1. BUSINESS
Coach USA, Inc. ("Coach USA" or the "Company") is the largest provider
of motorcoach charter, tour and sightseeing services and one of the five largest
non-municipal providers of commuter and transit motorcoach services in the
United States. The Company also provides airport ground transportation,
paratransit and other related passenger ground transportation services. The
Company's services at December 31, 1996 were provided through a fleet of
approximately 1,650 motorcoaches, including 300 motorcoaches provided by various
transit authorities pursuant to service contracts, as well as various other high
occupancy vehicles. The Company's charter and tour fleet features luxury,
European style motorcoaches with plush seats, televisions, VCRs and other
amenities. The Company's taxicab and high occupancy vehicle services include
dispatching and vehicle sales, leasing and financing for more than 1,350
vehicles, primarily owned by independent contractor drivers.
Coach USA was founded in September 1995 to create a nationwide provider of
motorcoach and other ground transportation services; however, it conducted no
operations prior to its initial public offering in May 1996 (the "Initial
Public Offering"). Coach USA acquired, simultaneously with the closing of the
Initial Public Offering, six existing motorcoach service businesses (the
"Founding Companies"). Through December 31, 1996, the Company acquired eight
additional motorcoach businesses and one taxicab service business. Subsequent to
year-end, in February 1997, the Company acquired three additional motorcoach
businesses and the acquisitions of three other companies are currently pending.
The Company's strategy is to continue to aggressively pursue additional
acquisitions to consolidate and enhance its position in its current markets and
to acquire operations in new markets. The Company believes that it can continue
to successfully implement this strategy due to the synergies being created by
the consolidation of various operating companies under common ownership of the
Company. The acquisition strategy is further enhanced by the leadership roles
that several of the principals of the Company have in both national and regional
motorcoach associations.
INDUSTRY OVERVIEW
The motorcoach industry in the United States can be broadly divided into
three types of services: (i) recreation and excursion (charter, tour and
sightseeing); (ii) commuter and transit; and (iii) regularly scheduled intercity
service. The motorcoach industry is highly fragmented with approximately 5,000
motorcoach operators. These companies collectively generated approximately $20
billion in revenues in 1996. The Company believes that the taxicab services
industry has a similar profile but smaller market size.
The Company believes that there will be increasing demand for recreation
and excursion services, commuter and transit motorcoach services and airport
related services for a broad range of customers based on a number of factors,
including:
GROWING TRAVEL AND TOURISM INDUSTRY. Travel and tourism is one of the
fastest growing industries in the United States. Nationwide charter users
include such large organizations as AAA, AARP and convention organizers, whose
members are potential users of motorcoach services. As the population of the
United States continues to age, the Company believes more people will find
motorcoach touring an attractive, low cost alternative to travel by automobile.
Also, the number of European and Asian tourists traveling to the United States
continues to increase, and motorcoach travel is a popular way for these tourists
to travel in the United States.
PRIVATIZATION. The Company expects state and local governments to
accelerate their efforts to privatize capital intensive operations, such as
commuter and transit services, and ancillary services, such as paratransit
services required under the Americans with Disabilities Act ("ADA"). The
Company believes that this acceleration will result primarily from a decrease in
Federal funds available to subsidize operations and the increasing capital cost
of acquiring equipment. An example of this type of contract is the February 1997
privatization contract awarded for $32 million.
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OUTSOURCING. Many hotels, casinos, rental car companies, colleges and
other institutions operate large motorcoach fleets and other high occupancy
vehicles. These entities are increasingly seeking to outsource these non-core
activities as a means to better manage their capital and operating resources and
to improve their profits.
EXPANDING METROPOLITAN AREAS. Metropolitan areas are continuing to expand
geographically and in population. As a result, state and local governments face
increasing automobile traffic congestion, deteriorating infrastructures and a
continuing migration of offices and commuters to suburban locations. These
trends should increase the Company's opportunities to provide motorcoach
commuter and transit services. The Company believes that the fuel and emissions
efficiency, flexibility and low capital cost of motorcoaches and other high
occupancy vehicles will make them increasingly viable alternatives to the high
cost of widening existing roads or establishing or expanding other transit and
commuter systems, such as subways and commuter trains.
INCREASING AIRPORT CONGESTION. The number of passengers served by the
current United States airport system is estimated to increase by 25% over the
next five years. Currently, there is no coordinated effort to provide seamless
transportation between planes and motorcoaches or other modes of ground
transportation, and many passengers continue to use private automobiles for
local or regional travel to and from airports. With no major airport expansions
expected at most major airports in the next five years, the Company believes
that motorcoaches, vans and other high occupancy vehicles can alleviate much of
this congestion and address the shortage of convenient parking at many airports.
In addition, taxicab service is an integral part of passenger ground
transportation to and from most major airports.
SERVICES PROVIDED
The type and level of services provided by the Company vary by market
served. The services offered in each of the Company's markets are determined by
the management team responsible for that market location and are based on such
management's estimate of the demand for a particular service in the market,
competition to provide that service and the Company's ability to provide that
service consistent with the quality standard that the Company seeks.
The Company provides motorcoach services on both a contracted and per seat
basis. For contracted services, the Company arranges a fee for the use of the
equipment. In these arrangements, the customer contracts the vehicle for use and
the Company is paid a rate, generally on a daily or per mile basis, that is not
dependent on passenger load factors. In per seat operations, the Company is paid
by each individual customer. Fares for these per seat services are usually
determined by the Company and payment is received from individual passengers or
through a commissioned agent. In some states, these fares are subject to
regulatory approval.
The Company's taxicab service revenues are derived primarily from services
provided to independent contractors that own or lease and operate taxicabs under
one of the Company's trade names. The independent contractor drivers pay a
weekly or daily fee in advance to the Company for dispatching, use and
maintenance of taxicab equipment, liability insurance coverage, use of operating
rights, charge account and other services. The independent contractor collects
and retains the fares from the passenger. Fares charged to passengers are
subject to municipal or state regulatory approval.
MOTORCOACH SERVICES
The Company's motorcoaches are either owned by the Company or leased under
long-term leases, pursuant to which the Company is responsible for all
maintenance, insurance and upkeep. Certain transit privatization contracts
provide equipment and insurance to the Company. The majority of the Company's
motorcoach drivers are employees of the Company with the remainder provided
pursuant to a leasing arrangement. In certain of the motorcoach operations, the
drivers are independent contractors.
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RECREATION AND EXCURSION
CHARTER AND TOUR SERVICES. Charter services are provided on a fixed daily
rate, based on mileage and hours of operation. The Company offers both daily and
long-term charter and tour arrangements (as long as 14 days) with various levels
of luxury and price. The Company has arrangements with tour agencies to provide
various levels of service and equipment for agent-sponsored and organized tours.
Under these arrangements, the Company contracts with tour agencies to provide
the motorcoach and driver at a fixed daily rate. To increase equipment
utilization, the Company also regularly offers shorter charter service to
various social groups or other organizers for transportation to events or
specific destinations. In some instances, the Company organizes its own tours
and markets them on a per passenger basis.
SIGHTSEEING. Per seat sightseeing services are provided on a scheduled
basis at an advertised or published price. Typically, customers will make
reservations for the tours or can simply board on an "open-door" basis at
scheduled locations. Payment is made by the customer, or through the travel
agent or the hotel. The Company uses a network of hotel lobby ticket counters,
hotel concierges and travel agents to sell the Company's sightseeing tours.
AIRPORT SERVICE. The Company picks up passengers at airports in Atlantic
City, Colorado Springs, Denver, Houston, Las Vegas, Los Angeles, Miami, Newark
and Philadelphia and transports them to and from their hotel, casino, cruise
ship or convention site. The Company provides passenger ground transportation
services into, from and between airports in certain cities in which the Company
has operations using motorcoaches and other high occupancy vehicles. This
service is provided on either a fixed schedule or on demand service basis. In
fixed schedule services, the Company provides regular pick-up and drop-off
services while fixed fee services can be arranged through computerized
reservations systems or through purchase at a service desk at the airport.
Taxicab service operations are an integral part of the passenger ground
transportation services to and from the airports in the cities in which the
Company operates.
SPECIALIZED DESTINATION ROUTE. The Company provides specialized
destination route services, including daily scheduled service to casinos in
Connecticut, New Jersey, Louisiana and Nevada. Luxury motorcoaches pick
passengers up at specified locations. Tickets are sold through agents and at
specified locations. Customers are taken on an "open-door" basis or by
reservation.
COMMUTER AND TRANSIT SERVICES
COMMUTER SERVICES. In most of its commuter services, the Company has fixed
routes serviced on a daily basis. Most of these routes are owned (as a result of
having received Federal or state regular route authority) by the individual
operating subsidiaries. Many of the Company's motorcoaches that are dedicated to
commuter service are owned by a state or municipal transit authority and
provided to the Company at nominal rent or given by such authority to the
Company to service a particular route. In all cases, the drivers and operations
personnel are employed by the Company and the Company is responsible for
maintenance of the equipment. The Company is paid through individual ticket
purchases or through a fare box. Contracts with transit authorities for this
service typically have one to three year terms and are periodically reviewed for
rate and fare increases. Commuter service is provided daily.
OUTSOURCING CONTRACTS. The Company has agreements with various
corporations, institutions and government entities to provide motorcoaches,
drivers and equipment for their employees and customers. The Company contracts
with the customer to provide the schedule of service required by the customer,
sometimes 24 hours per day.
PRIVATIZATION TRANSIT CONTRACTS. In privatization transit contracts, the
Company has a contract with a transit authority for fixed routes on a daily
basis, with the schedule established by the transit authority. The Company
operates dedicated equipment owned by the Company or by the transit authority.
In each instance, the drivers and operations personnel are employees of the
Company and the Company is responsible for equipment maintenance. The Company is
paid a fixed amount from the municipality based on number of miles or hours
operated. Contracts for this service range from three to five years and are
periodically reviewed for rate increases.
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PARATRANSIT SERVICES. The Company has contracts with agencies of various
counties that are responsible for coordinating the non-emergency transportation
of medical aid patients. Following delivery to the Company of patient
reservation schedules, the Company provides the scheduled service, usually
through use of independent contractor drivers, and invoices the county
organization for services provided. These contracts are generally on a
multi-year basis and require the Company to meet certain performance standards.
TAXICAB SERVICES
The majority of the Company's taxicabs are owned by independent contractor
drivers, with the remainder being owned by the Company and leased on a daily or
weekly basis to independent contractor drivers. None of the taxicab drivers are
employees of the Company. In addition to the daily or weekly fee paid by the
drivers to the Company for dispatching and other support services, the Company
derives revenues through vehicle sales and financing services to drivers,
maintenance, parts and labor provided to drivers and vehicle mini-billboard
advertising.
RADIO DISPATCHED SERVICES. Radio dispatched services are provided
primarily on a call-in basis. When the request is made for taxicab service, the
closest available taxicab is notified through the Company's computer dispatching
system. An independent contractor driver of the identified vehicle accepts the
trip and picks up the customer.
AIRPORT SERVICES. Taxicab services are provided to passengers going to and
coming from the airports in the municipalities in which the Company provides
taxicab services. Most services provided to passengers coming from the airports
are provided on a demand basis as passengers depart the airport and summon a
taxicab at the airport cab station.
PARATRANSIT SERVICES. Pursuant to contracts with local transit
authorities, the Company provides on demand transportation services for disabled
and other persons that are in need of transportation services. These contracts
are generally on a multi-year basis and require the Company to meet certain
performance standards.
BUSINESS STRATEGY
The Company's objective is to be the largest provider of regional and local
motorcoach and passenger ground transportation services in the United States.
Management plans to achieve this goal by:
EXPANDING THROUGH ACQUISITIONS. The Company intends to pursue an
aggressive acquisition strategy to enhance its position in its current markets
and to acquire operations in new markets by:
ENTERING NEW GEOGRAPHIC MARKETS. The Company intends to expand into
geographic markets it does not currently serve by acquiring
well-established motorcoach and other passenger ground transportation
service providers that, like the Founding Companies and the subsequent
acquisitions, are leaders in their regional markets.
EXPANDING EXISTING MARKETS. The Company also plans to acquire
additional motorcoach and other passenger ground transportation service
providers in many of the markets in which it operates, including
acquisitions that either broaden the range of services provided by the
Company in that market or expand the geographic scope of the Company's
operations in that market, as well as tuck-in acquisitions of smaller
operations. The Company believes that tuck-in acquisitions will increase
operating efficiencies without a proportionate increase in administrative
costs and, in some instances, will broaden the Company's range of services.
ACCELERATING INTERNAL GROWTH. A key component of the Company's strategy is
to accelerate internal growth at each of the existing operations and each
subsequently acquired business. The Company believes internal growth can be
accelerated by:
ESTABLISHING A NATIONAL SALES AND MARKETING PROGRAM. The travel and
tourism industry has experienced significant growth in recent years, and
the Company expects this trend to continue. The Company has begun to
establish a national sales and marketing program as a means to expand its
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recreational and excursion business. This program will target travel and
tour companies, national and international travel agencies and convention
organizers, as well as organizations such as AAA, AARP and professional and
amateur athletic teams.
DEVELOPING PRIVATIZATION AND OUTSOURCING. The Company believes that
the trend toward privatization and outsourcing will accelerate, as more
transit authorities and businesses such as hotels, casinos, rental car
agencies, colleges and other institutions that operate their own fleets
decide to privatize or outsource non-core operations.
CAPITALIZING ON NEW CORPORATE STRUCTURE. The Company intends to continue
to take advantage of its new corporate structure by:
CENTRALIZING ADMINISTRATIVE FUNCTIONS. The Company believes that it
will continue to have greater purchasing power, resulting in significant
cost savings in such areas as equipment and parts, tires, insurance and
financing, than the operating locations had independently. The Company has
begun to realize cost savings through the consolidation of administrative
functions such as employee benefits, safety and maintenance programs and
risk management.
INCREASING OPERATING EFFICIENCIES. The Company believes that there
are opportunities to eliminate redundant facilities and equipment through
coordination among the various operating subsidiaries of the Company.
Additionally, the Company expects to continue to benefit from
cross-marketing and increased equipment utilization that has already
occurred among the various operating locations of the Company.
ACQUISITION STRATEGY
The Company believes that there are many attractive acquisition candidates
in the motorcoach and passenger ground transportation services industry because
of the highly fragmented nature of the industry, industry participants' need for
capital and their owners' desire for liquidity. The Company will continue to
pursue an aggressive acquisition program to consolidate and enhance its position
in its current markets and to acquire operations in new markets.
The Company acquired the six Founding Companies simultaneously with the
completion of the Initial Public Offering. The Founding Companies include four
companies in New Jersey, and one each in San Francisco and Phoenix. Through the
remainder of fiscal 1996, the Company completed the acquisition of eight
additional motorcoach service businesses and one additional taxicab service
business. Subsequent to the end of the 1996 fiscal year, the Company completed
the acquisition of three additional motorcoach businesses and the acquisitions
of three other companies are currently pending. These acquisitions increase the
Company's presence in New Jersey and the northeastern United States and expand
the Company's operations into Miami, Houston, San Antonio, Las Vegas, southern
California and Wyoming.
The Company believes that it can successfully implement its acquisition
program due to: (i) its strategy for creating a national company, which should
enhance the acquired Company's ability to compete in its local and regional
market through an expansion of offered services, improved equipment utilization
and lower operating costs; (ii) the additional capital available for new
equipment; (iii) the potential for increased profitability as a result of the
Company's centralization of certain administrative functions, greater purchasing
power and economies of scale; (iv) its financial strength and visibility as a
public company; and (v) its decentralized management strategy, which should, in
most cases, as in each of the current operating subsidiaries, enable the
acquired company's management to remain involved in the operation of the
company.
The Company has analyzed a substantial amount of data on the motorcoach and
passenger ground transportation services industry and individual businesses
within the industry and believes it is well positioned to continue implementing
its acquisition program. Several of the principals of the current operating
subsidiaries have leadership roles in both national and regional motorcoach and
taxicab service trade associations, which has allowed these principals to become
personally acquainted with operators of motorcoach and passenger ground
transportation services businesses across the country. The Company
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believes that the visibility of these individuals within these associations will
increase the industry's awareness of the Company and its strategies, thereby
attracting interest from local and regional operators.
OPERATIONS
All aspects of the Company's daily motorcoach and passenger ground
transportation services operations are handled on a local basis. Each location
has an operations center staffed by customer service personnel, fleet managers
and dispatchers. All of the Company's commuter and transit services as well as
its sightseeing and specialized destination route services are operated with
dedicated fleets of motorcoaches and drivers, and most fleets include back-up
vehicles in case of equipment breakdown or higher passenger volume. Because
commuter and transit services and specialized destination route services involve
fixed routes which rarely vary, the dispatch function is limited to
communicating with drivers by radio to determine that the motorcoach is in
service, the number of passengers embarked and whether the motorcoach is on
schedule and to deal with any problems in route. When necessary, dispatchers can
communicate necessary modifications in schedules to meet customer demand and
increase utilization. Computerized dispatch services are an integral part of the
daily support services provided to the independent contractor drivers.
Operations personnel schedule individual motorcoaches for recreation and
excursion services as charter business is obtained. In many instances, the
Company receives bookings for tours and charters well in advance, which enables
the Company to predict periods during which equipment utilization is likely to
be low. When this occurs, the Company more actively solicits charter business in
an effort to maintain equipment utilization or schedules alternative uses for
its equipment, particularly during the winter months when tourism declines.
The Company maintains a decentralized management structure. Most operating
decisions are made at the operating location level. At the same time, the
Company has begun to centralize and maintain certain administrative support
activities. The Company believes that by continuing to remove the burden and
attention-diverting responsibility of administrative and support functions, the
management of the operating companies and any other acquired businesses will be
able to focus on pursuing new business opportunities and improving equipment
utilization and yields.
The Company has initiated and believes there will continue to be
opportunities to increase equipment utilization by coordination among the
various operating locations. For example, some motorcoaches that transport
passengers into New York City or Atlantic City in the morning are parked until
they run the reverse trip at the end of the day. The use of these motorcoaches
for day charters and sightseeing could be increased. In addition, equipment
stored during the "off-season" could be transported and utilized by another
location that has more business during that time.
MAINTENANCE
Each of the Company's motorcoach operating locations has a comprehensive
preventive maintenance program for its equipment to minimize equipment downtime
and prolong equipment life. This program includes regular safety checks when a
motorcoach returns to the terminal, regular oil and filter changes, lubrication,
cooling system checks and wheel alignment on average every 6,000 to 12,000
miles, and more extensive maintenance procedures at greater intervals. Interiors
of motorcoaches are cleaned and exteriors washed usually on a daily basis.
Repairs and maintenance are primarily performed at various maintenance
facilities operated by the Company. Most maintenance provided by outside
facilities results from on-the-road breakdowns or involves major engine
overhauls.
To the extent economically and logistically practicable, the Company shares
maintenance facilities and personnel among the operating locations. The Company
expects this will result in a decrease in the percentage of maintenance costs
incurred at outside shops and a decrease in total maintenance costs. It also may
be possible to close some maintenance facilities in areas where there will be
multiple maintenance facilities.
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The Company expects that replacement of older motorcoaches with newer
equipment will reduce maintenance costs largely because late model motorcoaches
are more reliable and have better engine and power train warranties. In
addition, the Company believes that it may be able to negotiate better warranty
terms than the individual operating locations could because of the increased
negotiating power of the Company. The Company intends to purchase most of its
motorcoaches with standard component specifications, particularly engines and
drive trains, thereby reducing the complexity of maintenance and spare parts
management. The Company has entered into a leasing agreement for tires on terms
more favorable than previously available to the operating companies
individually.
SALES AND MARKETING
The Company has a broad customer base. No single customer of the Company
accounted for more than 10% of revenues in 1996. Management at the Company's
operating locations has been responsible for establishing and maintaining
relationships with tour organizers, travel agencies and other regular users of
charter and tour services as well as pursuing outsourcing and privatization
opportunities. Each of the motorcoach operations also has a sales staff that
focuses primarily on obtaining specific charter and tour business.
The principal means of marketing charter and tour services has been in
telephone directories and through direct mail or personal contact with customers
included in each operating location's data bases, which include civic groups,
schools and domestic and foreign tour organizers and travel agencies. The
Company uses ticket counters in hotel lobbies and concierges to market and
promote sightseeing services.
The Company's specialized destination route services to casinos in New
Jersey, Connecticut, Nevada and Louisiana are promoted primarily by individual
casinos. These casinos will either pay the Company for the transportation or
provide incentives to passengers transported by the Company to the casino. In
some instances, the casinos actively advertise these promotions in various
media, such as newspapers, television and billboards.
Once the Company has established operations in a sufficient number of
metropolitan areas, the Company intends to implement a targeted national sales
and marketing campaign for its recreation and excursion services. The focus of
this campaign will be on national users of motorcoach service, such as domestic
and international travel and tour agencies, convention organizers and sports
teams. The Company believes that it will have a marketing advantage over its
competitors since it will be able to offer consistent, dependable, quality
service in various metropolitan areas in the United States, thereby enabling its
customers to use the Company's services in multiple locations rather than
dealing with numerous regional or local motorcoach operators.
Contracts with counties and municipalities to provide commuter and transit
and paratransit services are generally obtained through a competitive bidding
process. In some instances where the Company is the existing provider, the
county or municipality may elect to renegotiate the Company's existing contract
instead of putting the contract out for rebid. The Company believes that
counties and municipalities consider quality of service, reliability and price
to be the most important factors in awarding contracts although other factors,
such as financial stability, personnel policies and practices and total cost
both to the municipality and the public, are also considered.
The Company's taxicab service operations utilize the yellow pages,
billboards and signs on the taxicabs as the primary means of marketing services.
Paratransit contracts are obtained through a competitive bidding process.
COMPETITION
The portions of the motorcoach and ground transportation industry in which
the Company operates are highly competitive, fragmented and served by numerous
operators, most of which serve only a single area or region. The Company's
competitors include other operators of motorcoaches and other high occupancy and
taxicab and luxury sedan vehicles, rent-a-car companies and, to a more limited
extent, airlines, Amtrak and commuter rail service providers. Some of the
Company's competitors, which vary depending on
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geographic region and the nature of the service provided, have greater
financial, technical and marketing resources and generate greater revenues than
the Company in specific regions. The majority of the Company's motorcoach
competitors consist of small regional operators with a strong presence in their
respective markets. The Company believes that as it expands geographically, it
may compete with additional national, regional and local transportation service
providers.
The Company believes that the principal competitive factors in the
motorcoach industry are reliability, customer service and price, as well as
equipment comfort and appearance. In addition, competition with respect to some
services is limited in some locations by the difficulty in obtaining required
state route authorizations. The Company believes that its ownership of route
authorizations provides it with a competitive advantage in certain markets
because of the relative difficulty of obtaining these authorizations.
The Company competes for acquisition candidates. The Company believes that
its decentralized management philosophy and operating strategies will make it an
attractive acquiror to other motorcoach and ground transportation companies.
However, no assurance can be given that the Company's acquisition program will
continue to be successful or that the Company will be able to compete
effectively in its chosen markets.
REGULATION
As a result of the ICC Termination Act of 1995 (the "Termination Act"),
the Interstate Commerce Commission (the "ICC"), which previously regulated
motorcoach operators engaged in interstate commerce, was abolished effective
January 1, 1996. However, certain of the ICC's regulatory functions were
transferred as of that date to the Surface Transportation Board (the "STB"), a
new regulatory body established within the United States Department of
Transportation (the "USDOT"), and certain other functions were transferred to
the United States Secretary of Transportation (the "Secretary"). Under the
Termination Act, motorcoach operators engaged in interstate commerce are
generally required to be registered with the Secretary, who has delegated
responsibility for registration to the Office of Motor Carriers of the Federal
Highway Administration ("FHWA"), another body of the USDOT. By virtue of the
Termination Act, persons who held operating authority issued by the ICC prior to
December 31, 1995 were automatically deemed registered with the Secretary. Most
of the Company's operating companies held authority issued by the ICC prior to
December 31, 1995, and, accordingly, were deemed registered with the FHWA and
are now subject to the regulatory requirements of the STB and the FHWA.
The Bus Regulatory Reform Act of 1982 significantly reduced federal
regulation of the motorcoach industry. The Termination Act further lessened
regulatory requirements, with the result that the Secretary, the STB and the
FHWA have only limited regulatory authority over interstate motorcoach
operations. The level of fares is not subject to federal regulation, and
motorcoach operators are not required to file tariffs. Motorcoach operators are,
however, required by the Termination Act to provide transportation service on
reasonable request and to provide safe and adequate service, equipment and
facilities. They must also maintain minimum amounts of insurance and file
evidence of such insurance with the FHWA. The Secretary and the STB are vested
with enforcement authority, including authority to impose civil penalties, with
respect to violations of applicable regulatory requirements. The Secretary may
also suspend, amend or revoke a registration for willful failure to comply with
the Termination Act, with the regulations of the Secretary, the STB or the FHWA
or with any condition of the operator's registration.
The Termination Act preempts states, their political subdivisions and
multi-state agencies from regulating the scheduling or rates of interstate or
intrastate transportation provided by motorcoach operators on interstate routes.
However, states may require motorcoach operators to provide notice, not in
excess of 30 days, of changes in their schedules. These preemption provisions do
not apply to commuter service.
The Company is subject to extensive FHWA and state regulations with respect
to the qualifications of its drivers and the safety of its vehicles and their
operation. See "Drivers and Other Personnel" and "Safety." In addition, the
high occupancy vehicles operated by the Company are required by FHWA regulations
to meet Federal noise standards established by the Environmental Protection
Agency. The Company believes that it has conducted its operations in substantial
compliance with FHWA regulations,
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and the Company does not believe that ongoing compliance with such regulations
will require substantial capital expenditures. Under the ADA, the Company could
become obligated to provide accessible vehicles to persons who are disabled
under certain circumstances defined in that statute and in USDOT regulations. If
the Company were required to make its motorcoaches compatible with ADA
regulations, it could result in significant capital expenditures by the Company.
The Company is subject to regulation by the Occupational Safety and Health
Administration with respect to worker and workplace safety.
Certain states in which the Company operates, such as New Jersey, Nevada
and Pennsylvania, have a comprehensive regulatory scheme in connection with the
operation of high occupancy vehicles and with respect to the safety of operation
and equipment. Although some of the regulatory restrictions of these states have
been preempted by federal legislation, as described above, these states still
maintain strong regulatory control over wholly intrastate routes. Because
certain operations of the Company have been granted authority to provide
commuter service and scheduled intrastate service, the Company has a competitive
advantage. However, there can be no assurance that these states will maintain
their current regulatory postures, and any reduction in regulation of motorcoach
operators could adversely affect the Company.
The Termination Act requires the STB's approval of any transaction under
which a person that is not a regulated motorcoach operator, such as Coach USA,
acquires control of two or more STB-regulated motorcoach operators. However, the
STB is empowered to exempt persons from this requirement for approval of
motorcoach acquisitions. Coach USA filed a petition with the STB seeking such
exemption in order to permit the acquisition by Coach USA of those of the
Founding Companies and their affiliates that are regulated by the STB, and the
exemption was granted and became effective on May 3, 1996. The Company filed a
similar petition with the STB seeking an exemption in connection with the
acquisition of five motorcoach businesses that were part of the acquisitions
completed in August 1996, and the exemption was granted and became effective on
November 7, 1996. The Company has filed similar petitions with the STB seeking
an exemption in connection with the acquisition of certain operations completed
in December 1996 and February 1997.
The Company's taxicab service operations are regulated at the state and
local level. Local regulations focus on the number of vehicles that are
authorized to provide taxicab services and whether new entries into the local
marketplace will be granted authority to do business. These regulatory
authorities also set and periodically review the maximum fares that can be
charged to passengers.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various Federal, state and local
environmental laws and regulations governing vehicle emissions, underground and
aboveground fuel tanks and the storage, use and disposal of hazardous materials
and hazardous waste in connection with the Company's in-house maintenance
operations. These laws include the Water Pollution Control Act, the Clean Air
Act, as amended, the Resource Conservation and Recovery Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act and various
state and local laws. There are underground storage tanks at several of the
Company's facilities. The Company also conducts motorcoach washing at certain of
its facilities and the resulting waste must be disposed of in accordance with
regulatory requirements. In the event of a spill, the Company would be
responsible for the cost of the clean-up, which could be significant. As a
result of historical operations, there have been spills and releases of
hazardous substances, including petroleum and petroleum products, at several of
the Company's facilities. At certain locations, the Company has had to remediate
these spills and releases at a significant cost to the Company. However,
additional spills and releases of hazardous substances of which the Company is
unaware, including spills and releases of petroleum and petroleum products, may
have occurred at the Company facilities. With respect to unknown pre-existing
contamination at a facility, in most instances, each of the stockholders of the
applicable business acquired by the Company has agreed to indemnify the Company
(up to the amount of consideration such stockholder received, after satisfaction
of a threshold payable by the Company, which varies depending on the
transaction) for liabilities in connection with such contamination. If and to
the extent that any stockholder of such a business had actual knowledge of a
spill or release and did not disclose it to the Company, such stockholder has
agreed to indemnify the Company for all liabilities in connection
9
<PAGE>
with such contamination, not subject to any limit on such indemnification
obligation. Some of the operating companies have disclosed that from time to
time they have spilled or released certain hazardous substances in the course of
operating their businesses.
The Company has begun to initiate the implementation of an environmental
compliance program at all of its facilities in an effort to prevent or reduce
future releases of hazardous substances.
DRIVERS AND OTHER PERSONNEL
As of December 31, 1996, the Company had approximately 4,100 employees, of
whom approximately 2,570 were motorcoach drivers and approximately 630 were
maintenance personnel. The balance includes administrative personnel, sales
personnel, customer service personnel, fleet managers, dispatchers and safety
and training personnel. Of these employees, approximately 2,900 are full-time
employees. The Company's taxicab and paratransit services are provided through
independent contractor drivers that are not employees of the Company.
The Company has established motorcoach driver retention programs which seek
to maintain a sufficient number of qualified drivers to handle passenger
service. Each operating location historically had relatively minimal driver
turnover among full-time drivers other than for sightseeing and tour services,
where the need for motorcoach drivers varies seasonally. Safety and
dependability of drivers are critical to the Company's operations. Motorcoach
drivers are required to comply with all applicable Federal and state driver
qualification and safety regulations, including hours of service and medical
qualifications, and to hold a Commercial Driver's License issued in conformity
with regulations of the FHWA. Drivers are also subjected to drug and alcohol
testing requirements imposed by the FHWA, including random, reasonable suspicion
and post-accident testing. Driver applicants are required to have significant
driving experience and to pass medical examinations. Taxicab drivers are subject
to laws and regulations governing driving records, appearance and presentation
which are monitored by local municipalities.
As of December 31, 1996, several different unions represented approximately
1,350 employees of the Company, of whom approximately 1,190 were motorcoach
drivers. The Company is a party to a number of different collective bargaining
agreements which expire at various dates through 2000. In the last 10 years, the
various operating companies have not experienced any work stoppages and the
Company believes that relationships with union representatives and union
employees are satisfactory.
SAFETY
The Company is dedicated to safe operations. The Company vigorously adheres
to the FHWA and comparable state motor carrier safety rules, including rules
concerning safe motor vehicle equipment, driver qualifications and safe
operation of vehicles. The Company maintains drug and alcohol testing programs
for its motorcoach drivers in conformity with FHWA and comparable state
requirements. The Company also addresses accidents and other incidents and takes
follow-up steps intended to reduce the risk of repeat accidents and incidents.
The Company employs safety specialists and maintains safety programs
designed to meet the specific needs of the operating location, including field
spotters and riders who assess motorcoach driver performance. In addition, the
Company employs specialists to perform compliance checks and conduct safety
tests throughout the operations. The Company conducts a number of safety
programs designed to promote compliance with rules and regulations and to reduce
accidents and injury claims. These programs include incentive programs for
accident-free driving, driver safety meetings, distribution of safety bulletins
to drivers and participation in national safety associations.
RISK MANAGEMENT AND INSURANCE
The primary risks in the Company's operations are bodily injury and
property damage to third parties and workers' compensation. The Company
maintains insurance against these risks in amounts which it considers sufficient
and is subject to loss deductibles per incident ranging from $5,000 to $250,000.
As such, any claim within the deductible per incident would be a financial
obligation of the Company.
10
<PAGE>
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Report includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this Report, including without
limitation (a) statements in paragraph three under "Business" regarding the
Company's strategy of consolidation through acquisitions and the factors that
will contribute toward the success of that strategy, (b) the statements in
paragraphs two, three, four, six and seven under "Industry Overview" regarding
the demand for transportation services and the factors impacting that demand,
(c) the statements under "Business Strategy" regarding the Company's
acquisition, internal growth and economies-of-scale strategies, (d) the
statements in paragraph one under "Acquisition Strategy" regarding the number
of acquisition candidates in the industry, (e) the statements in paragraphs
three and four under "Acquisition Strategy" regarding the factors contributing
to the success of the acquisition program, (f) statements in paragraphs two and
three under "Operations" regarding the benefits of a decentralized management
structure, (g) the statements in paragraph four under "Maintenance" regarding
the impact on maintenance costs of motorcoach replacement, (h) the statements in
paragraph four under "Sales and Marketing" regarding the implementation and
targets for a national sales and marketing campaign, (i) the statements in
paragraph five under "Sales and Marketing" regarding the considerations used
by governmental agencies in awarding contracts, (j) the statements under
"Competition" regarding potential competition, competitive factors in the
motorcoach industry and the Company's ability to compete for acquisition
candidates, and (k) the statements under "Drivers and Other Personnel"
regarding the Company's relationship with union representatives and employees
are forward looking statements. Although the Company believes that the
expectations reflected in such forward looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed in this Report,
including without limitation in conjunction with the forward looking statements
included in this Report. All subsequent written and oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
ITEM 2. PROPERTIES
FACILITIES
At December 31, 1996, the Company's facilities consisted principally of
offices, garages and maintenance facilities. Some of these are single
facilities, and other facilities have limited operations, which may not include
complete maintenance services. The Company owns eight of the facilities on which
motorcoach or taxicab operations are located. The remaining facilities are
leased, including some from related parties. The Company believes that its
facilities are adequate for its current needs.
The Company leases its executive and administrative offices in Houston,
Texas.
EQUIPMENT
The Company operates approximately 1,650 motorcoaches and other high
occupancy vehicles. Approximately 200 of these motorcoaches are provided by
various transit authorities for nominal rent, with the Company assuming full
responsibility for maintenance and repairs. These motorcoaches are provided
under contracts to perform transit and commuter services and must be returned to
the transit authorities in the event the contracts for them are not renewed. In
addition, approximately 100 other motorcoaches have been provided by certain
transit authorities to the Company to operate for the normal useful operating
lives thereof, and these motorcoaches must only be returned to such transit
authorities if the Company surrenders its routes for which such motorcoaches
were provided, or at the end of the normal useful operating lives thereof. The
Company's owned fleet of motorcoaches has an average age of five years.
Motorcoaches have a useful operating life in excess of 10 years. The Company's
replacement policy will depend on the use being made of the particular
motorcoach, but the Company expects that on average it will replace motorcoaches
every 10 to 12 years. A majority of the Company's current fleet of motorcoaches
are from
11
<PAGE>
one manufacturer, Motorcoach Industries Incorporated, although other
manufacturers are represented in the Company's fleet. Most engines and drive
trains are manufactured by Detroit Diesel and Allison Transmissions,
respectively. This continuity of engine and drive train should enable the
Company to implement a standardized, Company-wide maintenance program and allow
it to reduce its spare parts inventory. The Company leases most of its tires
from Firestone, with the lease payments based on mileage driven on the tires.
The Company's taxicab service operations provide dispatch and related
services to a fleet of over 1,350 vehicles, of which approximately 860 are owned
and operated by independent contractor drivers and the remainder of which are
owned by the Company and leased on a daily or weekly basis to independent
contractor drivers. The Company offers full service maintenance and repairs on
vehicles owned by the independent contractor drivers and provides maintenance on
the vehicles owned by the Company.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
One or more of the operations of the Company (or other operations acquired
in the future by the Company) may become subject to litigation in connection
with the competitive bidding process for a contract to provide transit, commuter
or paratransit services on behalf of a transit authority. Unsuccessful bidders
occasionally will challenge, through a regulatory appeals process or in court,
the awarding of the contract and will often name the successful bidder as an
additional defendant. The cost of defending such an action can be significant,
and if the required competitive bidding procedures were not followed by the
transit authority, the authority could be ordered to begin the process over or
even award the contract to another bidder.
From time to time, the Company is a party to routine litigation incidental
to its business, primarily involving claims for personal injury or property
damage incurred in the transportation of its passengers. The Company is not
aware of any pending claims or threatened claims which, if adversely determined,
might materially affect the Company's operating results or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has traded on the Nasdaq National Market since
May 14, 1996. The following table sets forth the high and low last sale prices
for the Common Stock for the period from May 14, 1996, the date of the Initial
Public Offering, through March 17, 1997.
HIGH LOW
---- ----
1996
Second quarter (from May 14).... $22 3/4 $17 5/8
Third quarter................... 27 1/2 18
Fourth quarter.................. 32 25
1997
First quarter (through March 24,
1997)........................... 34 1/4 28
At March 24, 1997, there were approximately 144 stockholders of record of
the Company's Common Stock. On March 24, 1997, the last reported sale price of
the Common Stock on the Nasdaq National Market was $30.00 per share.
DIVIDENDS
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Company's revolving credit
agreement includes, and any additional lines of credit established in the future
may include, restrictions on the ability of the Company to pay dividends without
the consent of the lender.
SALE OF UNREGISTERED SECURITIES
The following information relates to securities of the Company issued or
sold by the Company during the past year which were not registered under the
Securities Act:
(i) In January 1996, the Company issued 30 shares of Common Stock at
an effective price of $.01 per share to officers of the Company; and
(ii) In March 1996, the Company issued 39.2 shares of Common Stock at
an effective price of $.01 per share to officers of the Company, an
employee of Notre Capital Ventures II, LLC, a firm which participated in
the organization of the Company, Dominic Puopolo and M Three Trust (a trust
for the benefit of the children of Paul M. Verrochi) (Messrs. Puopolo and
Verrochi are principals with Exel Motorcoach Partners, LLC, a consultant to
the Company, and Mr. Verrochi is a member of the board of directors of the
Company).
Subsequent to the issuance of the foregoing shares, and prior to the
completion of the Initial Public Offering, Coach USA declared a stock dividend
and issued 9,999 shares of Common Stock for each share of Common Stock then
outstanding.
Simultaneously with the completion of the Initial Public Offering, the
Company issued 5,099,687 shares of its Common Stock in connection with the
Mergers of the six Founding Companies.
In connection with the acquisition of businesses completed in August 1996,
the Company issued 2,558,580 shares of Common Stock to the stockholders of the
companies in the transactions accounted for as poolings-of-interests and
convertible debt currently convertible into 750,460 shares of Common Stock to
the stockholders of the purchased companies accounted for as purchases.
In connection with the acquisition of businesses completed in December
1996, the Company issued 1,150,795 shares of Common Stock to the stockholders of
the companies acquired in three transactions accounted for as
poolings-of-interests.
Each of these transactions was effected without registration of the
relevant security under the Securities Act in reliance upon the exemption
provided by Section 4(2) of the Securities Act for transactions not involving a
public offering.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
COACH USA, INC.
SELECTED PRO FORMA FINANCIAL DATA
Coach USA acquired, simultaneously with the closing of the Initial Public
Offering, the Founding Companies. During the remainder of 1996, the Company
completed nine acquisitions, six of which were accounted for as
poolings-of-interests (the "Pooled Companies") and three of which were
accounted for as purchases (the "Purchased Companies"). The PRO FORMA
STATEMENT OF INCOME DATA and BALANCE SHEET DATA below include historical
financial statement data of the Founding Companies at historical cost, the
Company (including the Pooled Companies) for all periods presented and the
Purchased Companies since the date of acquisition. The PRO FORMA FOR
COMPENSATION DIFFERENTIAL AND OTHER ADJUSTMENTS data below give effect to (i)
certain reductions in salaries and benefits to the owners of the Founding
Companies and the Pooled Companies which were agreed to in connection with the
original mergers of the Founding Companies and the acquisition of the Pooled
Companies, as well as a non-recurring, non-cash charge recorded by the Company
(collectively, the "Compensation Differential"); (ii) certain tax adjustments
related to the taxation of certain Founding Companies and Pooled Companies as S
Corporations prior to the consummation of the mergers of the Founding Companies
and the acquisitions completed through 1996; (iii) the tax impact of the
Compensation Differential in each period; (iv) for 1995 and 1996, the conversion
of debt to equity at one of the Pooled Companies; and (v) the elimination of
non-recurring pooling costs associated with the 1996 acquisitions. The PRO FORMA
FOR PURCHASED COMPANIES data below gives effect to all items above and the
effect of the acquisitions of the Purchased Companies as if those acquisitions
occurred on January 1, 1995, and gives pro forma effect to (i) Compensation
Differential of the Purchased Companies, (ii) the amortization of goodwill,
(iii) interest expense attributed to the convertible debt, and (iv) income tax
adjustments attributed to the above adjustments.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA:
Total revenues...................... $ 159,065 $ 166,714 $ 175,175 $ 197,414 $ 230,66
Operating expenses.................. 126,828 135,283 139,114 150,725 173,551
Gross profit........................ 32,237 31,431 36,061 46,689 57,115
General and administrative
expenses.......................... 22,472 22,073 24,198 27,162 30,766
Operating income.................... 9,765 9,358 11,863 19,527 26,349
Income before extraordinary items... 4,010 3,029 3,949 8,555 9,167
PRO FORMA FOR COMPENSATION DIFFERENTIAL
AND OTHER ADJUSTMENTS:
Total revenues...................... $ 159,065 $ 166,714 $ 175,175 $ 197,414 $ 230,666
Operating expenses.................. 126,828 135,283 139,114 150,725 173,551
Gross profit........................ 32,237 31,431 36,061 46,689 57,115
General and administrative
expenses.......................... 20,114 18,665 20,152 21,363 24,226
Operating income.................... 12,123 12,766 15,909 25,326 32,889
Income before extraordinary items... 10,519 14,469
Extraordinary items................. -- 2,723
Net income.......................... 10,519 17,192
Income before extraordinary items
per share......................... $ 0.82 $ 0.99
Net income per share................ 0.82 1.17
Weighted average shares(1).......... 12,794 14,677
PRO FORMA FOR PURCHASED COMPANIES:
Total revenues...................... $ 233,266 $ 256,686
Operating expenses.................. 173,610 189,016
Gross profit........................ 59,656 67,670
General and administrative
expenses.......................... 25,193 29,421
Operating income.................... 34,463 38,249
Income before extraordinary items... 11,910 15,376
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ----------
PRO FORMA HISTORICAL
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit)........... $ (8,395) $ (7,563) $ (8,448) $ (10,275) $ (4,597)
Total assets........................ 120,986 123,312 139,806 165,184 276,843
Total debt, including current
portion........................... 72,408 68,538 80,833 94,410 97,118(2)
Stockholders' equity................ 13,320 16,519 19,122 23,763 103,971
</TABLE>
- ------------
(1) The 1995 share data include: (i) 2,165,724 shares issued by Coach USA prior
to the Initial Public Offering; (ii) 5,099,687 shares issued to the
stockholders of the Founding Companies in connection with the Mergers; (iii)
1,700,714 of the 4,140,000 shares sold in the Initial Public Offering to pay
the cash portion of the consideration for the Founding Companies; (iv)
118,142 of the 4,140,000 shares sold in the Initial Public Offering to pay
excess S Corporation distributions; (v) 3,284,336 shares issued in
connection with the acquisition of the Pooled Companies; and (vi) 425,039
shares issued in connection with the conversion of the indebtedness to
equity at one of the Pooled Companies completed in 1996. The 1996 share data
include those amounts included in the 1995 share data plus (i) the remaining
weighted average for the 2,321,144 of the 4,140,000 shares sold in the
Initial Public Offering; (ii) 2,084,307 shares sold in the Secondary Public
Offering during November 1996 weighted for the period ended December 1996;
and (iii) 227,743 shares attributable to dilution for outstanding options to
purchase Common Stock, using the treasury stock method.
(2) Does not include $22,500,000 of convertible debt issued in connection with
the acquisitions of the Purchased Companies.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Coach USA was founded in September 1995 to create a nationwide provider of
motorcoach and other ground transportation services. On May 17, 1996, Coach USA
acquired, simultaneously with the closing of the Initial Public Offering, the
six Founding Companies. Through the remainder of 1996, the Company acquired nine
additional businesses. The acquisition of six of these businesses has been
accounted for under the pooling-of-interests method of accounting and the
remaining three have been accounted for under the purchase method of accounting.
As a result, the pro forma financial statements, including the pro forma results
discussed below, include the historical financial statements of each of the
Founding Companies and the Company (including the Pooled Companies) for all
periods presented at historical cost, as if these companies had always been
members of the same operating group and give effect to (i) the Compensation
Differential; (ii) the elimination of merger costs related to pooled
acquisitions; (iii) certain tax adjustments related to the taxation of certain
Founding Companies and Pooled Companies as S Corporations prior to the
consummation of the mergers of the Founding Companies and the subsequent
acquisitions; and (iv) the tax impact of the Compensation Differential in each
period.
The Company has begun to realize savings by consolidating certain general
administrative and purchasing functions and reducing insurance expenses. In
addition, the Company has begun to realize savings from its ability to borrow at
lower interest rates than the Founding Companies and the subsequent
acquisitions. These savings are being partially offset by the costs of being a
public company and the incremental increase in costs related to the Company's
new corporate management. Neither these savings nor the costs associated
therewith for the periods prior to the Initial Public Offering have been
included in the pro forma financial information discussed below. As a result,
historical pro forma results may not be comparable to, or indicative of, future
performance.
The Company's motorcoach revenues are derived from fares charged to
individual passengers and fees charged under contracts to provide motorcoach
services. Taxicab operation revenues are derived from fees and other services
charged to independent taxicab operators. Operating expenses consist primarily
of salaries and benefits for motorcoach drivers and mechanics, depreciation,
maintenance, fuel, oil, insurance and commissions to agents. General and
administrative expenses consist primarily of compensation and related benefits
to the owners and certain key employees of the Founding Companies and the Pooled
Companies, administrative salaries and benefits, marketing, communications and
professional fees.
PRO FORMA RESULTS FOR 1995 COMPARED TO 1996
Total revenues increased $33.3 million, or 16.8%, to $230.7 million for the
year 1996. The increase in revenues was largely due to: (i) an increase in
taxicab service revenues of $7.3 million, primarily attributable to internal
expansion, (ii) an increase of $7.2 million in special destination services
revenues primarily to the Atlantic City and Louisiana casinos, and (iii) an
increase of $4.1 million in per capita tour revenue attributable in part to the
acquisition of Gray Line Los Angeles in 1995. In addition, revenues from the
Purchased Companies totaled $12.7 million since their acquisition.
Operating expenses increased 15.1% to $173.6 million for 1996. The increase
in operating expenses was largely due to a combined increase of $2.9 million at
all of the locations attributable to higher fuel costs in 1996. Approximately
$1.3 million of the additional fuel cost related to higher prices and the
remainder related to higher consumption consistent with the Company's increased
operations. The increase in fuel expense was offset by savings in the Company's
insurance program. The remaining increase was consistent with increased
operations throughout the Company.
General and administrative expenses in 1996, after elimination of the
Compensation Differential, increased $2.8 million, or 13.4%, from $21.4 million
in 1995 to $24.2 million. The increase in general and administrative expenses
was largely due to an increase of $1.5 million related to the establishment of
the
16
<PAGE>
corporate management group required to execute the acquisition program and to
manage the consolidated group of companies. The remaining increase was
consistent with the increased operations throughout the Company.
Interest expense increased $1.5 million in 1996 as compared to 1995 due to
the higher level of debt related to additional equipment and debt related to the
Purchased Companies, partially offset by the repayment of debt through the use
of proceeds of the Initial Public Offering, a secondary offering of Coach USA
Common Stock completed in November 1996 and due to lower rates from the
Company's new credit facility.
Pro forma net income (before giving effect to the extraordinary items),
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 Coach
USA 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 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. In addition, extraordinary losses of $1.5 million, net of
taxes, for prepayment penalties on certain retired debt were recorded in 1996.
PRO FORMA RESULTS FOR 1994 COMPARED TO 1995
Total revenues increased $22.2 million, or 12.7%, from $175.2 million in
1994 to $197.4 million in 1995. The increase was largely due to an increase in
motorcoach charter and special destination revenues of $9.0 million, primarily
attributable to increased service to the Louisiana casinos, an increase in
motorcoach transit revenues of $5.7 million, primarily attributable to
additional transit contracts in Northern California and New York, an increase in
taxicab service revenues of $2.9 million, primarily attributable to the purchase
of additional taxicab operations in Austin, Texas in July 1995, and an increase
in per capita revenue of $2.5 million primarily attributable to the acquisition
of Gray Line Los Angeles in 1995.
Operating expenses increased $11.6 million, or 8.3%, from $139.1 million in
1994 to $150.7 million in 1995, but declined as a percentage of revenues from
79.4% in 1994 to 76.3% 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, an increase in operating expenses of
$4.6 million, primarily attributable to the increase in transit services, and
$2.1 million, primarily attributable to higher per capita sales. These increases
were partially offset by a $2.2 million reduction in operating expenses
primarily due to a decision not to renew a municipal contract in the Northeast,
and lower salaries, wages and related benefits from favorable revisions of a
collective bargaining agreement.
General and administrative expenses, after elimination of the Compensation
Differential, increased $1.2 million, or 6.0%, from $20.2 million in 1994 to
$21.4 million in 1995. This increase was consistent with the increase in
revenues.
Interest expense increased $1.7 million, or 26.0%, from $6.6 million in
1994 to $8.3 million in 1995. The increase was largely due to higher levels of
debt during 1995 as a result of equipment purchases.
Net income, adjusted for the Compensation Differential and taxes, increased
$4.9 million, from $5.6 million in 1994 to $10.5 million in 1995, and
represented 3.2% of revenues in 1994 compared to 5.3% of revenues in 1995.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated financial information represents the operations
of the Pooled Companies for all periods presented and the Founding Companies and
Coach USA for the seven months ended December 31, 1996 and the Purchased
Companies since the date of acquisition. This financial information has been
derived from the Consolidated Financial Statements of Coach USA. 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>
YEAR ENDED DECEMBER 31
------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues.................. $ 62,137 $ 63,642 $ 68,421 $ 83,925 $ 185,728
Gross profit.................... 14,887 13,413 17,154 23,725 48,963
Operating income................ 4,309 3,830 5,427 9,576 25,973
Income before extraordinary
items......................... 631 681 649 2,411 10,192
PRO FORMA:
Operating income................ 6,537 5,402 7,415 12,168 29,874
Income before extraordinary
items......................... 2,127 2,079 1,983 3,711 12,982
BALANCE SHEET DATA:
Working capital (deficit)....... $ (5,543) $ (5,598) $ (5,049) $ (6,062) $ (4,597)
Total assets.................... 52,372 54,856 64,965 82,997 276,843
Total debt, including current
portion....................... 39,839 38,525 48,950 62,337 97,118(1)
Stockholders' equity............ (4,115) (2,448) (2,519) (951) 103,971
</TABLE>
- ------------
(1) Does not include $22,500,000 of convertible debt issued in connection with
the acquisitions of the Purchased Companies.
HISTORICAL RESULTS FOR 1995 COMPARED TO 1996
Total revenues increased $101.8 million, or 121.3%, to $185.7 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 Gray Line
Los Angeles in 1995.
Operating expenses increased 127.2% to $136.8 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 $7.5 million, or 65.2%, from
$11.6 million in 1995 to $19.1 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.
<PAGE>
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 Coach
USA 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 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. 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 $15.5 million, or 22.7%, from $68.4 million in
1994 to $83.9 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 Gray Line Los Angeles in 1995.
Operating expenses increased $8.9 million, or 17.4%, from $51.3 million in
1994 to $60.2 million in 1995, but declined as a percentage of revenues from
74.9% in 1994 to 71.7% 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 $1.8 million, or 18.7%, from $9.7 million in 1994 to
$11.5 million in 1995. This increase was consistent with the increase in
revenues.
Interest expense increased $1.4 million, or 33.2%, from $4.1 million in
1994 to $5.5 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
$1.7 million, from $2.0 million in 1994 to $3.7 million in 1995, and represented
2.9% of revenues in 1994 compared to 4.4% of revenues in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.1 million, $4.2 million
and $7.4 million for 1994, 1995 and 1996, respectively.
Cash used in investing activities was $14.3 million, $12.5 million, and
$53.7 million for 1994, 1995 and 1996, 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 the Company paid $34.5 million in cash for the Founding and Purchased
Companies, net of cash acquired.
Cash provided by financing activities was $8.1 million, $9.9 million and
$44.4 million for 1994, 1995 and 1996, respectively. Cash provided by financing
activities for 1995 was primarily attributable to the issuance of $10.8 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 $44.4 million for 1996 was primarily
attributable to $48.1 million from the Initial Public Offering and $48.5 million
from the Second Public Offering partially offset by $50.5 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 and cash equivalents decreased $1.1 million and $1.9 million for 1994
and 1996, respectively. For 1995, cash and cash equivalents increased $1.6
million.
19
<PAGE>
Capital expenditures during 1994, 1995 and 1996 were $14.3 million, $12.5
million and $20.6 million, respectively. These expenditures were primarily for
motorcoaches and other vehicles, net of trade-ins and proceeds from sales of
property and equipment, and were principally financed with debt and cash flows
from operations. As of December 31, 1996, the Company had entered into
commitments to purchase 108 motorcoaches as of December 31, 1996 for
approximately $32.6 million. The Company expects to finance additional vehicle
purchases primarily from cash flows from operations, trade-ins on older
equipment supplemented, as necessary, with borrowings under its revolving credit
agreement.
On May 17, 1996, the Company completed the Initial Public Offering of
4,140,000 shares of Common Stock, resulting in net proceeds of approximately
$48.1 million. The net proceeds were used to pay the cash portion of the
purchase price for the Founding Companies and to repay indebtedness assumed by
the Company.
In November and December 1996, the Company sold 2,084,307 shares of Common
Stock in the Second 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.
Between January 1, 1997 and March 17, 1997, the Company acquired three
businesses (see "Business -- Acquisitions"). The consideration paid for these
businesses consisted of $34.3 million in cash, 578,033 shares of Common Stock
and $18.3 million in convertible subordinated notes convertible into 484,239
shares of Common Stock.
In February 1997, the Company amended and restated its revolving credit
agreement. The credit agreement, as amended, provides for a revolving credit
facility of $181 million through a syndicate of eight banks, and allows the
Company to have borrowings of up to $40 million (in addition to fully
subordinated debt) outside the credit facility. The facility is secured by
substantially all of the assets of the Company and matures in August 1999.
Interest on outstanding borrowings is charged, at the Company's option, at the
banks' prime rate plus up to 1.0% or the London Interbank Offered Rate
("LIBOR") plus 1.0% to 2.25%, both as determined by the ratio of the Company's
funded debt to cash flow (as defined). 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 March 17,
1997, the Company had a total of $155.9 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 $60.1 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 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 17, 1997, the 90-day LIBOR rate was
5.62%. The cost of the agreement is being amortized over its term.
Management believes that the Company's revolving credit facility and its
cash flows from operations will provide sufficient liquidity to execute the
Company's acquisition and internal growth plans for the next 12 months. Should
the Company accelerate its acquisition program, the Company may need to seek
additional financing through the public or private sale of equity or debt
securities. There can be no assurance that the Company could secure such
financing if and when it is needed or on terms the Company deems acceptable.
SEASONALITY
The timing of certain holidays, weather conditions and seasonal vacation
patterns may cause the Company's quarterly results of operations to fluctuate
significantly. The Company expects to realize higher revenues, operating income
and net income during the second and third quarters and lower revenues and net
income during the first and fourth quarters.
20
<PAGE>
INFLATION
Inflation has not had a material impact on the Company's results of
operations for the last three years.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This"Management's Discussion and Analysis of Financial Condition and
Results of Operations" includes "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this section, including without
limitation (a) statements in paragraph two under "Introduction" regarding the
Company's incremental savings and additional cost related to formation and the
exclusion of these items from the historical pro forma results, (b) the
statements in paragraph five under "Historical results for 1995 compared to
1996" regarding the increase in 1996 pro forma net income, (c) the statements
in paragraph five under "Liquidity and Capital Resources" regarding capital
expenditures in 1994, 1995 and 1996 and the motorcoach purchase commitment, (d)
the statements in paragraph eleven under "Liquidity and Capital Resources"
regarding the revolving credit facility and its impact on cash flow, and (e) the
statements under "Seasonality" regarding the factors affecting quarterly
results are all forward looking statements. Although the Company believes that
the expectations reflected in such forward looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed in this section
and elsewhere in this Report, including without limitation in conjunction with
the forward looking statements included in this section. All subsequent written
and oral forward looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the Cautionary
Statements.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
COACH USA, INC. AND SUBSIDIARIES:
Report of Independent Public
Accountants....................... 24
Consolidated Balance Sheets........ 25
Consolidated Statements of
Income............................ 26
Consolidated Statements of
Stockholders' Equity.............. 27
Consolidated Statements of Cash
Flows............................. 28
Notes to Consolidated Financial
Statements........................ 29
FOUNDING COMPANIES:
SUBURBAN TRANSIT CORP. AND RELATED
COMPANIES
Report of Independent Public
Accountants....................... 42
Combined Balance Sheets............ 43
Combined Statements of Income...... 44
Combined Statements of
Stockholders' Equity.............. 45
Combined Statements of Cash
Flows............................. 46
Notes to Combined Financial
Statements........................ 47
GROSVENOR BUS LINES, INC. AND
SUBSIDIARIES (OPERATING AS GRAY LINE
OF SAN FRANCISCO)
Report of Independent Public
Accountants....................... 54
Consolidated Balance Sheets........ 55
Consolidated Statements of
Income............................ 56
Consolidated Statements of
Stockholders' Equity.............. 57
Consolidated Statements of Cash
Flows............................. 58
Notes to Consolidated Financial
Statements........................ 59
LEISURE TIME TOURS
Report of Independent Public
Accountants....................... 66
Balance Sheets..................... 67
Statements of Income............... 68
Statements of Stockholders'
Equity............................ 69
Statements of Cash Flows........... 70
Notes to Financial Statements...... 71
COMMUNITY BUS LINES, INC. AND RELATED
COMPANIES
Report of Independent Public
Accountants....................... 77
Combined Balance Sheets............ 78
Combined Statements of Income...... 79
Combined Statements of
Stockholders' Equity.............. 80
Combined Statements of Cash
Flows............................. 81
Notes to Combined Financial
Statements........................ 82
22
<PAGE>
PAGE
----
CAPE TRANSIT CORP. (OPERATING AS
ADVENTURE TRAILS)
Report of Independent Public
Accountants....................... 88
Balance Sheets..................... 89
Statements of Income............... 90
Statements of Stockholders'
Equity............................ 91
Statements of Cash Flows........... 92
Notes to Financial Statements...... 93
ARROW STAGE LINES, INC.
Report of Independent Public
Accountants....................... 99
Balance Sheets..................... 100
Statements of Income............... 101
Statements of Stockholders'
Equity............................ 102
Statements of Cash Flows........... 103
Notes to Financial Statements...... 104
COACH USA, INC.
Report of Independent Public
Accountants....................... 109
Balance Sheets..................... 110
Statements of Income............... 111
Statements of Stockholders'
Equity............................ 112
Statements of Cash Flows........... 113
Notes to Financial Statements...... 114
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coach USA, Inc.:
We have audited the accompanying consolidated balance sheets of Coach USA,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Coach USA,
Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 4, 1997
24
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
---------------------
1995 1996
--------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 3,411 $ 1,466
Accounts receivable, less allowance of $950 and
$2,046.......................................... 7,458 16,980
Inventories...................................... 3,385 8,500
Notes receivable, current portion................ 3,045 2,811
Prepaid expenses and other current assets........ 3,481 10,779
--------- ----------
Total current assets........................ 20,780 40,536
PROPERTY AND EQUIPMENT, net........................... 48,908 191,937
NOTES RECEIVABLE, less allowance of $500 and $500..... 1,978 4,231
GOODWILL, net......................................... 11 30,102
OTHER ASSETS, net..................................... 11,320 10,037
--------- ----------
Total assets................................ $ 82,997 $ 276,843
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of convertible subordinated
notes........................................... $ -- $ 4,000
Current maturities of long-term obligations...... 9,313 6,037
Accounts payable and accrued liabilities......... 17,529 35,096
--------- ----------
Total current liabilities................... 26,842 45,133
LONG-TERM OBLIGATIONS, net of current maturities...... 36,557 91,081
CONVERTIBLE SUBORDINATED NOTES, net of current
maturities.......................................... -- 18,500
LONG-TERM OBLIGATIONS DUE TO STOCKHOLDERS, net of
current maturities.................................. 16,467 --
DEFERRED INCOME TAXES................................. 4,082 18,158
--------- ----------
Total liabilities........................... 83,948 172,872
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par, 30,000,000 shares
authorized, 3,284,336 and 17,199,093 shares
issued and outstanding, respectively............ 33 172
Additional paid-in capital....................... 4,519 100,684
Retained earnings (deficit)...................... (5,503) 3,115
--------- ----------
Total stockholders' equity.................. (951) 103,971
--------- ----------
Total liabilities and stockholders'
equity................................... $ 82,997 $ 276,843
========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
<TABLE>
<CAPTION>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, PRO FORMA
-------------------------------- COMBINED
1994 1995 1996 1996
--------- --------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................. $ 68,421 $ 83,925 $ 185,728 $ 230,666
OPERATING EXPENSES................... 51,267 60,200 136,765 174,292
--------- --------- ---------- -----------
Gross profit.................... 17,154 23,725 48,963 56,374
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 11,727 14,149 21,889 23,485
ACQUISITION RELATED COSTS............ -- -- 1,101 --
--------- --------- ---------- -----------
Operating income................ 5,427 9,576 25,973 32,889
INTEREST EXPENSE..................... 4,111 5,475 8,514 8,981
--------- --------- ---------- -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS................ 1,316 4,101 17,459 23,908
PROVISION FOR INCOME TAXES........... 667 1,690 7,267 9,439
--------- --------- ---------- -----------
INCOME BEFORE EXTRAORDINARY ITEMS.... 649 2,411 10,192 14,469
EXTRAORDINARY ITEMS, net of income
taxes.............................. -- -- 2,723 2,723
--------- --------- ---------- -----------
NET INCOME........................... $ 649 $ 2,411 $ 12,915 $ 17,192
========= ========= ========== ===========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
INCOME BEFORE EXTRAORDINARY
ITEMS......................... $ .20 $ .73 $ .90 $ .99
EXTRAORDINARY ITEMS............. -- -- .24 .18
--------- --------- ---------- -----------
NET INCOME........................... $ .20 $ .73 $ 1.14 $ 1.17
========= ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------ PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------- ------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993......... 3,285 $ 33 $ 4,313 $ (6,794) $ (2,448)
S Corporation dividends paid by
certain Pooled Companies...... -- -- -- (690) (690)
Net income...................... -- -- -- 649 649
Other........................... -- -- (30) -- (30)
------- ------- ----------- --------- -------------
BALANCE AT DECEMBER 31, 1994......... 3,285 33 4,283 (6,835) (2,519)
S Corporation dividends paid by
certain Pooled Companies...... -- -- -- (1,079) (1,079)
Net income...................... -- -- -- 2,411 2,411
Other........................... -- -- 236 -- 236
------- ------- ----------- --------- -------------
BALANCE AT DECEMBER 31, 1995......... 3,285 33 4,519 (5,503) (951)
Issuance of Common Stock:
Proceeds of stock offerings... 6,224 62 96,502 -- 96,564
Merger with Predecessor....... 2,166 22 2,055 (2,053) 24
Acquisition of Founding
Companies..................... 5,099 51 6,323 9,155 15,529
Cash Distribution to Founding
Companies' Shareholders....... -- -- (23,810) -- (23,810)
Reorganization.................. -- -- 4,402 (4,402) --
Conversion from S Corporation to
C Corporation for Founding
Companies..................... -- -- -- (5,426) (5,426)
Conversion of debt to equity.... 425 4 10,198 -- 10,202
S Corporation dividends paid by
certain Pooled Companies...... -- -- -- (1,838) (1,838)
Adjustment to conform fiscal
year ends of Pooled
Companies..................... -- -- -- 267 267
Net income...................... -- -- -- 12,915 12,915
Capital contributions equal to
the current income taxes of S
Corporations.................. -- -- 341 -- 341
Other........................... -- -- 154 -- 154
------- ------- ----------- --------- -------------
BALANCE AT DECEMBER 31, 1996......... 17,199 $ 172 $ 100,684 $ 3,115 $ 103,971
======= ======= =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 649 $ 2,411 $ 12,915
Adjustments to reconcile net
income to net cash provided by
operating activities --
Adjustment to conform fiscal
year ends of Pooled
Companies..................... -- -- 267
Extraordinary gain.............. -- -- (7,007)
Depreciation and amortization... 4,720 6,238 12,343
Gain on sale of assets.......... (44) (572) (354)
Deferred income tax provision... 757 1,294 6,672
Changes in operating assets and
liabilities, net of effect of
Purchased Companies --
Accounts receivable, net... 428 (1,833) (779)
Inventories................ (1,107) (2,579) (4,505)
Notes receivable........... 175 (1,828) (1,672)
Prepaid expenses and other
current assets............. (211) (611) (3,705)
Accounts payable and
accrued liabilities........ (1,318) 1,838 (6,340)
Other...................... 1,034 (139) (474)
---------- ---------- ----------
Net cash provided by
operating
activities......... 5,083 4,219 7,361
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (15,449) (14,324) (24,704)
Proceeds from sales of property
and equipment................. 1,182 1,813 4,057
Cash consideration paid for the
Founding Companies, net of
cash acquired -- -- (22,112)
Cash consideration paid for
Purchased Companies, net of
cash acquired................. -- -- (12,343)
Proceeds from sales of
investments................... -- -- 1,419
---------- ---------- ----------
Net cash used in
investing activities (14,267) (12,511) (53,683)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations................... (10,273) (13,319) (122,257)
Proceeds from issuance of
long-term obligations......... 18,767 24,116 71,754
Sales of Common Stock........... -- -- 96,564
S Corporation Dividends paid by
certain Pooled Companies...... (690) (1,079) (1,838)
Other........................... 286 181 154
---------- ---------- ----------
Net cash provided by
financing
activities 8,090 9,899 44,377
---------- ---------- ----------
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... (1,094) 1,607 (1,945)
CASH AND CASH EQUIVALENTS, beginning
of year.............................. 2,898 1,804 3,411
========== ========== ==========
CASH AND CASH EQUIVALENTS, end of
year................................. $ 1,804 $ 3,411 $ 1,466
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 2,737 $ 4,099 $ 8,376
Cash paid for income taxes...... 25 125 4,632
Assets acquired under capital
leases.......................... 1,931 2,404 7,597
Convertible debt issued for
Purchased Companies........... -- -- 22,500
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
In September 1995, Coach USA, Inc. (Coach USA), was founded to create a
national company providing motorcoach transportation services, including charter
and tour services, and related passenger ground transportation services.
In May 1996, Coach USA acquired, simultaneously with the closing of its
initial public offering (the Offering), six established businesses.
Consideration for these businesses consisted of a combination of cash and common
stock of Coach USA (the Common Stock). These six businesses are referred to
herein as the "Founding Companies." Coach USA acquired nine additional
businesses in 1996. Of these nine additional businesses acquired, six were
accounted for as poolings-of-interests and are referred to herein as the
"Pooled Companies." The remaining three businesses were accounted for as
purchases and are referred to herein as the "Purchased Companies" (see Note
3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Coach USA and the Founding Companies from June 1, 1996, the effective date used
to account for the acquisitions of the Founding Companies, the Purchased
Companies since date of acquisition, and give retroactive effect to the
acquisitions of the Pooled Companies. The Pooled Companies, the Founding
Companies subsequent to May 31, 1996, and the Purchased Companies since date of
acquisition, are collectively referred to herein as the "Company." All
significant intercompany transactions and balances have been eliminated in
consolidation.
The unaudited pro forma combined statement of income for the year ended
December 31, 1996 includes the accounts of Coach USA and the Founding Companies
from January 1, 1996, the Purchased Companies since date of acquisition, and
gives retroactive effect to the acquisitions of the Pooled Companies. Certain
pro forma adjustments further discussed in Note 3 have been made to the
unaudited pro forma combined statement of income.
Two of the Pooled Companies have previously reported on an October fiscal
year end. As such, the accounts of these companies for their 1994 and 1995
fiscal years have been consolidated with the accounts of the Company as of
December 31, 1994 and 1995, respectively. Unaudited revenues and net income for
these two companies for the two-month period ended December 31, 1995, were
approximately $6,292,000 and $267,000, respectively. Accordingly, an adjustment
is included in the consolidated statement of stockholders' equity for the net
income attributed to this two-month period.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.
INVENTORIES
Inventories consist of motorcoach and taxicab replacement parts and
taxicabs held for sale. Inventory cost for replacement parts is accounted for on
the first-in, first-out basis and inventory cost for taxicabs held for sale or
on short-term leases are accounted for on the specific identification basis, and
both are reported at the lower of cost or market. Taxicabs held for sale are
depreciated over their estimated useful lives of 4.5 years. Depreciation and
amortization expense in the accompanying consolidated financial statements
includes $1,053,000, $1,457,000 and $1,940,000 of depreciation related to
taxicabs held for sale in 1994, 1995 and 1996.
29
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 AT
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............ $1,049 $ -- $ 806 $ (1,038) $ 817
Year ended December 31, 1995............ 817 -- 746 (613) 950
Year ended December 31, 1996............ 950 955 927 (786) 2,046
</TABLE>
30
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from recreation, excursion, commuter,
transit and taxicab support services and sales to independent taxicab operators
when such services and sales are performed. The Company recognizes financing
income on notes receivable using the effective interest method over the term of
the notes. Costs associated with the revenues are incurred and recorded as
services and sales are performed.
The Company has a 50 percent interest in a joint venture which provides
various paratransit services to a governmental agency in South Florida. Income
from this joint venture was $1.0 million, $0.6 million and $0.7 million in 1994,
1995 and 1996, respectively, and is included in revenues in the accompanying
consolidated financial statements.
INCOME TAXES
The Company will file a consolidated return for federal income tax
purposes. Income taxes are provided under the liability method considering the
tax effects of transactions reported in the financial statements which are
different from the tax return. The deferred income tax assets and liabilities
represent the future tax consequences of those differences, which will either be
taxable or deductible when the underlying assets or liabilities are recovered or
settled.
Certain of the Pooled Companies were S Corporations for income tax purposes
and, accordingly, any income tax liabilities for the periods prior to the
acquisition date are the responsibility of the respective stockholders. For
purposes of these consolidated financial statements, federal and state income
taxes have been provided as if these companies had filed C Corporation tax
returns for the pre-acquisition periods. The current income tax expense of these
S Corporations is reflected in the consolidated financial statements in the
provision for income taxes and as an increase to additional paid-in capital.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The computation of net income per common and common equivalent share for
the years ended December 31, 1994 and 1995 includes 3,284,336 shares issued in
connection with the acquisitions of the Pooled Companies.
The computation of net income per common and common equivalent share for
the year ended December 31, 1996 is based upon 11,345,031 weighted average
shares outstanding which includes (a) the 3,284,336 shares discussed above, (b)
the weighted average portion of the 2,165,724 shares issued prior to the Initial
Public Offering, (c) the weighted average portion of the 5,099,687 shares issued
to the stockholders of the Founding Companies, (d) the weighted average portion
of the 4,140,000 shares sold in the Initial Public Offering, (e) the weighted
average portion of the 425,039 shares issued in connection with the conversion
of indebtedness to equity at one of the Pooled Companies, (f) the weighted
average portion of the 2,084,307 shares sold in a secondary stock offering, and
(g) 305,605 shares representing the weighted average portion of shares for the
dilution attributable to outstanding options to purchase common stock, using the
treasury stock method.
The computation of net income per common and common equivalent share for
the unaudited pro forma combined year ended December 31, 1996 is based upon
14,676,773 weighted average shares outstanding
31
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which includes (a) the 3,284,336 shares discussed above, (b) the 2,165,724
shares issued prior to the Initial Public Offering, (c) 5,099,687 shares issued
to the stockholders of the Founding Companies, (d) 1,700,714 of the 4,140,000
shares sold in the Initial Public Offering to pay the cash portion of the
consideration for the Founding Companies; (e) 118,142 of the 4,140,000 shares
sold in the Initial Public Offering to pay excess S Corporation distributions,
(f) the weighted average of the remaining 2,321,144 shares issued in the Initial
Public Offering, (g) the weighted average portion of 425,039 shares issued in
connection with the conversion of indebtedness to equity at one of the Pooled
Companies, (h) the weighted average portion of the 2,084,307 shares sold in the
secondary stock offering, and (i) 227,743 shares representing the weighted
average portion of shares for the dilution attributable to outstanding options
to purchase common stock, using the treasury stock method.
In March 1996, the Company authorized 500,000 shares of $.01 par value
preferred stock, none of which has been issued.
3. BUSINESS COMBINATIONS:
The Founding Companies were merged with Coach USA effective June 1, 1996,
for financial reporting purposes. The unaudited data presented below consists of
the income statement data as presented in these consolidated financial
statements combined with the Founding Companies, 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................................ $197,414 $230,666
Income before extraordinary items....... 10,519 14,469
Income per share before extraordinary
items................................. .82 .99
POOLINGS
During 1996, the Company acquired all of the outstanding stock of the
Pooled Companies in exchange for 3,284,336 shares of Common Stock. Five of these
companies provide motorcoach transportation services and one provides primarily
taxicab services. These acquisitions have been accounted for as
poolings-of-interests and the results of operations of these six companies are
included for all periods presented herein.
The historical 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 $87.6 million, $4.3
million and $4.2 million, respectively.
32
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PURCHASES
On August 29, 1996, the Purchased Companies were acquired 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 balance sheet as of December 31, 1996 includes allocations of the
respective purchase prices and is subject to final adjustment. The allocations
resulted in goodwill recognized of $30.3 million representing the excess of
purchase price over fair value of the net assets acquired. In conjunction with
the acquisitions, liabilities were assumed as follows (in thousands):
Fair value of assets acquired, net of
cash acquired......................... $ 63,963
Goodwill................................ 30,341
Cash paid, net of cash acquired......... (12,343)
Issuance of convertible notes........... (22,500)
----------
Liabilities assumed..................... $ 59,461
==========
The following table sets forth further adjustments to the unaudited pro
forma income statement data above to present the effect of the acquisitions of
the Purchased Companies 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 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................................ $233,266 $256,686
Income before extraordinary items....... 11,910 15,376
Income per share before extraordinary
items................................. .93 1.05
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 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, and the Purchased
Companies been combined at the beginning of the periods presented.
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following (in
thousands):
DECEMBER 31
--------------------
1995 1996
--------- ---------
Prepaid insurance....................... $ 1,243 $ 2,601
Deferred income tax asset, current...... 1,283 2,780
Prepaid licenses, registrations and
other taxes........................... 552 3,297
Other................................... 403 2,101
--------- ---------
$ 3,481 $ 10,779
========= =========
33
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
ESTIMATED ----------------------
USEFUL LIVES 1995 1996
------------ ---------- ----------
(YEARS)
<S> <C> <C> <C>
Transportation equipment................ 3-15 $ 57,637 $ 219,544
Building and leasehold improvements..... 5-31.5 5,081 8,744
Computer equipment...................... 5-7 7,754 8,802
Other................................... 3-10 1,827 9,985
---------- ----------
72,299 247,075
Less -- Accumulated depreciation........ (23,391) (55,138)
---------- ----------
$ 48,908 $ 191,937
========== ==========
</TABLE>
Included in transportation equipment at December 31, 1995 and 1996, are
approximately $10.9 million and $20.7 million, respectively, of assets held
under capital leases.
6. OTHER ASSETS:
Other assets consist of the following (in thousands):
DECEMBER 31
--------------------
1995 1996
--------- ---------
Taxicab permits, net of accumulated
amortization of $2,194
and $2,298............................ $ 4,263 $ 4,159
Noncurrent deferred income tax asset.... 6,089 3,782
Other, net of accumulated amortization
of $672 and $838...................... 968 2,096
--------- ---------
$ 11,320 $ 10,037
========= =========
Amortization expense related to other assets for the years ended December
31, 1995 and 1996 was $201,000 and $270,000, respectively.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following (in
thousands):
DECEMBER 31
--------------------
1995 1996
--------- ---------
Trade accounts payable................................ $ 3,595 $ 8,352
Accrued insurance claims.............................. 6,074 13,285
Accrued compensation.................................. 2,608 4,017
Due to affiliates..................................... 642 --
Property and other taxes.............................. 973 1,298
Accrued interest payable.............................. 829 781
Deferred revenue...................................... 598 1,287
Other................................................. 2,210 6,076
--------- ---------
$ 17,529 $ 35,096
========= =========
34
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
--------------------
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 $468,830, maturing at various dates
through 2004; secured by certain transportation
equipment........................................... 35,138 16,162
Obligations under capital leases of certain
transportation equipment, implicit interest rates
ranging from 5.00% to 11.00%, due in monthly
installments of $320,682, maturing at various dates
through 2003........................................ 5,547 16,825
Various notes payable to stockholders, including $600
of accrued interest payable in 1996................. 18,108 --
Other................................................. 4,144 4,021
--------- ---------
Total Long-term Obligations........................... 62,937 97,118
Less -- Current maturities............................ (9,313) (6,037)
Less -- Accrued Interest.............................. (600) --
--------- ---------
$ 53,024 $ 91,081
========= =========
At December 31, 1996, future principal payments of long-term debt and
minimum lease payments under capital lease obligations are as follows (in
thousands):
LONG-TERM CAPITAL LEASE
DEBT OBLIGATIONS
------------ -------------
Year ending December 31 --
1997............................... $ 3,659 $ 3,915
1998............................... 3,132 3,055
1999............................... 63,870 2,935
2000............................... 3,602 3,558
2001............................... 3,039 2,815
Thereafter......................... 2,991 6,259
------------ -------------
$ 80,293 22,537
============
Less -- Amounts representing
interest......................... (5,712)
-------------
$16,825
=============
REVOLVING CREDIT AGREEMENT
In May 1996, the Company entered into a $30 million revolving credit
agreement with one bank. This credit facility was primarily utilized to
refinance certain indebtedness of the Founding Companies not repaid with
proceeds of the Offering.
In August 1996, the Company amended and restated the $30 million credit
agreement. The credit agreement, as amended, provides for a revolving credit
facility of $115 million through a syndicate of eight banks and allows for an
additional $15 million of debt outside the credit facility. The proceeds of the
facility
35
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $97.1 million outstanding under the revolving and other outside
credit facilities and had utilized $4.9 million of the facility for letters of
credit securing certain insurance obligations and performance bonds, resulting
in a borrowing availability of $28.0 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.
In February 1997, the Company amended and restated its credit agreement.
The credit agreement, as further amended, now provides for a revolving credit
facility of $181 million and allows the Company to have borrowings of up to $40
million (in addition to the fully subordinated notes) outside the credit
facility. Other provisions of the credit agreement were unchanged.
CONVERTIBLE SUBORDINATED NOTES
In August 1996, the Company issued $22.5 million of convertible
subordinated notes (the Notes) to former owners of the Purchased Companies as
partial consideration of the acquisition purchase price. The Notes bear
interest, payable quarterly, at a weighted average interest rate of 5.0 percent
and are convertible by the holder into shares of the Company's Common Stock at a
weighted average price of $29.98 per share. The Notes are redeemable for cash or
the Company's Common Stock at the option of the Company at any time after one
year of issuance. The terms of the Notes require $4.0 million of principal
payments in 1997 and $18.5 million in 1999.
Management estimates that the fair value of its debt obligations is
$100,753,000, compared to the historical value of $102,793,000 at December 31,
1996. The estimated fair value was determined by applying an estimated discount
rate to the scheduled cash payments under the obligations.
36
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO 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):
YEAR ENDED DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Current --
Federal............................ $ (133) $ 308 $ 597
State.............................. 43 88 123
--------- --------- ---------
(90) 396 720
--------- --------- ---------
Deferred --
Federal............................ 741 1,197 5,337
State.............................. 16 97 1,210
--------- --------- ---------
757 1,294 6,547
--------- --------- ---------
Provision for income taxes before
extraordinary items................... 667 1,690 7,267
--------- --------- ---------
Extraordinary Items --
Current............................ -- -- 1,690
Deferred........................... -- -- 125
--------- --------- ---------
-- -- 1,815
--------- --------- ---------
$ 667 $ 1,690 $ 9,082
========= ========= =========
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........................... $ 6,126 $ 26,862
Other............................................ 481 580
---------- ----------
Total deferred income tax liabilities....... 6,607 27,442
---------- ----------
Deferred income tax assets --
Accounts receivable/allowance for doubtful
accounts....................................... (128) (832)
Accrued liabilities/expenses..................... (4,689) (7,984)
Net operating losses............................. (3,001) (1,965)
Other assets..................................... (2,074) (2,394)
Tax credits...................................... (4) (2,511)
Other............................................ (174) (764)
---------- ----------
Total deferred income tax assets............ (10,070) (16,450)
Less -- Valuation allowance........................... 5 904
---------- ----------
Net deferred income tax (assets)
liabilities.............................. $ (3,458) $ 11,896
========== ==========
37
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following (in thousands):
YEAR ENDED DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Tax at federal statutory rate........... $ 461 $ 1,435 $ 7,699
Add (deduct) --
State income taxes, net of
federal benefit............ 64 119 933
Nondeductible expenses........ 124 155 383
Tax-exempt income............. (9) (3) --
Other......................... 27 (16) 67
--------- --------- ---------
$ 667 $ 1,690 $ 9,082
========= ========= =========
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 has entered into commitments to
purchase 108 motorcoaches for approximately $32,636,000. The Company intends to
sell or trade-in a number of older motorcoaches and finance the balance of the
new motorcoaches under the revolving and other outside credit facilities.
LEASES
The Company leases certain facilities and equipment under noncancelable
operating leases. Rental expense for the years ended December 31, 1994, 1995 and
1996 was $1,416,000, $1,437,000, and $3,094,000, 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............................... $ 2,677
1998............................... 1,976
1999............................... 1,765
2000............................... 1,650
2001............................... 1,319
Thereafter......................... 15,972
---------
$ 25,359
=========
38
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided accruals for certain of
these actions in the accompanying consolidated financial statements. In the
opinion of management, uninsured losses, if any, resulting from the ultimate
resolution of these matters will not have a material effect on the Company's
financial position or results of operations.
REGULATORY MATTERS
The Surface Transportation Board ("STB") must approve or exempt any
consolidation or merger of two or more regulated interstate motorcoach operators
or the acquisition of one such operator by another. On November 7, 1996, the STB
granted the Company's petition for exemption in connection with the Pooled
Companies acquired in August 1996 and the Purchased Companies. There can be no
assurance that the Company will be able to obtain such approval or exemption
with respect to the December acquisitions or future acquisitions.
ESTIMATED INSURANCE CLAIMS PAYABLE
The primary risks in the Company's operations are bodily injury and
property damage to third parties and workers' compensation. The Company has
commercial liability insurance policies that provide coverage by the insurance
company, subject to deductibles ranging from $5,000 to $250,000. The Company is
consolidating its insurance program under a program which provides for
deductibles ranging from $100,000 to $250,000. As such, any claim within the
deductible per incident would be the financial obligation of the Company.
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policies for claims occurring through 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. No
contributions were required or made to these plans during 1994. The Company
contributed $21,000 and $182,000 to its plans during the year ended December 31,
1995 and 1996, respectively.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements will
expire at various times through 2000.
COMMITMENTS
The Company has entered into agreements with Exel Motorcoach Partnership
("Exel") whereby Exel will provide introductions to other motorcoach
businesses and provide other consulting services for a term of three years. The
consideration to be paid to Exel will be approximately $100,000 per year. In
addition, Exel will be paid a commission on any acquisition completed by the
Company with motorcoach businesses introduced to it by Exel, based on a formula
ranging from 5% of the first $1,000,000 of consideration paid for the acquired
business, and decreasing to a level of 1% of the consideration in excess of
$4,000,000 paid
39
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
consolidated statements of income if no intrinsic value of the option exists at
the date of grant. In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock Based Compensation." SFAS No. 123
encourages companies to account for stock based compensation awards based on the
fair value of the awards at the date they are granted. The resulting
compensation cost would be shown as an expense in the statement of income.
Adoption of the standard is required for fiscal years beginning after December
15, 1995. Companies can choose not to apply the new accounting method and
continue to apply current accounting requirements; however, disclosure is
required as to what net income and earnings per share would have been had the
new accounting method been followed. While the Company did not adopt SFAS No.
123 for accounting purposes, it has implemented the disclosure requirements
below which include annual pro forma disclosures of its effects on options
granted since the initial grant in May 1996. Had compensation cost for these
plans been determined consistent with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the following pro forma amounts
(in thousands except per share data):
1996
---------
Net Earnings As reported............................. $ 12,915
Pro forma............................... $ 11,398
Earnings Per Share As reported............................. $ 1.14
Pro forma............................... $ 1.03
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
40
<PAGE>
COACH USA, INC. AND SUBSIDIARIES:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
On February 28, 1997, the Company acquired three additional businesses. The
acquisition of one of these businesses was accounted for as a
pooling-of-interests, for which the Company issued 578,033 shares of its Common
Stock. The following table summarizes the consolidated revenues and net income
of the Company after giving effect to this transaction (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 presently reported $ 68,421 $ 649 $ 83,925 $2,411 $185,728 $12,915
Subsequent Pooling................... 19,639 694 19,478 541 20,110 625
-------- ------ -------- ------ -------- -------
After Subsequent Pooling............. $ 88,060 $1,343 $103,403 $2,952 $205,838 $13,540
======== ====== ======== ====== ======== =======
Net income per share --
After Subsequent Pooling........... $ .35 $ .76 $ 1.14
====== ====== =======
</TABLE>
The remaining two companies were accounted for as purchases. The aggregate
consideration to be paid in these transactions was $34.3 million in cash and
$18.3 million of convertible subordinated notes convertible into 484,239 shares
of the Company's Common Stock.
In addition, subsequent to year end, the Company has entered into
agreements to acquire three additional businesses which are subject to approval
of various governmental regulatory bodies. Total consideration to be paid is
estimated at $3.3 million (unaudited) in cash and approximately 392,000 shares
(unaudited) of the Company's Common Stock.
41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Suburban Transit Corp.
We have audited the accompanying combined balance sheets of Suburban
Transit Corp. (a New Jersey corporation) and related companies as of December
31, 1994 and 1995, and May 31, 1996, and the related combined statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1995, and for the five months ended May 31, 1996.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Suburban
Transit Corp. and related companies as of December 31, 1994 and 1995, and May
31, 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, and for the five months
ended May 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
42
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 2,226 $ 1,861 $ 286
Accounts receivable, less
allowance of $50............. 1,372 952 1,298
Notes receivable from
stockholders................. 655 652 --
Inventories..................... 720 796 639
Investments -- restricted....... 362 365 110
Prepaid expenses and other
current assets............... 919 577 442
--------- --------- ---------
Total current assets...... 6,254 5,203 2,775
PROPERTY AND EQUIPMENT, net.......... 8,759 10,826 12,550
OTHER ASSETS......................... 83 62 53
--------- --------- ---------
Total assets.............. $ 15,096 $ 16,091 $ 15,378
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 914 $ 1,217 $ --
Accounts payable and accrued
liabilities.................. 4,354 4,067 3,547
--------- --------- ---------
Total current
liabilities............... 5,268 5,284 3,547
LONG-TERM OBLIGATIONS, net of current
maturities......................... 2,944 3,850 --
DUE TO PARENT........................ -- -- 5,365
DEFERRED INCOME TAXES................ 2,084 2,055 2,046
--------- --------- ---------
Total liabilities......... 10,296 11,189 10,958
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 13,250
shares authorized,
549 shares issued............ 73 73 73
Retained earnings............... 4,727 4,829 4,347
--------- --------- ---------
Total stockholders'
equity.................. 4,800 4,902 4,420
--------- --------- ---------
Total liabilities and
stockholders' equity.... $ 15,096 $ 16,091 $ 15,378
========= ========= =========
The accompanying notes are an integral part of these combined financial
statements.
43
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 32,274 $ 30,427 $ 29,752 $13,742 $11,520
OPERATING EXPENSES................... 28,903 27,526 25,322 12,038 10,648
--------- --------- --------- ----------- -----------
Gross profit.............. 3,371 2,901 4,430 1,704 872
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,417 2,283 2,563 1,333 1,052
--------- --------- --------- ----------- -----------
Operating income (loss)... 954 618 1,867 371 (180)
OTHER (INCOME) EXPENSE:
Interest expense................ 227 282 432 205 197
Interest income................. (33) (39) (114) (57) (39)
Other, net...................... (19) (96) (105) -- --
--------- --------- --------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 779 471 1,654 223 (338)
PROVISION FOR INCOME TAXES........... 259 128 423 47 --
--------- --------- --------- ----------- -----------
NET INCOME (LOSS).................... $ 520 $ 343 $ 1,231 $ 176 $ (338)
========= ========= ========= =========== ===========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 520 $ 343 $ 1,231 $ 176 (338)
Pro forma compensation differential.. 569 597 902 336 140
Less: Pro forma provision for
income taxes................. 294 282 621 182 (83)
--------- --------- --------- ----------- -----------
PRO FORMA NET INCOME (LOSS).......... $ 795 $ 658 $ 1,512 $ 330 $ (115)
========= ========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
44
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992......... 549 $ 73 $ 4,624 $ 4,697
Dividends paid.................. -- -- (455) (455)
Net income...................... -- -- 520 520
------ ------ -------- -------------
BALANCE AT DECEMBER 31, 1993......... 549 73 4,689 4,762
Dividends paid.................. -- -- (305) (305)
Net income...................... -- -- 343 343
------ ------ -------- -------------
BALANCE AT DECEMBER 31, 1994......... 549 73 4,727 4,800
Dividends paid.................. -- -- (1,129) (1,129)
Net income...................... -- -- 1,231 1,231
------ ------ -------- -------------
BALANCE AT DECEMBER 31, 1995......... 549 73 4,829 4,902
Dividends paid.................. -- -- (81) (81)
Distribution to Stockholders.... -- -- (63) (63)
Net loss........................ -- -- (338) (338)
------ ------ -------- -------------
BALANCE AT MAY 31, 1996.............. 549 $ 73 $ 4,347 $ 4,420
====== ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
45
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
--------- --------- --------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 520 $ 343 $ 1,231 $ 176 $ (338)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation.............. 848 893 878 395 396
Gain on sale of assets.... -- (96) (105) -- --
Deferred tax provision.... 157 -- 303 81 --
Changes in operating
assets and
liabilities --
Accounts receivable,
net..................... (13) (387) 420 312 (346)
Inventories............. (75) (77) (76) (60) 157
Prepaid expenses and
other current
assets............... (410) 301 36 150 135
Accounts payable and
accrued
liabilities.......... 354 349 (291) 840 (520)
Other................... 21 20 2 17 652
--------- --------- --------- ------------ -----------
Net cash provided
by operating
activities..... 1,402 1,346 2,398 1,911 136
--------- --------- --------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment.................... (1,074) (1,748) (3,199) (2,646) (2,183)
Proceeds from sales of property
and equipment................ -- 875 359 (1) --
Sales (Purchases) of
investments -- restricted.... -- (252) (3) -- 255
--------- --------- --------- ------------ -----------
Net cash used in
investing
activities..... (1,074) (1,125) (2,843) (2,647) (1,928)
--------- --------- --------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (1,196) (1,819) (3,037) (2,897) (6,719)
Proceeds from issuance of
long-term obligations........ 1,390 1,670 4,246 3,858 1,652
Advances from Parent............ -- -- -- -- 5,365
Dividends paid.................. (455) (305) (1,129) -- (81)
--------- --------- --------- ------------ -----------
Net cash provided
by (used in)
financing
activities..... (261) (454) 80 961 217
--------- --------- --------- ------------ -----------
NET INCREASE (DECREASE) IN CASH...... 67 (233) (365) 225 (1,575)
CASH AND CASH EQUIVALENTS,
beginning of year.................. 2,392 2,459 2,226 2,226 1,861
--------- --------- --------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 2,459 $ 2,226 $ 1,861 $ 2,451 $ 286
========= ========= ========= ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 201 $ 307 $ 232 $ 131 $ 154
Cash paid for income taxes...... 58 160 114 27 153
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
46
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Suburban Transit Corp. and its six affiliated companies (collectively, the
Company) operate city transit services, provide local commuter service and
provide motorcoach transportation services in the New York/New Jersey
metropolitan area. The Company also provides charter and group tour services.
The Company merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. All outstanding shares of the Company's common stock were
exchanged for cash and shares of Coach USA's common stock concurrent with the
consummation of the initial public offering (the Offering) of the common stock
of Coach USA. In connection with the Merger, the Company dividended certain
assets to the stockholders consisting of land and buildings, with a total
carrying value of approximately $63,000 (unaudited). The Company's financial
position and results of operations are consolidated with Coach USA effective
June 1, 1996 for financial reporting purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and results of
operations of Suburban Transit Corp. and affiliated companies which are under
common control and management of three related stockholders. All significant
intercompany transactions and balances have been eliminated.
INTERIM FINANCIAL INFORMATION
The interim financial statements for the six months ended June 30, 1995 are
unaudited, and certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the results of operations and cash flows with respect to the
consolidated interim financial statements, have been included. The results of
operations for the interim periods ended June 30, 1995 and May 31, 1996, are not
necessarily indicative of the results for the entire fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less as cash equivalents.
INVENTORIES
Inventories primarily consist of motorcoach replacement parts. Inventory
cost is accounted for on the first-in, first-out basis and reported at the lower
of cost or market.
INVESTMENTS
Included in investments at December 31, 1994 and 1995, are certificates of
deposit of $250,000 which are used as collateral for loans, and cash deposits as
of December 31, 1994 and 1995, and May 31, 1996, of $112,000, $115,000 and
$110,000, respectively, which are restricted as to withdrawal related to the
Company's accrued insurance claims payable.
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.
47
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company's credit risks primarily consist of accounts receivable from
the state of New Jersey and other governmental entities. Management performs
ongoing credit evaluations of its customers and provides allowances as deemed
necessary.
REVENUE RECOGNITION
The Company recognizes revenue from recreation, excursion, commuter and
transit services when such services are rendered. Costs associated with the
revenues are incurred and recorded as services are rendered.
INCOME TAXES
Two of the affiliated companies are S Corporations and the remaining
companies are C Corporations for federal income tax purposes. Federal income
taxes for the C Corporations are provided under the liability method considering
the tax effects of transactions reported in the financial statements which are
different from the tax return. The deferred tax assets and liabilities represent
the future tax consequences of those differences, which will either be taxable
or deductible when the underlying assets or liabilities are recovered or
settled.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- MAY 31
(YEARS) 1994 1995 1996
-------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment............. 5-12 $ 15,683 $ 17,354 $ 19,470
Other................................ 5-10 1,007 1,061 926
--------- --------- ---------
16,690 18,415 20,396
Less -- Accumulated depreciation..... (7,931) (7,589) (7,846)
--------- --------- ---------
$ 8,759 $ 10,826 $ 12,550
========= ========= =========
</TABLE>
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1995
--------- --------- ---------
(IN THOUSANDS)
Notes payable to a bank.............. $ 3,858 $ 5,067 $ --
--------- --------- ---------
3,858 5,067 --
Less -- Current maturities........... (914) (1,217) --
--------- --------- ---------
$ 2,944 $ 3,850 $ --
========= ========= =========
48
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DUE TO PARENT
During May 1996, the Company borrowed $5,365,000 from Coach USA at an
annual interest rate of 10 percent in order to repay long-term obligations and
for other financing activities. These borrowings are considered long-term as
Coach USA does not intend to call the outstanding balance owed by the Company
during the next twelve months.
5. INCOME TAXES:
The Company has implemented Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," which provides for a liability approach to
accounting for income taxes. The S Corporations in the affiliated group are not
subject to taxation for federal purposes. Under S Corporation status, the
stockholders report their share of the Company's taxable earnings or losses on
their personal income tax returns. These companies' S Corporation status will
terminate with the effective date of the Merger. These companies are subject to
taxation in certain states based upon the jurisdiction in which revenues are
earned.
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 FIVE MONTHS
------------------------------- ENDED MAY 31,
1993 1994 1995 1996
--------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current --
Federal......................... $ 84 $ 118 $ 103 $ --
State........................... 18 10 17 --
--------- --------- --------- -------------
102 128 120 --
--------- --------- --------- -------------
Deferred --
Federal......................... 25 (33) 172 --
State........................... 132 33 131 --
--------- --------- --------- -------------
157 -- 303 --
--------- --------- --------- -------------
$ 259 $ 128 $ 423 $ --
========= ========= ========= =============
</TABLE>
Deferred taxes result from the effect of transactions which are recognized
in different periods for financial and tax reporting purposes and relate
primarily to depreciation and accrued insurance claims payable. Deferred income
taxes are recognized for tax consequences of temporary differences by applying
enacted statutory tax rates to differences between the financial reporting and
the tax bases of existing assets and liabilities.
49
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax liabilities and assets are as
follows:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 2,084 $ 2,055 $ 2,065
Other........................... 95 124 56
--------- --------- ---------
Total deferred income tax
liabilities............. 2,179 2,179 2,121
--------- --------- ---------
Deferred income tax assets --
Accrued expenses................ (605) (318) (153)
General business credits........ (859) (859) (859)
Other........................... (54) (38) (145)
--------- --------- ---------
Gross deferred income tax
assets.................. (1,518) (1,215) (1,157)
Less valuation
allowance............... 859 859 859
--------- --------- ---------
Net deferred income tax
assets.................. (659) (356) (298)
--------- --------- ---------
$ 1,520 $ 1,823 $ 1,823
========= ========= =========
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
YEAR ENDED DECEMBER 31
------------------------------- MAY 31
1993 1994 1995 1996
--------- --------- --------- -------
(IN THOUSANDS)
Tax at statutory rate.............. $ 273 $ 165 $ 579 $(118)
Add (deduct) --
State income taxes...... 98 28 96 1
Effect of S Corporation
income................ (108) (39) (252) (82)
Other, net.............. (4) (26) -- 199
--------- --------- --------- -------
$ 259 $ 128 $ 423 $--
========= ========= ========= =======
For financial reporting purposes, the Company has general business credit
carryforwards which have been fully offset by a valuation allowance. The general
business credit carryforwards will expire at various periods from 1996 through
2000.
6. COMMITMENTS AND CONTINGENCIES:
SERVICE CONTRACTS
The Company provides shuttle and charter operations for a university. The
contract is renewable by mutual agreement of the parties every three years. The
contract was renewed effective July 1, 1996. Revenues from the shuttle and
charter operations totaled approximately $3,000,000, $3,400,000, $3,500,000, and
$1,757,000 and for the years ended December 31, 1993, 1994 and 1995, and for the
five months ended May 31, 1996, respectively.
50
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended December 31, 1993, 1994 and 1995 and
five months ended May 31, 1996, was $830,000, $1,076,000, $856,000 and $376,000,
respectively. Included in these amounts are rent expenses for the five months
ended May 31, 1996 of $142,500 for operating facilities owned by a stockholder.
The term of the leases is through 2030 and provides for a 10% escalation in rent
expense every five years. The Company is responsible for all real estate taxes,
insurance and maintenance. The following represents future minimum rental
payments under noncancelable operating leases (in thousands):
Year ending December 31 --
1996............................ $ 221
1997............................ 363
1998............................ 352
1999............................ 376
2000............................ 376
Thereafter...................... 15,142
---------
$ 16,830
=========
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided for certain of these
actions in the accompanying combined financial statements. In the opinion of
management, uninsured losses, if any, resulting from the ultimate resolution of
these matters will not be material to the Company's financial position or
results of operations.
The Company is the plaintiff in a lawsuit against a bus company, Academy
Express, Inc., formerly known as Inner Circle Qonexions, Inc. ("Inner Circle")
and the Township of East Brunswick, New Jersey. The Company has challenged the
award to Inner Circle of a contract for access to certain bus terminals in that
Township and the Township's right to restrict access to those terminals. The
Company has had access to the terminals under a contract with the Township and
has retained its access to the terminals and continues to carry passengers
between the terminals and New York City while this litigation is pending. In its
complaint, the Company has alleged that it will lose significant revenues if
denied access to the terminals, although the Company acknowledges that access to
the terminals should be open to all motorcoach operators with the proper
authority. The suit was filed in United States District Court for the District
of New Jersey in 1994 and proceedings in the case are continuing. Although the
court initially ruled against the Company on its request for injunctive relief,
the court ordered an evidentiary hearing to explore certain factual issues. The
evidentiary hearing took place in late May and early June 1996. The Court is
currently deciding whether to vacate its prior denial of injunctive relief.
Based upon consultation with legal counsel, management is unable to form an
opinion as to the ultimate outcome of this matter. If the Company does not
prevail, management is uncertain whether it will be able to recoup a significant
portion of its lost revenues.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company has a commercial motorcoach liability insurance policy that
provides coverage by the insurance company, subject to a $100,000 deductible. As
such, any claim within the first $100,000 per incident would be the financial
obligation of the Company. The Company is contingently liable for a letter of
credit of $110,000 issued in connection with the Company's insurance policies.
51
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policy for claims occurring through May 31, 1996. The accrual is
based on known facts and historical trends, and management believes such accrual
to be adequate.
EMPLOYEE BENEFIT PLANS
The Company maintains various 401(k) plans which allow eligible employees
to defer a portion of their income through contributions to the plans. Company
contributions to the plans were $134,000, $126,000, $120,000 and $50,000 in
1993, 1994, 1995 and in the five months ended May 31, 1996, respectively.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to collective bargaining agreements with certain of
its employees. These agreements require the Company to pay specified wages and
provide certain benefits to its union employees. These agreements expire in
1998.
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ------
(IN THOUSANDS)
Prepaid insurance......... $ 239 $ 139 $--
Deferred tax
asset -- current.......... 610 304 304
Other..................... 70 134 138
--------- --------- ------
$ 919 $ 577 $442
========= ========= ======
NOTES RECEIVABLE FROM STOCKHOLDERS
The Company had receivables from certain stockholders totaling $655,000 and
$652,000 at December 31, 1994 and 1995, respectively. The loans are unsecured,
noninterest-bearing and payable on demand. These loans were repaid during 1996.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ------
(IN THOUSANDS)
Trade accounts payable.... $ 1,203 $ 922 $ 725
Accrued compensation and
benefits.................. 940 587 645
Accrued insurance claims
payable................... 1,069 1,314 1,153
Other..................... 1,142 1,244 1,024
--------- --------- ------
$ 4,354 $ 4,067 $3,547
========= ========= ======
52
<PAGE>
SUBURBAN TRANSIT CORP. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on January 1,
1993.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. One
owner agreed to reductions in salary and benefits in connection with the Merger
and has entered into a five-year employment agreement which provides for a set
base salary, participation in future incentive bonus plans, certain other
benefits and a two-year covenant not to compete following termination of such
person's employment.
The unaudited pro forma data presents compensation at the level the
stockholder of the Company has agreed to receive from the Company subsequent to
the Merger. In addition, the pro forma data present the incremental provision
for income taxes as if the Company had been subject to federal income taxes and
for the income tax impact of the compensation differential discussed above.
53
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Grosvenor Bus Lines, Inc.:
We have audited the accompanying consolidated balance sheets of Grosvenor
Bus Lines, Inc. (a California corporation), and subsidiaries as of October 31,
1994 and 1995, and May 31, 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended October 31, 1995, and for the seven months ended May 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Grosvenor Bus Lines, Inc., and subsidiaries as of October 31, 1994 and 1995, and
May 31, 1996, and the results of their operations and their cash flows for each
of the three years in the period ended October 31, 1995, and for the seven
months ended May 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
54
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 261 $ 401 $ 706
Accounts receivable, less
allowance of $150............ 2,055 2,367 1,654
Notes receivable from
stockholder.................. 225 229 347
Inventories..................... 422 474 458
Investments -- restricted....... 506 759 765
Prepaid expenses and other
current assets............... 1,187 1,001 1,038
--------- --------- -------
Total current assets...... 4,656 5,231 4,968
PROPERTY AND EQUIPMENT, net.......... 8,282 7,668 7,531
OTHER ASSETS......................... 557 365 255
--------- --------- -------
Total assets.............. $ 13,495 $ 13,264 $12,754
========= ========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,140 $ 1,358 $ 983
Accounts payable and accrued
liabilities.................. 2,355 2,260 1,913
Note payable to stockholder..... 256 -- --
--------- --------- -------
Total current
liabilities............... 3,751 3,618 2,896
LONG-TERM OBLIGATIONS, net of current
maturities......................... 4,504 3,281 1,297
DUE TO PARENT........................ -- -- 2,709
DEFERRED INCOME TAXES................ 1,132 1,183 1,187
--------- --------- -------
Total liabilities......... 9,387 8,082 8,089
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 6,000,000
shares authorized, 4,358,879
shares issued................ 6,529 6,529 6,529
Retained deficit................ (2,421) (1,347) (1,864)
--------- --------- -------
Total stockholders'
equity.................. 4,108 5,182 4,665
--------- --------- -------
Total liabilities and
stockholders' equity.... $ 13,495 $ 13,264 $12,754
========= ========= =======
The accompanying notes are an integral part of these consolidated financial
statements.
55
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS SIX MONTHS FIVE MONTHS
YEAR ENDED OCTOBER 31 ENDED ENDED ENDED
------------------------------- MAY 31, JUNE 30, MAY 31,
1993 1994 1995 1996 1995 1996
--------- --------- --------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 22,122 $ 24,487 $ 29,235 $ 14,658 $12,811 $10,881
OPERATING EXPENSES................... 16,590 18,990 22,627 12,530 10,225 9,021
--------- --------- --------- ------------ ----------- -----------
Gross profit.............. 5,532 5,497 6,608 2,128 2,586 1,860
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 4,129 3,794 4,722 2,764 2,307 1,861
--------- --------- --------- ------------ ----------- -----------
Operating income (loss)... 1,403 1,703 1,886 (636) 279 (1)
OTHER (INCOME) EXPENSE:
Interest expense................ 404 441 583 276 311 227
Interest income................. (43) (39) (24) (22) (9) (17)
Other, net...................... (133) (79) (129) (79) -- --
--------- --------- --------- ------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 1,175 1,380 1,456 (811) (23) (211)
PROVISION (BENEFIT) FOR
INCOME TAXES....................... 503 456 382 (294) (26) (55)
--------- --------- --------- ------------ ----------- -----------
NET INCOME (LOSS).................... $ 672 $ 924 $ 1,074 $ (517) $ 3 $ (156)
========= ========= ========= ============ =========== ===========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 672 $ 924 $ 1,074 $ (517) $ 3 $ (156)
Pro forma compensation
differential................. 107 119 373 277 178 176
Less: Pro forma provision
(benefit) for income taxes... 44 176 362 (25) 87 40
--------- --------- --------- ------------ ----------- -----------
PRO FORMA NET INCOME (LOSS).......... $ 735 $ 867 $ 1,085 $ (215) $ 94 $ (20)
========= ========= ========= ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
56
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
----------- ------ --------- -------------
<S> <C> <C> <C> <C>
BALANCE AT OCTOBER 31, 1992.......... 4,358,879 $6,529 $ (4,017) $ 2,512
Net income...................... -- -- 672 672
----------- ------ --------- -------------
BALANCE AT OCTOBER 31, 1993.......... 4,358,879 6,529 (3,345) 3,184
Net income...................... -- -- 924 924
----------- ------ --------- -------------
BALANCE AT OCTOBER 31, 1994.......... 4,358,879 6,529 (2,421) 4,108
Net income...................... -- -- 1,074 1,074
----------- ------ --------- -------------
BALANCE AT OCTOBER 31, 1995.......... 4,358,879 6,529 (1,347) 5,182
Net loss........................ -- -- (517) (517)
----------- ------ --------- -------------
BALANCE AT MAY 31, 1996.............. 4,358,879 $6,529 $ 1,864 $ 4,665
=========== ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
57
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS SIX MONTHS FIVE MONTHS
YEAR ENDED OCTOBER 31 ENDED ENDED ENDED
------------------------------- MAY 31 JUNE 30 MAY 31
1993 1994 1995 1996 1995 1996
--------- --------- --------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 672 $ 924 $ 1,074 $ (517) $ 3 $ (156)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation............... 833 806 878 525 434 373
Gain on sale of assets..... (3) (65) (80) -- -- --
Deferred tax provision
(benefit)................ 362 346 295 (247) (8) 230
Changes in operating assets
and liabilities --
Accounts receivable,
net................... (401) (486) (312) 595 (1,003) 7
Inventories.............. (28) 123 (52) 16 (68) 7
Prepaid expenses and
other current
assets................ 90 (421) 225 (43) 565 (159)
Accounts payable and
accrued liabilities... (151) 480 (351) (53) 682 (39)
Other.................... 64 19 (95) 67 (38) (239)
--------- --------- --------- ------------ ------------ -----------
Net cash provided by
operating
activities....... 1,438 1,726 1,582 343 567 24
--------- --------- --------- ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (377) (1,617) (355) (388) (198) (363)
Proceeds from sales of property
and equipment................. -- 87 171 -- -- --
Purchases of
investments -- restricted..... -- -- (253) -- (254)
Proceeds from sales of
investments -- restricted..... -- 69 -- -- -- --
--------- --------- --------- ------------ ------------ -----------
Net cash used in
investing
activities....... (377) (1,461) (437) (388) (452) (363)
--------- --------- --------- ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations................... (1,310) (1,131) (3,812) (3,059) (2,978) (2,487)
Proceeds from issuance of
long-term
obligations................... 137 862 2,807 700 2,807 700
Advances from parent............ -- -- -- 2,709 -- 2,709
--------- --------- --------- ------------ ------------ -----------
Net cash provided by
(used in)
financing
activities....... (1,173) (269) (1,005) 350 (171) 922
--------- --------- --------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH...... (112) (4) 140 305 (56) 583
CASH AND CASH EQUIVALENTS, beginning
of year............................ 377 265 261 401 115 123
--------- --------- --------- ------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 265 $ 261 $ 401 $ 706 $ 59 $ 706
========= ========= ========= ============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest.......... $ 379 $ 413 $ 524 $ 296 $ 296 $ 283
Cash paid for income taxes...... 142 124 71 51 25 51
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
58
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Grosvenor Bus Lines, Inc., and subsidiaries (the Company), operating as
Gray Line of San Francisco, provides motorcoach sight-seeing services in the San
Francisco, California, Bay Area. The Company also provides charter and public
transit services.
The Company merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. All outstanding shares of the Company's common stock were
exchanged for cash and shares of Coach USA's common stock concurrent with the
consummation of the initial public offering (the Offering) of the common stock
of Coach USA. The Company's financial position and results of operations are
consolidated with Coach USA effective June 1, 1996 for financial reporting
purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and results of
operations of Grosvenor Bus Lines, Inc., all its subsidiaries, and certain
transportation equipment owned by a stockholder and utilized in the operations
of the business. All significant intercompany transactions and balances have
been eliminated in consolidation.
INTERIM FINANCIAL INFORMATION
The interim financial statements for the six months ended June 30, 1995 and
the five months ended May 31, 1996 are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the results of operations and cash
flows with respect to the consolidated interim financial statements, have been
included. The results of operations for the interim periods ended June 30, 1995
and May 31, 1996 are not necessarily indicative of the results for the entire
fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less as cash equivalents.
INVENTORIES
Inventories primarily consist of motorcoach replacement parts. Inventory
cost is accounted for on the first-in, first-out basis and reported at the lower
of cost or market.
INVESTMENTS
Included in investments at December 31, 1994 and 1995, and at May 31, 1996,
are certificates of deposit of $506,000 and $759,000, and $756,000 which are
used as collateral for letters of credit.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs, including replacement of engines and certain other significant
costs, are expensed as costs are incurred.
Depreciation on transportation equipment and other assets for financial
reporting purposes is computed on the straight-line basis over the estimated
useful lives of the assets net of their estimated residual values.
CONCENTRATION OF CREDIT RISK
The Company's credit risks primarily consist of accounts receivable from
various tour operators in the travel service industry and governmental entities.
Management performs ongoing credit evaluations of its customers and provides
allowances as deemed necessary.
59
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from recreation, excursion, commuter and
transit services when such services are rendered. Costs associated with the
revenues are incurred and recorded as services are rendered.
INCOME TAXES
The Company files a consolidated return for federal income tax purposes.
Income taxes are provided under the liability method considering the tax effects
of transactions reported in the financial statements which are different from
the tax return. The deferred tax assets and liabilities represent the future tax
consequences of those differences, which will either be taxable or deductible
when the underlying assets or liabilities are recovered or settled.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- MAY 31
(YEARS) 1994 1995 1996
------------ --------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment..................... 5-12 $ 10,003 $ 9,940 $ 9,975
Other........................................ 5-10 3,094 3,193 3,179
--------- --------- -------
13,097 13,133 13,154
Less -- Accumulated depreciation............. (4,815) (5,465) (5,623)
--------- --------- -------
$ 8,282 $ 7,668 $ 7,531
========= ========= =======
</TABLE>
Included in transportation equipment at October 31, 1994 and 1995, and May
31, 1996 are approximately $1,151,000, $1,180,000, and $1,032,000, respectively,
of assets held under capital leases.
60
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
OCTOBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ------
(IN THOUSANDS)
Obligations under capital leases of
certain transportation equipment,
and computer equipment, implicit
interest rates ranging from 6% to
10%, due in monthly installments of
$61,372, maturing at various dates
through 1998....................... $ 1,058 $ 790 $1,375
Note payable to a bank, interest at
prime plus 1.8%, maturing April
1996; secured by transportation
equipment and personal guarantees
of the stockholders................ -- 300 --
Notes payable to an affiliate,
interest at prime plus 1%, interest
payable monthly, principal due
October 2000....................... 1,552 300 300
Other................................ 3,034 3,249 605
--------- --------- ------
5,644 4,639 2,280
Less -- Current maturities........... (1,140) (1,358) (983)
--------- --------- ------
$ 4,504 $ 3,281 $1,297
========= ========= ======
At May 31, 1996, future principal payments of long-term obligations and
minimum lease payments under capital lease obligations are as follows:
LONG-TERM CAPITAL LEASE
DEBT OBLIGATIONS
--------- -------------
(IN THOUSANDS)
Year ending October 31 --
1996......................... $ 300 $ 452
1997......................... -- 720
1998......................... -- 330
1999......................... 605 88
2000......................... -- 50
Thereafter................... -- 25
--------- -------------
$ 905 1,665
=========
Less -- Amounts representing
interest........................ (290)
-------------
$ 1,375
=============
Management estimates that the fair value of its debt obligations
approximates the historical value of $905,000 at May 31, 1996.
DUE TO PARENT
During May 1996, the Company borrowed $2,709,000 from Coach USA in order to
repay long-term obligations and for other financing activities. These borrowings
are considered long-term as Coach USA does not intend to call the outstanding
balance owed by the Company during the next twelve months.
NOTE PAYABLE TO STOCKHOLDER
The Company had borrowings from a stockholder totaling $256,000 at October
31, 1994. The borrowings were unsecured, noninterest-bearing and payable upon
demand.
61
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES:
The Company has implemented Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," which provides for a liability approach to
accounting for income taxes.
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 SEVEN MONTHS
------------------------------- ENDED
1993 1994 1995 MAY 31, 1996
--------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current --
Federal......................... $ 20 $ 13 $ 15 $--
State........................... 121 97 72 --
--------- --------- --------- ------------
141 110 87 --
--------- --------- --------- ------------
Deferred --
Federal......................... 368 338 291 (247)
State........................... (6) 8 4 (47)
--------- --------- --------- ------------
362 346 295 (294)
--------- --------- --------- ------------
$ 503 $ 456 $ 382 $ (294)
========= ========= ========= ============
</TABLE>
Deferred taxes result from the effect of transactions which are recognized
in different periods for financial and tax reporting purposes and relate
primarily to depreciation and accrued insurance claims payable. Deferred income
taxes are recognized for tax consequences of temporary differences by applying
enacted statutory tax rates to differences between the financial reporting and
the tax bases of existing assets and liabilities.
The components of deferred income tax liabilities and assets are as
follows:
OCTOBER 31
-------------------- MAY 31,
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 1,132 $ 1,183 $1,187
--------- --------- -------
Total deferred income tax
liabilities............. 1,132 1,183 1,187
--------- --------- -------
Deferred income tax assets --
Accrued expenses................ (74) (179) (197)
General business credits........ (51) (45) (45)
Net operating losses............ (672) (338) (620)
Other........................... (109) (94) (92)
--------- --------- -------
Gross deferred income tax
assets.................. (906) (656) (954)
Less valuation
allowance............... 51 45 45
--------- --------- -------
Net deferred income tax
assets.................. (855) (611) 909
--------- --------- -------
$ 277 $ 572 $ 278
========= ========= =======
62
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31 SEVEN MONTHS
------------------------------- ENDED MAY 31,
1993 1994 1995 1996
--------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax at statutory rate................ $ 411 $ 483 $ 510 $(284)
Add (deduct) --
State income taxes........ 74 69 58 (47)
Nondeductible expenses.... 18 13 13 10
Effect of nontaxable
income from personal
assets (transportation
equipment) of
stockholder............. -- (109) (199) 27
--------- --------- --------- -------------
$ 503 $ 456 $ 382 $(294)
========= ========= ========= =============
</TABLE>
For purposes of the consolidated federal tax return, the Company has net
operating loss carryforwards available to offset taxable income of the Company
in the future. The net operating loss carryforwards will expire in 2004. The
Company also has general business credit carryforwards which have been fully
offset by a valuation allowance. The general business credit carryforwards will
expire at various periods from 1996 through 2002.
6. COMMITMENTS AND CONTINGENCIES:
SERVICE CONTRACTS
The Company has entered into three long-term service contracts with
governmental entities to provide transit and commuter service throughout
northern California. The contracts expire at various dates through June 1998.
Under the terms of the contracts, the Company recognized revenues of $8,735,000,
$10,085,000, $12,325,000 and $7,320,880 for the years ended October 31, 1993,
1994 and 1995, and for seven months ended May 31, 1996, respectively.
LETTERS OF CREDIT
The Company is contingently liable for letters of credit totaling
$1,150,000 issued in connection with the Company's long-term service contracts
and insurance policies. These letters of credit require commitment fees ranging
from one to two percent paid on an annual basis and are secured by certificates
of deposit and a guarantee by a stockholder.
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended October 31, 1993, 1994 and 1995 and
for the seven months ended May 31, 1996, was
63
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$862,000, $868,000, $1,019,000 and $566,000, respectively. The following
represents future minimum rental payments under noncancelable operating leases
(in thousands):
Year ending October 31 --
1996............................ $ 337
1997............................ 686
1998............................ 616
1999............................ 565
2000............................ 531
Thereafter...................... 989
---------
$ 3,724
=========
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided for certain of these
actions in the accompanying consolidated financial statements. In the opinion of
management, uninsured losses, if any, resulting from the ultimate resolution of
these matters will not be material to the Company's financial position or
results of operations.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company had a commercial motorcoach liability insurance policy that
provided coverage by the insurance company, subject to a $100,000 deductible. As
such, any claim within the first $100,000 per incident would be the financial
obligation of the Company.
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policy for claims occurring through May 31, 1996. The accrual is
based on known facts and historical trends, and management believes such accrual
to be adequate.
EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan which allows eligible employees to
defer a portion of their income through contributions to the plan. Under the
provisions of the plan, employees may contribute up to a maximum of four percent
of employee compensation, and the Company matches 50 percent of amounts
contributed by employees. Company contributions to the plan were $23,000,
$26,000 and $27,000 and $18,000 in 1993, 1994, and 1995, and for the seven
months ended May 31, 1996, respectively.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to collective bargaining agreements with certain of
its employees. The agreements require the Company to pay specified wages and
provide certain benefits to its union employees. These agreements expire in
1998.
64
<PAGE>
GROSVENOR BUS LINES, INC. AND SUBSIDIARIES
(OPERATING AS GRAY LINE OF SAN FRANCISCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
OCTOBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Prepaid insurance.................... $ 196 $ 216 $ --
Deferred tax asset -- current........ 476 515 668
Other................................ 515 270 370
--------- --------- ---------
$ 1,187 $ 1,001 $ 1,038
========= ========= =========
NOTES RECEIVABLE FROM STOCKHOLDER
The Company had receivables from certain stockholders totaling $225,000 and
$229,000 and $290,000 at December 31, 1994 and 1995, and May 31, 1996,
respectively. The loans are unsecured, noninterest-bearing and payable on
demand.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
OCTOBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Trade accounts payable............... $ 1,175 $ 828 $ 705
Accrued compensation and benefits.... 680 769 518
Accrued insurance claims payable..... 136 170 170
Other................................ 364 493 520
--------- --------- ---------
$ 2,355 $ 2,260 $ 1,913
========= ========= =========
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on November
1, 1992.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. One
owner agreed to reductions in salary and benefits in connection with the Merger
and entered into a five-year employment agreement which provides for a set base
salary, participation in future incentive bonus plans, certain other benefits
and a two-year covenant not to compete following termination of such person's
employment.
The unaudited pro forma data present compensation at the level the
stockholder of the Company has agreed to receive from the Company subsequent to
the Merger. In addition, the pro forma data present the incremental provision
for income taxes as if the Company had been subject to federal income taxes and
for the income tax impact of the compensation differential discussed above.
65
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Leisure Time Tours:
We have audited the accompanying balance sheets of Leisure Time Tours (a
New Jersey corporation) as of December 31, 1994 and 1995 and May 31, 1996, and
the related statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995 and for the five months
ended May 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Leisure Time Tours as of
December 31, 1994 and 1995 and May 31, 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995 and for the five months ended May 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
66
<PAGE>
LEISURE TIME TOURS
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 2,222 $ 1,315 $ 368
Accounts receivable, less
allowance of $62, $37 and
$37.......................... 462 579 652
Inventories..................... 237 234 234
Investments, including
restricted of $300 and
$300......................... 606 885 544
Prepaid expenses and other
current assets............... 973 1,055 877
--------- --------- -----------
Total current assets...... 4,500 4,068 2,675
PROPERTY AND EQUIPMENT, net.......... 11,182 13,479 14,451
OTHER ASSETS......................... 42 90 54
--------- --------- -----------
Total assets.............. $ 15,724 $ 17,637 $17,180
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,009 $ 1,334 $ 40
Accounts payable and accrued
liabilities.................. 5,095 5,271 6,103
--------- --------- -----------
Total current
liabilities............... 6,104 6,605 6,143
LONG-TERM OBLIGATIONS, net of current
maturities......................... 2,289 2,999 42
DUE TO PARENT........................ -- -- 8,637
DEFERRED INCOME TAXES................ 554 558 570
--------- --------- -----------
Total liabilities......... 8,947 10,162 15,392
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $100 par, 100
shares authorized, 16 2/3
shares issued................ 2 2 2
Retained earnings............... 6,775 7,473 1,786
--------- --------- -----------
Total stockholders'
equity.................. 6,777 7,475 1,788
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 15,724 $ 17,637 $17,180
========= ========= ===========
The accompanying notes are an integral part of these financial statements.
67
<PAGE>
LEISURE TIME TOURS
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 17,534 $ 17,694 $ 18,992 $ 8,949 $ 8,220
OPERATING EXPENSES................... 15,497 14,139 14,577 7,191 6,419
--------- --------- --------- ----------- -----------
Gross profit.............. 2,037 3,555 4,415 1,758 1,801
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,128 1,934 1,895 893 828
--------- --------- --------- ----------- -----------
Operating income (loss)... (91) 1,621 2,520 865 973
OTHER (INCOME) EXPENSE:
Interest expense................ 380 317 339 154 208
Interest income................. (41) (71) (104) (40) (26)
Other, net...................... (26) (62) (103) -- --
--------- --------- --------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... (404) 1,437 2,388 751 791
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. (32) 139 225 71 66
--------- --------- --------- ----------- -----------
NET INCOME (LOSS).................... $ (372) $ 1,298 $ 2,163 $ 680 $ 725
========= ========= ========= =========== ===========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ (372) $ 1,298 $ 2,163 $ 680 $ 725
Pro forma compensation
differential................. 203 211 309 100 60
Less: Pro forma provision
(benefit) for income taxes... (42) 546 895 295 291
--------- --------- --------- ----------- -----------
PRO FORMA NET INCOME (LOSS).......... $ (127) $ 963 $ 1,577 $ 485 $ 494
========= ========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
68
<PAGE>
<TABLE>
<CAPTION>
LEISURE TIME TOURS
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ --------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992......... 16 2/3 $ 2 $ 6,270 $ 6,272
Dividends paid.................. -- -- (246) (246)
Net loss........................ -- -- (372) (372)
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1993......... 16 2/3 2 5,652 5,654
Dividends paid.................. -- -- (175) (175)
Net income...................... -- -- 1,298 1,298
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1994......... 16 2/3 2 6,775 6,777
Dividends paid.................. -- -- (1,465) (1,465)
Net income...................... -- -- 2,163 2,163
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1995......... 16 2/3 2 7,473 7,475
------ ------ --------- -------------
Dividends paid.................. -- -- (4,391) (4,391)
Distribution to stockholders.... -- -- (2,021) (2,021)
Net income...................... -- -- 725 725
------ ------ --------- -------------
BALANCE AT MAY 31, 1996.............. 16 2/3 $ 2 $ 1,786 $ 1,788
====== ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
69
<PAGE>
LEISURE TIME TOURS
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ (372) $ 1,298 $ 2,163 $ 680 $ 725
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation.............. 1,451 1,164 1,053 492 377
(Gain) loss on sale of
assets.................. 60 (62) 44 46 --
Net gain on sale of
investments............. (33) (17) (153) (54) (61)
Deferred tax provision
(benefit)............... (49) (56) 60 (17) (67)
Changes in operating
assets and
liabilities --
Accounts receivable,
net.................. 186 (171) (117) (38) (73)
Inventories............. 61 99 3 9 --
Investments............. (124) (132) (126) (234) --
Prepaid expenses and
other current
assets............... (35) (146) (156) (111) 178
Accounts payable and
accrued
liabilities.......... 376 643 194 147 832
Other................... (12) 74 (48) (14) 15
--------- --------- --------- ----------- -----------
Net cash provided
by operating
activities....... 1,509 2,694 2,917 906 1,926
--------- --------- --------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment.................... (911) (94) (5,625) (2,264) (1,810)
Proceeds from sales of property
and equipment................ 170 99 2,231 1,033 492
--------- --------- --------- ----------- -----------
Net cash provided
by (used in)
investing
activities..... (741) 5 (3,394) (1,231) (1,318)
--------- --------- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations.................. (1,759) (990) (1,065) (275) (9,378)
Proceeds from issuance of
long-term obligations........ 422 500 2,100 744 3,371
Advances from parent............ -- -- -- -- 8,843
Dividends paid.................. (246) (175) (1,465) (1,240) (4,391)
--------- --------- --------- ----------- -----------
Net cash provided
by (used in)
financing
activities..... (1,583) (665) (430) (771) (1,555)
--------- --------- --------- ----------- -----------
NET INCREASE (DECREASE) IN CASH...... (815) 2,034 (907) (1,096) (947)
CASH AND CASH EQUIVALENTS, beginning
of year............................ 1,003 188 2,222 2,222 1,315
--------- --------- --------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 188 $ 2,222 $ 1,315 $ 1,126 $ 368
========= ========= ========= =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 372 $ 310 $ 318 $ 136 $ 192
Cash paid for income taxes...... 100 1 364 193 89
</TABLE>
The accompanying notes are an integral part of these financial statements.
70
<PAGE>
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Leisure Time Tours (the Company) provides motorcoach transportation
services through regularly scheduled excursion, charter and group tour services
primarily in the states of New Jersey, New York and Pennsylvania.
The Company merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. All outstanding shares of the Company's common stock were
exchanged for cash and shares of Coach USA's common stock concurrent with the
consummation of the initial public offering (the Offering) of the common stock
of Coach USA. The Company's financial position and results of operations are
consolidated with Coach USA effective June 1, 1996 for financial reporting
purposes.
In connection with the Merger, the Company dividended certain assets to the
stockholders consisting of land, buildings and automobiles with a total carrying
value of approximately $2,021,000. In addition, the Company made a cash
distribution of $3,218,000 prior to the Merger which represents the Company's
estimated S Corporation accumulated adjustment account.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements for the six months ended June 30, 1995 are
unaudited, and certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the results of operations and cash flows with respect to the
consolidated interim financial statements, have been included. The results of
operations for the interim period ended May 31, 1996 are not necessarily
indicative of the results for the entire fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less as cash equivalents.
INVENTORIES
Inventories primarily consist of motorcoach replacement parts. Inventory
cost is accounted for on the first-in, first-out basis and reported at the lower
of cost or market.
INVESTMENTS
The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," which
requires that investments in debt securities and marketable equity securities be
designated as trading, held-to-maturity or available-for-sale. At December 31,
1994 and 1995, and May 31, 1996, investments have been categorized as trading
securities, are stated at fair value, and are classified in the balance sheets
as current assets. Investments at December 31, 1994 and 1995 and May 31, 1996
consist of marketable equity securities and certificates of deposit. The
realized gains and losses on the sale of investments classified as trading
securities are determined using the specific identification method. Unrealized
losses on trading securities totaling $30,000, $600, $78,000 and $58,000 are
included in net income for the years ended December 31, 1993, 1994 and 1995 and
the five months ended May 31, 1996, respectively.
Included in investments at December 31, 1994 and 1995 and May 31, 1996, are
cash deposits of $300,000 which are restricted as to withdrawal related to the
Company's accrued insurance claims payable.
71
<PAGE>
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs, including replacement of engines and certain other significant
costs, are expensed as costs are incurred.
Depreciation on transportation equipment and other assets for financial
reporting purposes is computed on the straight-line basis over the estimated
useful lives of the assets net of their estimated residual values.
CONCENTRATION OF CREDIT RISK
The Company's credit risks primarily consist of accounts receivable from
various tour operators in the travel service industry. Management performs
ongoing credit evaluations of its customers and provides allowances as deemed
necessary.
REVENUE RECOGNITION
The Company recognizes revenue from recreation, excursion, commuter and
transit services when such services are rendered. Costs associated with the
revenues are incurred and recorded as services are rendered.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- MAY 31
(YEARS) 1994 1995 1996
-------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment............. 12 $ 18,672 $ 19,107 $ 21,389
Other................................ 3-25 3,214 3,221 411
--------- --------- ---------
21,886 22,328 21,800
Less -- Accumulated depreciation..... (10,704) (8,849) (7,349)
--------- --------- ---------
$ 11,182 $ 13,479 $ 14,451
========= ========= =========
</TABLE>
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Notes payable to a bank.............. $ 3,178 $ 4,251 $--
Other................................ 120 82 82
--------- --------- -------
3,298 4,333 82
Less -- Current maturities........... (1,009) (1,334) (40)
--------- --------- -------
$ 2,289 $ 2,999 $ 42
========= ========= =======
72
<PAGE>
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At May 31, 1996, future principal payments of long-term obligations are as
follows (in thousands):
Year ending December 31 --
1996......................... $ 40
1997......................... 42
Thereafter................... --
---------
$ 82
=========
Management estimates that the fair value of its debt obligations
approximates the historical value of $82,000 at May 31, 1996.
DUE TO PARENT
During May 1996, the Company borrowed $8,843,000 from Coach USA at an
annual interest rate of 10 percent in order to repay long-term obligations and
for other financing activities. These borrowings are considered long-term as
Coach USA does not intend to call the outstanding balance owed by the Company
during the next twelve months.
5. INCOME TAXES:
The Company has elected S Corporation status, as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of the
Company's taxable earnings or losses on their personal income tax returns. The
Company's S Corporation status terminated with the effective date of the Merger.
The Company is subject to taxation in certain states based upon the jurisdiction
in which revenues are earned.
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED
------------------------------- MAY 31
1993 1994 1995 1996
--------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
State --
Current......................... $ 17 $ 195 $ 165 $ 133
Deferred........................ (49) (56) 60 (67)
--------- --------- --------- -----------
$ (32) $ 139 $ 225 $ 66
========= ========= ========= ===========
</TABLE>
Deferred taxes result from the effect of transactions which are recognized
in different periods for financial and tax reporting purposes and relate
primarily to depreciation and accrued insurance claims payable. Deferred income
taxes are recognized for tax consequences of temporary differences by applying
enacted statutory tax rates to differences between the financial reporting and
the tax bases of existing assets and liabilities.
73
<PAGE>
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax liabilities and assets are as
follows:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 554 $ 558 $ 570
Other........................... 24 6 65
--------- --------- -------
Total deferred income tax
liabilities............. 578 564 635
--------- --------- -------
Deferred income tax assets --
Accrued expenses................ (331) (257) (398)
Other........................... (6) (6) (3)
--------- --------- -------
Total deferred income tax
assets.................. (337) (263) (401)
--------- --------- -------
$ 241 $ 301 $ 234
========= ========= =======
6. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases facilities and equipment under cancelable and
noncancelable lease agreements. Rental expense for the years ended December 31,
1993, 1994 and 1995 and for the five months ended May 31, 1996 was $71,000,
$79,000, $60,000 and $13,000, respectively. Concurrent with the Merger, the
Company entered into agreements with the stockholders to lease land and
buildings used in the Company's operations for a negotiated amount and term. The
term of the leases is May 1996 through May 2001 and provides for a 5 percent
escalation in rent expense each year. The following represents future minimum
rental payments under noncancelable operating leases (in thousands):
Year ending December 31 --
1996............................ $ 55
1997............................ 91
1998............................ 92
1999............................ 89
2000............................ 93
Thereafter...................... 32
---------
$ 452
=========
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided for certain of these
actions in the accompanying financial statements. In the opinion of management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not be material to the Company's financial position or results of
operations.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company has a commercial motorcoach liability insurance policy that
provides coverage by the insurance company subject to a $50,000 deductible
(prior to April 1, 1995, the deductible was $100,000). As such, any claim within
the first $50,000 per incident would be the financial obligation of the Company.
74
<PAGE>
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is contingently liable for a letter of credit of $300,000 issued in
connection with the Company's insurance policies.
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policy for claims occurring through May 31, 1996. The accrual is
based on known facts and historical trends, and management believes such accrual
to be adequate.
EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan which allows eligible employees to
defer a portion of their income through contributions to the plan. Under the
provisions of the plan, employees may contribute up to a maximum of four percent
of employee compensation, and the Company matches 50 percent of amounts
contributed by employees. Company contributions to the plan were $13,000,
$14,000 and $20,000 and $7,000 in 1993, 1994 and 1995, and five months ended May
31, 1996, respectively.
COLLECTIVE BARGAINING AGREEMENT
The Company is a party to a collective bargaining agreement with certain of
its employees. The agreement requires the Company to pay specified wages and
provide certain benefits to its union employees. This agreement will expire in
1999.
RELATED-PARTY TRANSACTIONS
The Company had net amounts due to affiliated companies of $27,000, $30,000
and $7,000, at December 31, 1994 and 1995, and May 31, 1996, respectively,
attributed primarily to services for purchased transportation and motorcoach
maintenance. These amounts are included in trade accounts payable.
ENVIRONMENTAL CONCERNS
Certain groundwater contamination has occurred at the Company's facility in
Mahwah, New Jersey as a result of leakage from an underground storage tank. As a
result of discussions with the State of New Jersey Department of Environmental
Protection (the Department), in December 1989, the Company submitted a Ground
Water Quality Assessment Program (GWQAP) work plan to the Department which
outlined a two-phase approach for the site assessment. Phase I and Phase II
reports were submitted to the Department in August 1990 and November 1990,
respectively. In August 1991, a Phase III report was submitted to the
Department, which detailed the Company's final stage of the assessment program.
In July 1992, the Company entered into a memorandum of agreement with the
Department as an alternative to the GWQAP under which the Company will sample
and monitor the groundwater contamination under the Department's oversight. A
sampling and monitoring schedule was submitted to the Department in September
1992 and was approved by the state of New Jersey in November 1994. The Company
has undertaken several remedial measures to improve groundwater quality at its
facility. The most recent groundwater sampling reports indicate that sampling
has been performed in accordance with the Department's Field Sampling Manual and
that the remedial measures taken by the Company have made an improvement in
groundwater quality at the site. The Company believes that the ultimate
resolution of this matter will not have a material adverse effect on the
financial position or results of operations of the Company. In addition, at the
Company's facility in Mahwah, the Company has discharged bus wash and toilet
waste into the groundwater. The Department has indicated that if the Company
continues to discharge this bus wash and toilet waste into the groundwater, the
Department would require the Company to connect to the public sanitary sewer
system. The Company has ceased discharging bus wash and bus toilet waste into
the groundwater. Currently, the Company periodically hauls this waste off-site
for disposal. After consulting with an environmental engineer, the Company
accrued approximately $220,000 which is included in accounts payable and accrued
liabilities at December 31, 1994 and 1995 for the anticipated cost of connecting
to the sewer system.
75
<PAGE>
LEISURE TIME TOURS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Prepaid insurance.................... $ 444 $ 703 $ 454
Deferred tax asset -- current........ 337 263 263
Other................................ 192 89 160
--------- --------- -------
$ 973 $ 1,055 $ 877
========= ========= =======
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Trade accounts payable............... $ 997 $ 887 $ 1,595
Accrued compensation and benefits.... 273 268 260
Accrued insurance claims payable..... 3,159 3,624 3,773
Other................................ 666 492 475
--------- --------- -------
$ 5,095 $ 5,271 $ 6,103
========= ========= =======
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on January 1,
1993.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. One
owner agreed to reductions in salary and benefits in connection with the Merger
and entered into a five-year employment agreement which provides for a set base
salary, participation in future incentive bonus plans, certain other benefits
and a two-year covenant not to compete following termination of such person's
employment.
The unaudited pro forma data present compensation at the level the
stockholder of the Company has agreed to receive from the Company subsequent to
the Merger. In addition, the pro forma data present the incremental provision
for income taxes as if the Company had been subject to federal income taxes and
for the income tax impact of the compensation differential discussed above.
76
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Community Bus Lines, Inc.:
We have audited the accompanying combined balance sheets of Community Bus
Lines, Inc. (a New Jersey corporation), and related companies as of December 31,
1994 and 1995, and May 31, 1996, and the related combined statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995, and for the five months ended May 31, 1996. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Community
Bus Lines, Inc., and related companies, as of December 31, 1994 and 1995, and
May 31, 1996, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, and for the five
months ended May 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
77
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 269 $ 209 $ 278
Accounts receivable, less
allowance of $10............. 183 183 208
Inventories..................... 257 307 289
Investments, including
restricted of $528, $580
and $0....................... 1,059 1,046 --
Prepaid expenses and other
current assets............... 766 1,022 443
--------- --------- -----------
Total current assets...... 2,534 2,767 1,218
PROPERTY AND EQUIPMENT, net.......... 2,590 3,241 3,488
OTHER ASSETS......................... 182 137 160
--------- --------- -----------
Total assets.............. $ 5,306 $ 6,145 $ 4,866
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 315 $ 497 $--
Accounts payable and accrued
liabilities.................. 2,485 2,953 2,524
Notes payable to stockholder.... 132 171 --
--------- --------- -----------
Total current
liabilities............... 2,932 3,621 2,524
LONG-TERM OBLIGATIONS, net of current
maturities...................... 784 1,191 --
DUE TO PARENT........................ -- -- 2,014
--------- --------- -----------
Total liabilities......... 3,716 4,812 4,538
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 7,500
shares authorized,
3,600 shares issued.......... 75 75 75
Additional paid-in capital...... 102 102 102
Retained earnings............... 1,837 1,580 575
Treasury stock, at cost......... (424) (424) (424)
--------- --------- -----------
Total stockholders'
equity.................. 1,590 1,333 328
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 5,306 $ 6,145 $ 4,866
========= ========= ===========
The accompanying notes are an integral part of these combined financial
statements.
78
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
------------------------------- JUNE 30, MAY 31,
1993 1994 1995 1995 1996
--------- --------- --------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 13,179 $ 14,106 $ 13,807 $6,598 $ 5,466
OPERATING EXPENSES................... 11,057 12,228 11,680 5,644 4,687
--------- --------- --------- ---------- -----------
Gross profit.............. 2,122 1,878 2,127 954 779
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,760 1,999 2,193 1,063 668
--------- --------- --------- ---------- -----------
Operating income (loss)... 362 (121) (66) (109) 111
OTHER (INCOME) EXPENSE:
Interest expense................ 264 228 262 143 83
Interest income................. (34) (38) (49) (12) (13)
Other, net...................... 28 49 (40) -- --
--------- --------- --------- ---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 104 (360) (239) (240) 41
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 1 (98) (177) (89) 17
--------- --------- --------- ---------- -----------
NET INCOME (LOSS).................... $ 103 $ (262) $ (62) $ (151) $ 24
========= ========= ========= ========== ===========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 103 $ (262) $ (62) $ (151) $ 24
Pro forma compensation
differential................. 818 1,015 1,449 585 143
Less: Pro forma provision for
income taxes................. 383 338 669 225 60
--------- --------- --------- ---------- -----------
PRO FORMA NET INCOME................. $ 538 $ 415 $ 718 $ 209 $ 107
========= ========= ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
79
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN TREASURY RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK EARNINGS EQUITY
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992......... 3,600 $ 75 $102 $ (424) $2,101 $ 1,854
Net income...................... -- -- -- -- 103 103
------ ------ ---------- -------- -------- -------------
BALANCE AT DECEMBER 31, 1993......... 3,600 75 102 (424) 2,204 1,957
Dividends paid.................. -- -- -- -- (105) (105)
Net loss........................ -- -- -- -- (262) (262)
------ ------ ---------- -------- -------- -------------
BALANCE AT DECEMBER 31, 1994......... 3,600 75 102 (424) 1,837 1,590
Dividends paid.................. -- -- -- -- (195) (195)
Net loss........................ -- -- -- -- (62) (62)
------ ------ ---------- -------- -------- -------------
BALANCE AT DECEMBER 31, 1995......... 3,600 75 102 (424) 1,580 1,333
------ ------ ---------- -------- -------- -------------
Dividends paid.................. -- -- -- -- (655) (655)
Distributions to stockholders... -- -- -- -- (374) (374)
Net income...................... -- -- -- -- 24 24
------ ------ ---------- -------- -------- -------------
BALANCE AT MAY 31, 1996.............. 3,600 $ 75 $102 $ (424) $ 575 $ 328
====== ====== ========== ======== ======== =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
80
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
--------- --------- --------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ 103 $ (262) $ (62) $ (151) $ 24
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Depreciation.................................... 365 349 350 171 143
(Gain) loss on sale of assets................... -- 15 (4) (4) (65)
Deferred tax provision (benefit)................ (3) (114) (204) (92) 9
Changes in operating assets and liabilities --
Accounts receivable, net...................... (36) (25) -- (137) (25)
Inventories................................... (41) (48) (50) (16) 18
Investments................................... -- 132 65 -- 466
Prepaid expenses and other current
assets..................................... (693) 404 (48) 361 236
Accounts payable and accrued liabilities...... 68 410 507 60 (429)
Other......................................... 158 74 41 8 (265)
--------- --------- --------- ------------ -----------
Net cash provided by (used in) operating
activities............................ (79) 935 595 200 112
--------- --------- --------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.................. -- (436) (1,001) (994) (571)
Proceeds from sales of property and equipment........ -- 10 4 4 277
Purchases of investments -- restricted............... -- (19) (52) (46) 580
--------- --------- --------- ------------ -----------
Net cash provided by (used in) investing
activities............................ -- (445) (1,049) (1,036) 286
--------- --------- --------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations.......... (910) (804) (459) (93) (2,424)
Proceeds from issuance of long-term
obligations........................................ 700 558 1,048 1,048 736
Advances from Parent................................. -- -- -- -- 2,014
Dividends paid....................................... -- (105) (195) (195) (655)
--------- --------- --------- ------------ -----------
Net cash provided by (used in) financing
activities............................ (210) (351) 394 760 (329)
--------- --------- --------- ------------ -----------
NET INCREASE (DECREASE) IN CASH........................... (289) 139 (60) (76) 69
CASH AND CASH EQUIVALENTS, beginning of year.............. 419 130 269 269 209
--------- --------- --------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of
year.................................................... $ 130 $ 269 $ 209 $ 193 $ 278
========= ========= ========= ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................... $ 248 $ 212 $ 294 $ 152 $ 81
Cash paid for income taxes........................... 30 31 14 14 --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
81
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Community Bus Lines, Inc., and its six affiliated companies (collectively,
the Company) operate city transit services, provide local commuter service and
provide motorcoach charter and group tour services. The Company operates
primarily in the New York/New Jersey metropolitan area.
The Company merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. All outstanding shares of the Company's common stock were
exchanged for cash and shares of Coach USA's common stock concurrent with the
consummation of the initial public offering (the Offering) of the common stock
of Coach USA. The Company's financial position and results of operations are
consolidated with Coach USA effective June 1, 1996 for financial reporting
purposes.
In connection with the Merger, the Company dividended certain assets to the
stockholders consisting of cash surrender value of life insurance policies and
automobiles with a total carrying value of $374,000, and also distributed
approximately $655,000 of investments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and results of
operations of Community Bus Lines, Inc., and certain affiliated companies which
are under common control and management of six related stockholders. All
significant intercompany transactions and balances have been eliminated.
INTERIM FINANCIAL INFORMATION
The interim financial statements for the six months ended June 30, 1995 are
unaudited, and certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the results of operations and cash flows with respect to the
consolidated interim financial statements, have been included. The results of
operations for the interim periods ended June 30, 1995 and May 31, 1996, are not
necessarily indicative of the results for the entire fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less as cash equivalents.
INVENTORIES
Inventories primarily consist of motorcoach replacement parts. Inventory
cost is accounted for on the first-in, first-out basis and reported at the lower
of cost or market.
INVESTMENTS
The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," which
requires that investments in debt securities and marketable equity securities be
designated as trading, held-to-maturity or available-for-sale. At December 31,
1994 and 1995, and May 31, 1996, investments have been categorized as trading
securities, are stated at fair value, and are classified in the balance sheets
as current assets. Investments at December 31, 1994 and 1995 consist of debt
securities, marketable equity securities and certificates of deposit.
The realized gains and losses on the sale of investments classified as
trading securities are determined using the specific identification method.
Unrealized gains/(losses) on trading securities totaling $(11,000), $(18,000)
and $25,000 are included in net income for the years ended December 31, 1993,
1994 and 1995,
82
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
respectively. The realized gain associated with liquidation of the investment
account during the five months ended May 31, 1996, is $5,000.
Included in investments at December 31, 1994 and 1995, are money market
funds and certificates of deposit of $528,000 and $580,000, respectively, which
are restricted as to withdrawal related to the Company's accrued insurance
claims payable.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs, including replacement of engines and certain other significant
costs, are expensed as costs are incurred.
Depreciation on transportation equipment and other assets for financial
reporting purposes is computed on the straight-line basis over the estimated
useful lives of the assets net of their estimated residual values.
TREASURY STOCK
Treasury stock represents shares of the Company's common stock acquired
from a related party and are carried at cost.
CONCENTRATION OF CREDIT RISK
The Company's credit risks primarily consist of accounts receivable from
governmental entities and various tour operators in the travel service industry.
Management performs ongoing credit evaluations of its customers and provides
allowances as deemed necessary.
REVENUE RECOGNITION
The Company recognizes revenue from recreation, excursion, commuter and
transit services when such services are rendered. Costs associated with the
revenues are incurred and recorded as services are rendered.
INCOME TAXES
One of the affiliated companies is a C Corporation and the remaining
companies are S Corporations for federal income tax purposes. Federal income
taxes for the C Corporation are provided under the liability method considering
the tax effects of transactions reported in the financial statements which are
different from the tax return. The deferred tax assets and liabilities represent
the future tax consequences of those differences, which will either be taxable
or deductible when the underlying assets or liabilities are recovered or
settled.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
83
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- MAY 31
(YEARS) 1994 1995 1996
------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment............. 12 $ 4,300 $ 4,926 $ 5,198
Other................................ 3-10 1,471 1,509 1,472
--------- --------- ---------
5,771 6,435 6,670
Less -- Accumulated depreciation..... (3,181) (3,194) (3,182)
--------- --------- ---------
$ 2,590 $ 3,241 $ 3,488
========= ========= =========
</TABLE>
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Notes payable to banks............... $ 1,001 $ 1,580 $ --
Other................................ 98 108 --
--------- --------- ---------
1,099 1,688 --
Less -- Current maturities........... (315) (497) --
--------- --------- ---------
$ 784 $ 1,191 $ --
========= ========= =========
DUE TO PARENT
During May 1996, the Company borrowed $2,014,000 from Coach USA at an
annual interest rate of 10 percent in order to repay long-term obligations and
for other financing activities. These borrowings are considered long-term as
Coach USA does not intend to call the outstanding balance owed by the Company
during the next twelve months.
NOTES PAYABLE TO STOCKHOLDER
The Company had borrowings from a stockholder totaling $132,000 and
$171,000 at December 31, 1994 and 1995, respectively. The borrowings were paid
off during the five months ended May 31, 1996.
84
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES:
The Company has implemented Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," which provides for a liability approach to
accounting for income taxes. The S Corporations in the affiliated group are not
subject to taxation for federal purposes. Under S Corporation status, the
stockholders report their share of the Company's taxable earnings or losses on
their personal income tax returns. These companies' S Corporation status
terminated with the effective date of the Merger. These companies are subject to
taxation in certain states based upon the jurisdiction in which revenues are
earned.
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 FIVE MONTHS
------------------------------- ENDED
1993 1994 1995 MAY 31, 1996
--------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current --
Federal......................... $ -- $ 5 $ 1 $ 7
State........................... 4 11 26 1
--------- --------- --------- ------------
4 16 27 8
--------- --------- --------- ------------
Deferred --
Federal......................... (8) (51) (172) (27)
State........................... 5 (63) (32) 36
--------- --------- --------- ------------
(3) (114) (204) 9
--------- --------- --------- ------------
$ 1 $ (98) $ (177) $ 17
========= ========= ========= ============
</TABLE>
Deferred taxes result from the effect of transactions which are recognized
in different periods for financial and tax reporting purposes and relate
primarily to depreciation and accrued insurance claims payable. Deferred income
taxes are recognized for tax consequences of temporary differences by applying
enacted statutory tax rates to differences between the financial reporting and
the tax bases of existing assets and liabilities.
The components of deferred income tax liabilities and assets are as
follows:
DECEMBER 31
-------------------- MAY 31,
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 101 $ 130 $ 45
Other........................... 25 33 --
--------- --------- -------
Total deferred income tax
liabilities............. 126 163 45
--------- --------- -------
Deferred income tax assets --
Accrued expenses................ (305) (546) (394)
Other........................... (3) (3) --
--------- --------- -------
Total deferred income tax
assets.................. (308) (549) (394)
--------- --------- -------
$ (182) $ (386) $(349)
========= ========= =======
85
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 FIVE MONTHS
------------------------------- ENDED
1993 1994 1995 MAY 31, 1996
--------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax at statutory rate................ $ 36 $ (126) $ (84) $ 14
Add (deduct) --
State income taxes........ 6 (34) (3) 5
Effect of S Corporation
income.................. (46) 59 (146) (22)
Other, net................ 5 3 56 20
--------- --------- --------- ------------
$ 1 $ (98) $ (177) $ 17
========= ========= ========= ============
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended December 31, 1993, 1994 and 1995, and
for the five months ended May 31, 1996 was approximately $190,000, $297,000,
$357,000, and $109,000, respectively. Included in these amounts are rent
expenses paid to affiliated companies of $97,000, $233,000, $300,000 and $99,000
for the years ended December 31, 1993, 1994 and 1995, and for the five months
ended May 31, 1996 respectively. Concurrent with the Merger, the Company entered
into agreements with the stockholders to lease land and buildings used in the
Company's operations for a negotiated amount and term. The terms of the leases
are May 1996 through May 2001 and May 1996 through May 2009 and provide for a 5
percent escalation in rent expense each year. The following represents future
minimum rental payments under noncancelable operating leases (in thousands):
Year ending December 31 --
1996............................ $ 136
1997............................ 240
1998............................ 241
1999............................ 253
2000............................ 266
Thereafter...................... 443
---------
$ 1,579
=========
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided for certain of these
actions in the accompanying combined financial statements. In the opinion of
management, uninsured losses, if any, resulting from the ultimate resolution of
these matters will not be material to the Company's financial position or
results of operations.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company has a commercial motorcoach liability insurance policy that
provides coverage by the insurance company, subject to a $100,000 deductible. As
such, any claim within the first $100,000 per incident would be the financial
obligation of the Company.
86
<PAGE>
COMMUNITY BUS LINES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policy for claims occurring through May 31, 1996. The accrual is
based on known facts and historical trends, and management believes such accrual
to be adequate.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to collective bargaining agreements with certain of
its employees. The agreements require the Company to pay specified wages and
provide certain benefits to its union employees. These agreements expire in
1998.
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ------
(IN THOUSANDS)
Prepaid insurance.................... $ 191 $ 226 $ 110
Deferred tax asset -- current........ 89 297 297
Cash surrender value of life
insurance............................ 462 479 --
Other................................ 24 20 36
--------- --------- ------
$ 766 $ 1,022 $ 443
========= ========= ======
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ------
(IN THOUSANDS)
Trade accounts payable............... $ 306 $ 263 $ 162
Accrued compensation and benefits.... 143 634 117
Accrued insurance claims payable..... 1,755 1,810 1,634
Other................................ 281 246 611
--------- --------- ------
$ 2,485 $ 2,953 $2,524
========= ========= ======
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on January 1,
1993.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. One
owner agreed to reductions in salary and benefits in connection with the Merger
and entered into five-year employment agreements which provide for a set base
salary, participation in future incentive bonus plans, certain other benefits
and a two-year covenant not to compete following termination of such person's
employment.
The unaudited pro forma data present compensation at the level the
stockholder of the Company has agreed to receive from the Company subsequent to
the Merger. In addition, the pro forma data present the incremental provision
for income taxes as if all of the affiliated companies had been subject to
federal income taxes and for the income tax impact of the compensation
differential discussed above.
87
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cape Transit Corp.:
We have audited the accompanying balance sheets of Cape Transit Corp. (a
New Jersey corporation) as of December 31, 1994 and 1995, and May 31, 1996, and
the related statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995, and for the five
months ended May 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cape Transit Corp. as of
December 31, 1994 and 1995, and May 31, 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995 and for the five months ended May 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
88
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 129 $ 20 $ 56
Accounts receivable, less
allowance of $14, $16 and
$16.......................... 77 141 228
Inventories..................... 367 326 326
Prepaid expenses and other
current assets............... 97 27 27
--------- --------- -------
Total current assets...... 670 514 637
PROPERTY AND EQUIPMENT, net.......... 8,521 8,294 11,101
OTHER ASSETS......................... 46 36 14
--------- --------- -------
Total assets.............. $ 9,237 $ 8,844 $11,752
========= ========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,648 $ 1,708 $ 431
Accounts payable and accrued
liabilities.................. 1,397 1,223 1,363
Notes payable to stockholders... 315 315 --
--------- --------- -------
Total current
liabilities............. 3,360 3,246 1,794
LONG-TERM OBLIGATIONS, net of current
maturities......................... 5,653 4,675 892
DUE TO PARENT........................ -- -- 8,174
DEFERRED INCOME TAXES................ 120 142 145
--------- --------- -------
Total liabilities......... 9,133 8,063 11,005
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 2,500
shares authorized, 300 shares
issued....................... 16 16 16
Retained earnings............... 88 765 731
--------- --------- -------
Total stockholders'
equity.................. 104 781 747
--------- --------- -------
Total liabilities and
stockholders' equity.... $ 9,237 $ 8,844 $11,752
========= ========= =======
The accompanying notes are an integral part of these financial statements.
89
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
--------- --------- --------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 8,494 $ 10,001 $ 11,053 $5,239 $ 4,392
OPERATING EXPENSES................... 6,665 8,457 8,241 4,126 3,592
--------- --------- --------- ------------ -----------
Gross profit.............. 1,829 1,544 2,812 1,113 800
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 840 968 1,089 517 516
--------- --------- --------- ------------ -----------
Operating income.......... 989 576 1,723 596 284
OTHER (INCOME) EXPENSE:
Interest expense................ 640 683 787 385 309
Other, net...................... (14) (42) 141 (3) --
--------- --------- --------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES.... 363 (65) 795 214 (25)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 35 (7) 76 20 (2)
--------- --------- --------- ------------ -----------
NET INCOME (LOSS).................... $ 328 $ (58) $ 719 $ 194 $ (23)
========= ========= ========= ============ ===========
PRO FORMA DATA (Unaudited):
Historical net income (loss).... $ 328 $ (58) $ 719 $ 194 $ (23)
Pro forma compensation
differential................. 79 86 142 71 17
Less: Pro forma provision
(benefit) for income taxes... 152 16 324 103 (1)
--------- --------- --------- ------------ -----------
PRO FORMA NET INCOME (LOSS).......... $ 255 $ 12 $ 537 $ 162 $ (5)
========= ========= ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
90
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ --------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992......... 300 $ 16 $ (99) $ (83)
Dividends paid.................. -- -- (42) (42)
Net income...................... -- -- 328 328
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1993......... 300 16 187 203
Dividends paid.................. -- -- (41) (41)
Net loss........................ -- -- (58) (58)
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1994......... 300 16 88 104
Dividends paid.................. -- -- (42) (42)
Net income...................... -- -- 719 719
------ ------ --------- -------------
BALANCE AT DECEMBER 31, 1995......... 300 16 765 781
Dividends paid.................. -- -- (11) (11)
Net loss........................ -- -- (23) (23)
------ ------ --------- -------------
BALANCE AT MAY 31, 1996.............. 300 $ 16 $ 731 $ 747
====== ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
91
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FIVE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
------------------------------- JUNE 30 MAY 31
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 328 $ (58) $ 719 $ 194 $ (23)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation............... 377 634 593 283 287
(Gain) loss on sale of
assets................... -- (42) 60 -- --
Deferred tax provision
(benefit)................ 35 (7) 58 21 (16)
Changes in operating assets
and liabilities --
Accounts receivable,
net................... 52 (8) (64) (77) (87)
Inventories.............. (209) (50) 41 41 --
Prepaid expenses and
other current
assets................ (61) 9 60 65 --
Accounts payable and
accrued liabilities 447 277 (174) 102 140
Other.................... (31) 21 (16) -- 41
--------- --------- --------- ----------- -----------
Net cash provided by
operating
activities....... 938 776 1,277 629 342
--------- --------- --------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (954) (2,163) (711) (14) (3,094)
Proceeds from sales of property
and equipment................. -- 1,172 285 -- --
--------- --------- --------- ----------- -----------
Net cash used in
investing
activities....... (954) (991) (426) (14) (3,094)
--------- --------- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations................... (1,012) (2,954) (1,545) (703) (6,073)
Proceeds from issuance of
long-term obligations......... 1,085 3,294 627 85 698
Advances from parent............ -- -- -- -- 8,174
Dividends paid.................. (42) (41) (42) (21) (11)
--------- --------- --------- ----------- -----------
Net cash provided by
(used in)
financing
activities....... 31 299 (960) (639) 2,788
--------- --------- --------- ----------- -----------
NET INCREASE (DECREASE) IN CASH...... 15 84 (109) (24) 36
CASH AND CASH EQUIVALENTS, beginning
of year 30 45 129 129 20
--------- --------- --------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 45 $ 129 $ 20 $ 105 $ 56
========= ========= ========= =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 649 $ 799 $ 680 $ 350 $ 304
</TABLE>
The accompanying notes are an integral part of these financial statements.
92
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Cape Transit Corp., operating as Adventure Trails (the Company), provides
motorcoach services to the Atlantic City, New Jersey, casinos (the casinos),
including shuttles from the airport, scheduled service from Philadelphia,
Pennsylvania, and contract service for employee shuttles. The Company also
provides charter and group tour services.
The Company merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. All outstanding shares of the Company's common stock were
exchanged for cash and shares of Coach USA's common stock concurrent with the
consummation of the initial public offering (the Offering) of the common stock
of Coach USA. The Company's financial position and results of operations are
consolidated with Coach USA effective June 1, 1996 for financial reporting
purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less as cash equivalents.
INTERIM FINANCIAL INFORMATION
The interim financial statements for the six months ended June 30, 1995 are
unaudited, and certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the results of operations and cash flows with respect to the
consolidated interim financial statements, have been included. The results of
operations for the interim periods ended June 30, 1995 and May 31, 1996, are not
necessarily indicative of the results for the entire fiscal year.
INVENTORIES
Inventories primarily consist of motorcoach replacement parts. Inventory
cost is accounted for on the first-in, first-out basis and reported at the lower
of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs, including replacement of engines and certain other significant
costs, are expensed as costs are incurred.
Depreciation on transportation equipment and other assets for financial
reporting purposes is computed on the straight-line basis over the estimated
useful lives of the assets net of their estimated residual values.
CONCENTRATION OF CREDIT RISK
The Company's credit risks primarily consist of accounts receivable from
the casinos or their affiliates, or businesses dependent upon the casinos.
Management performs ongoing credit evaluations of its customers and provides
allowances as deemed necessary.
REVENUE RECOGNITION
The Company recognizes revenue from recreation, excursion and commuter
services when such services are rendered. Costs associated with the revenues are
incurred and recorded as services are rendered.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
93
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- MAY 31
(YEARS) 1994 1995 1996
------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment............. 12 $ 9,411 $ 9,639 $ 12,733
Other................................ 5-10 304 347 347
--------- --------- ---------
9,715 9,986 13,080
Less --Accumulated depreciation...... (1,194) (1,692) (1,979)
--------- --------- ---------
$ 8,521 $ 8,294 $ 11,101
========= ========= =========
</TABLE>
Included in transportation equipment at December 31, 1994 and 1995, and May
31, 1996, is approximately $5,097,000 and $5,325,000, $1,974,940 respectively,
of assets held under capital leases.
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Notes payable to financial
institutions, interest ranging from
prime (8.5% at December 31, 1995)
plus 1.5%, to 11.5%, due in monthly
installments of $47,600, maturing
at various dates through November
2004; secured by certain
transportation equipment and the
personal guarantees of the
stockholders....................... $ 3,257 $ 2,758 $ 229
Obligations under capital leases of
certain transportation equipment,
implicit interest rates ranging
from 4.8% to 13.5%, due in monthly
installments of $31,540, maturing
at various dates through 2002...... 2,986 2,708 1,094
Notes payable to a bank.............. 1,058 917 --
--------- --------- ---------
7,301 6,383 1,323
Less -- Current maturities........... (1,648) (1,708) (431)
--------- --------- ---------
$ 5,653 $ 4,675 $ 892
========= ========= =========
94
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At May 31, 1996, future principal payments of long-term obligations and
minimum lease payments under capital lease obligations are as follows:
LONG-TERM CAPITAL LEASE
OBLIGATIONS OBLIGATIONS
------------ -------------
(IN THOUSANDS)
Year ending December 31 --
1996...................... $ 84 $ 221
1997...................... 91 349
1998...................... 38 261
1999...................... 16 190
2000...................... -- 98
Thereafter................ -- 102
------------ -------------
$229 1,221
============
Less -- Amounts representing
interest..................... (127)
-------------
$ 1,094
=============
Management estimates that the fair value of its debt obligations
approximates the historical value of $229,000 at May 31, 1996.
DUE TO PARENT (UNAUDITED)
During May 1996, the Company borrowed $8,174,000 from Coach USA at an
annual interest rate of 10 percent in order to repay long-term obligations and
for other financing activities. These borrowings are considered long-term as
Coach USA does not intend to call the outstanding balance owed by the Company
during the next twelve months.
NOTES PAYABLE TO STOCKHOLDERS
The Company had borrowings from stockholders totaling $315,000 at December
31, 1994 and 1995. The borrowings are unsecured, noninterest-bearing and payable
upon demand. During 1996, these borrowings were repaid by Coach USA in
connection with the Merger.
5. INCOME TAXES:
The Company has elected S Corporation status, as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of the
Company's taxable earnings or losses on their personal income tax returns. The
Company's S Corporation status terminated with the effective date of the Merger.
The Company is subject to taxation in certain states based upon the jurisdiction
in which revenues are earned.
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 FIVE MONTHS
------------------------------- ENDED
1993 1994 1995 MAY 31, 1996
--------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
State --
Current................... $ -- $ -- $ 18 $ 14
Deferred.................. 35 (7) 58 (16)
--------- --------- --------- ------------
$ 35 $ (7) $ 76 $ (2)
========= ========= ========= ============
</TABLE>
95
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes result from the effect of transactions which are recognized
in different periods for financial and tax reporting purposes and relate
primarily to depreciation and accrued insurance claims payable. Deferred income
taxes are recognized for tax consequences of temporary differences by applying
enacted statutory tax rates to differences between the financial reporting and
the tax bases of existing assets and liabilities.
The components of deferred income tax liabilities and assets are as
follows:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Deferred income tax liabilities --
Property and equipment.......... $ 120 $ 142 $ 145
--------- --------- -------
Total deferred income tax
liabilities............. 120 142 145
--------- --------- -------
Deferred income tax assets --
Accrued expenses................ (39) (34) (53)
Other........................... (34) (3) (3)
--------- --------- -------
Total deferred income tax
assets.................. (73) (37) (56)
--------- --------- -------
$ 47 $ 105 $ 89
========= ========= =======
6. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain facilities and equipment under noncancelable
leases. Rental expense for the years ended December 31, 1993, 1994 and 1995, and
for the five months ended May 31, 1996, was $53,000, $56,000, $67,000 and
$36,000, respectively. The following represents future minimum rental payments
under noncancelable operating leases (in thousands):
Year ending December 31 --
1996............................ $ 29
1997............................ 46
1998............................ 42
1999............................ 42
2000............................ 39
---------
$ 198
=========
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided for certain of these
actions in the accompanying financial statements. In the opinion of management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not be material to the Company's financial position or results of
operations.
96
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company has a commercial motorcoach liability insurance policy that
provides coverage by the insurance company, subject to a $10,000 deductible. As
such, any claim within the first $10,000 per incident would be the financial
obligation of the Company.
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policy for claims occurring through May 31, 1996. The accrual is
based on known facts and historical trends, and management believes such accrual
to be adequate.
COLLECTIVE BARGAINING AGREEMENT
The Company is a party to collective bargaining agreements, effective as of
July 1, 1996, with certain of its employees. These agreements require the
Company to pay specified wages and provide certain benefits to its union
employees. These agreements expire June 30, 1999.
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Prepaid insurance.................... $ 60 $ -- $ --
Deferred tax asset -- current........ 37 27 27
--------- --------- ---------
$ 97 $ 27 $ 27
========= ========= =========
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Trade accounts payable............... $ 735 $ 371 $ 501
Accrued compensation and benefits.... 203 197 159
Accrued insurance claims payable..... 44 99 99
Other................................ 415 556 604
--------- --------- ---------
$ 1,397 $ 1,223 $ 1,363
========= ========= =========
97
<PAGE>
CAPE TRANSIT CORP.
(OPERATING AS ADVENTURE TRAILS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on January 1,
1993.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. One
owner agreed to reductions in salary and benefits in connection with the Merger
and entered into a five-year employment agreement which provides for a set base
salary, participation in future incentive bonus plans, certain other benefits
and a two-year covenant not to compete following termination of such person's
employment.
The unaudited pro forma data present compensation at the level the
respective stockholder of the Company has agreed to receive from the Company
subsequent to the Merger. In addition, the pro forma data present the
incremental provision for income taxes as if the Company had been subject to
federal income taxes and for the income tax impact of the compensation
differential discussed above.
98
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Arrow Stage Lines, Inc.:
We have audited the accompanying balance sheets of Arrow Stage Lines, Inc.
(a Nebraska corporation), as of September 30, 1994 and 1995, and May 31, 1996,
and the related statements of income, stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1995, and for the
eight months ended May 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Arrow Stage Lines, Inc., as
of September 30, 1994 and 1995, and May 31, 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1995, and for the eight months ended May 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 2, 1996
99
<PAGE>
ARROW STAGE LINES, INC.
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30
-------------------- MAY 31
1994 1995 1996
--------- --------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 147 $ 286 $ 3
Accounts receivable, less
allowance of $34, $38
and $38...................... 1,067 1,021 929
Inventories..................... 285 297 369
Investments..................... 278 543 --
Prepaid expenses and other
current assets............... 322 458 184
--------- --------- ----------
Total current assets...... 2,099 2,605 1,485
PROPERTY AND EQUIPMENT, net.......... 13,559 14,581 16,761
OTHER ASSETS......................... 325 196 --
--------- --------- ----------
Total assets.............. $ 15,983 $ 17,382 $ 18,246
========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................. $ 1,659 $ 1,887 $ 351
Accounts payable and accrued
liabilities.................. 1,038 1,338 1,014
--------- --------- ----------
Total current
liabilities............. 2,697 3,225 1,365
LONG-TERM OBLIGATIONS, net of current
maturities......................... 9,024 9,117 1,004
DUE TO PARENT........................ -- -- 12,296
--------- --------- ----------
Total liabilities......... 11,721 12,342 14,665
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $100 par, 990
shares authorized,
10 shares issued............. 1 1 1
Retained earnings............... 4,261 5,039 3,580
--------- --------- ----------
Total stockholders'
equity.................. 4,262 5,040 3,581
--------- --------- ----------
Total liabilities and
stockholders' equity.... $ 15,983 $ 17,382 $ 18,246
========= ========= ==========
The accompanying notes are an integral part of these financial statements.
100
<PAGE>
ARROW STAGE LINES, INC.
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS SIX MONTHS FIVE MONTHS
YEAR ENDED SEPTEMBER 30 ENDED ENDED ENDED
------------------------------- MAY 31 JUNE 30 MAY 31
1993 1994 1995 1996 1995 1996
--------- --------- --------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 9,469 $ 10,039 $ 10,650 $6,670 $5,317 $ 4,459
OPERATING EXPENSES................... 6,655 6,957 7,222 4,860 3,540 2,558
--------- --------- --------- ------------ ------------ -----------
Gross profit.............. 2,814 3,082 3,428 1,810 1,777 1,901
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,216 1,493 1,751 1,012 889 675
--------- --------- --------- ------------ ------------ -----------
Operating income.......... 1,598 1,589 1,677 798 888 1,226
OTHER (INCOME) EXPENSE:
Interest expense................ 726 773 807 664 419 437
Interest income................. (76) (19) (41) (29) (30) (7)
Other, net...................... (149) (220) (108) (401) -- --
--------- --------- --------- ------------ ------------ -----------
INCOME BEFORE INCOME TAXES........... 1,097 1,055 1,019 564 499 796
PROVISION FOR INCOME TAXES........... -- -- -- -- -- --
--------- --------- --------- ------------ ------------ -----------
NET INCOME........................... $ 1,097 $ 1,055 $ 1,019 $ 564 $ 499 $ 796
========= ========= ========= ============ ============ ===========
PRO FORMA DATA (Unaudited):
Historical net income........... $ 1,097 $ 1,055 $ 1,019 $ 564 $ 499 $ 796
Pro forma compensation
differential................. 60 30 32 35 17 27
Less: Pro forma provision
(benefit) for income taxes... 480 432 431 246 211 346
--------- --------- --------- ------------ ------------ -----------
PRO FORMA NET INCOME................. $ 677 $ 653 $ 620 $ 353 $ 305 $ 477
========= ========= ========= ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
101
<PAGE>
ARROW STAGE LINES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1992........ 10 $1 $2,182 $ 2,183
Dividends paid.................. -- -- (73) (73)
Net income...................... -- -- 1,097 1,097
------ ------ -------- -------------
BALANCE AT SEPTEMBER 30, 1993........ 10 1 3,206 3,207
Net income...................... -- -- 1,055 1,055
------ ------ -------- -------------
BALANCE AT SEPTEMBER 30, 1994........ 10 1 4,261 4,262
Dividends paid.................. -- -- (241) (241)
Net income...................... -- -- 1,019 1,019
------ ------ -------- -------------
BALANCE AT SEPTEMBER 30, 1995........ 10 1 5,039 5,040
------ ------ -------- -------------
Dividends paid.................. -- -- (963) (963)
Distribution to stockholders.... -- -- (1,060) (1,060)
Net income...................... -- -- 564 564
------ ------ -------- -------------
BALANCE AT MAY 31, 1996.............. 10 $1 $3,580 $ 3,581
====== ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
102
<PAGE>
ARROW STAGE LINES, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS SIX MONTHS FIVE MONTHS
YEAR ENDED SEPTEMBER 30 ENDED ENDED ENDED
------------------------------- MAY 31 JUNE 30 MAY 31
1993 1994 1995 1996 1995 1996
--------- --------- --------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 1,097 $ 1,055 $ 1,019 $ 564 $ 499 $ 796
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation.................... 766 926 1,240 706 626 356
Gain on sale of assets.......... (146) (180) (49) (470) (38) (220)
Changes in operating assets and
liabilities --
Accounts receivable, net........ (211) (193) 46 92 72 (595)
Inventories..................... (62) (70) (12) (72) 10 (98)
Investments..................... -- (16) (265) 543 -- --
Prepaid expenses and other
current assets................ (179) (120) (136) 336 (83) 101
Accounts payable and accrued
liabilities................... 167 222 300 (240) 347 111
Other........................... (9) (154) 129 (83) 100 270
--------- --------- --------- ------------ ------------ -----------
Net cash provided by
operating
activities....... 1,423 1,470 2,272 1,376 1,533 721
--------- --------- --------- ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (103) (759) (2,513) (5,783) (2,682) (5,311)
Proceeds from sales of property
and
equipment..................... 183 -- 300 1,935 -- 1,935
--------- --------- --------- ------------ ------------ -----------
Net cash provided by
(used in)
investing
activities....... 80 (759) (2,213) (3,848) (2,682) (3,376)
--------- --------- --------- ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
obligations................... (2,115) (1,382) (2,128) (13,511) (652) (13,243)
Proceeds from issuance of
long-term obligations......... 753 572 2,449 4,367 2,172 3,932
Advances from Parent............ -- -- -- 12,296 -- 12,296
Dividends paid.................. (73) -- (241) (963) (136) (422)
--------- --------- --------- ------------ ------------ -----------
Net cash provided by
(used in)
financing
activities....... (1,435) (810) 80 2,189 1,384 2,563
--------- --------- --------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH...... 68 (99) 139 (283) 235 (92)
CASH AND CASH EQUIVALENTS, beginning
of year............................ 178 246 147 286 2 95
--------- --------- --------- ------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of
year................................. $ 246 $ 147 $ 286 $ 3 $ 237 $ 3
========= ========= ========= ============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 697 $ 774 $ 807 $ 632 $ 415 $ 407
</TABLE>
The accompanying notes are an integral part of these financial statements.
103
<PAGE>
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Arrow Stage Lines, Inc. (the Company), provides motorcoach charter services
principally in the southwestern United States.
The Company merged with a subsidiary of Coach USA, Inc. (Coach USA) (the
Merger) in May, 1996. All outstanding shares of the Company's common stock were
exchanged for cash and shares of Coach USA's common stock concurrent with the
consummation of the initial public offering (the Offering) of the common stock
of Coach USA. The Company's financial position and results of operations are
consolidated with Coach USA effective June 1, 1996 for financial reporting
purposes.
In connection with the Merger, the Company dividended certain assets to the
stockholders consisting of land, buildings, cash surrender value of life
insurance and automobiles, with a total carrying value of $1,060,000. In
addition, the Company made a cash distribution of approximately $729,000 prior
to the Merger which represents the Company's estimated S Corporation accumulated
adjustment account.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements for the six months ended June 30, 1995 and
the five months ended May 31, 1996, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the results of operations and cash
flows with respect to the consolidated interim financial statements, have been
included. The results of operations for the interim periods ended June 30, 1995
and May 31, 1996 are not necessarily indicative of the results for the entire
fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less as cash equivalents.
INVENTORIES
Inventories primarily consist of motorcoach replacement parts. Inventory
cost is accounted for on the first-in, first-out basis and reported at the lower
of cost or market.
INVESTMENTS
The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," which
requires that investments in debt securities and marketable equity securities be
designated as trading, held-to-maturity or available-for-sale. At September 30,
1994 and 1995, investments have been categorized as trading securities, are
stated at fair value, and are classified in the balance sheets as current
assets. Investments at September 30, 1994 and 1995, consist of money market and
mutual funds. As of May 31, 1996, all investments were liquidated as part of the
Merger.
The realized gains and losses on the sale of investments classified as
trading securities are determined using the specific identification method.
Unrealized gains, (losses) on trading securities totaling $2,000, $(3,000) and
$52,000 and $18,000 are included in net income for the years ended September 30,
1993, 1994 and 1995, and for the eight months ended May 31, 1996, respectively.
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.
104
<PAGE>
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation on transportation equipment and other assets for financial
reporting purposes is computed on the straight-line basis over the estimated
useful lives of the assets net of their estimated residual values.
CONCENTRATION OF CREDIT RISK
The Company's credit risks primarily consist of accounts receivable from
various tour operators in the travel service industry. One of the Company's
customers individually represents 20%, 18%, 20% and 12% of total revenues for
the years ended September 30, 1993, 1994 and 1995, and for the eight months
ended May 31, 1996, respectively. Management performs ongoing credit evaluations
of its customers and provides allowances as deemed necessary.
REVENUE RECOGNITION
The Company recognizes revenue from recreation and excursion services when
such services are rendered. Costs associated with the revenues are incurred and
recorded as services are rendered.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 30
USEFUL LIVES -------------------- MAY 31
(YEARS) 1994 1995 1996
------------ --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation equipment............. 12 $ 14,288 $ 15,720 $ 18,927
Other................................ 3-31 1,989 2,075 455
--------- --------- ---------
16,277 17,795 19,382
Less -- Accumulated depreciation..... (2,718) (3,214) (2,621)
--------- --------- ---------
$ 13,559 $ 14,581 $ 16,761
========= ========= =========
</TABLE>
Included in transportation equipment at September 30, 1994 and 1995, and
May 31, 1996, is approximately $8,110,000, $7,726,000, and $2,191,000,
respectively, of assets held under capital leases.
105
<PAGE>
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
SEPTEMBER 30
-------------------- MAY 31
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Obligations under capital leases
of certain transportation
equipment and other assets,
implicit interest rates
ranging from 6.0% to 9.1%,
due in monthly installments
of $30,827, maturing at
various dates through 2001... $ -- $ -- $ 1,355
Obligations under capital leases
of certain transportation
equipment, implicit interest
rates ranging from 6.1% to
9.7%, due in monthly
installments of $93,809,
maturing at various dates
through 2002................. 6,379 5,157 --
Notes payable to bank........... 4,304 5,847 --
--------- --------- ---------
10,683 11,004 1,355
Less -- Current maturities...... (1,659) (1,887) (351)
--------- --------- ---------
$ 9,024 $ 9,117 $ 1,004
========= ========= =========
At May 31, 1996, future principal payments of long-term obligations and
minimum lease payments under capital lease obligations are as follows:
CAPITAL LEASE
OBLIGATIONS
--------------
(IN THOUSANDS)
Year ending September 30 --
1996............................ $ 123
1997............................ 407
1998............................ 331
1999............................ 207
2000............................ 202
Thereafter...................... 305
--------------
1,575
==============
Less -- Amounts representing
interest........................... (220)
--------------
$1,355
==============
DUE TO PARENT (UNAUDITED)
During May 1996, the Company borrowed $12,296,000 from Coach USA at an
annual interest rate of 10 percent in order to repay long-term obligations and
for other financing activities. These borrowings are considered long-term as
Coach USA does not intend to call the outstanding balance owed by the Company
during the next twelve months.
5. INCOME TAXES:
The Company has elected S Corporation status, as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal and
state purposes. Under S Corporation status, the
106
<PAGE>
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stockholders report their share of the Company's taxable earnings or losses on
their personal income tax returns. The Company's S Corporation status terminated
with the effective date of the Merger.
6. COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENTS
The Company has entered into commitments to purchase 15 motorcoaches as of
May 31, 1996, for approximately $4,600,000. The Company intends to trade in a
similar number of motorcoaches and finance the balance with bank debt which is
presently being negotiated.
LEASES
The Company leases certain equipment under noncancelable leases. Rental
expense for the years ended September 30, 1993, 1994 and 1995 for the eight
months ended May 31, 1996, was $1,000, $5,000, $5,000 and $3,000, respectively.
Concurrent with the Merger, the Company entered into agreements with the
stockholders to lease land and buildings used in the Company's operations for a
negotiated amount and term. The following represents future minimum rental
payments under noncancelable operating leases (in thousands):
Period ending September 30 --
1996............................ $ 30
1997............................ 91
1998............................ 91
1999............................ 91
2000............................ 91
Thereafter...................... 57
---------
$ 451
=========
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided for certain of these
actions in the accompanying financial statements. In the opinion of management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not be material to the Company's financial position or results of
operations.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company has a commercial motorcoach liability insurance policy that
provides coverage by the insurance company, subject to a $25,000 deductible. As
such, any claim within the first $25,000 per incident would be the financial
obligation of the Company.
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policy for claims occurring through May 31, 1996. The accrual is
based on known facts and historical trends, and management believes such accrual
to be adequate.
107
<PAGE>
ARROW STAGE LINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
SEPTEMBER 30
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Prepaid insurance.................... $ 54 $ 35 $ 86
Cash surrender value of life
insurance.......................... 71 133 --
Other................................ 197 290 98
--------- --------- -------
$ 322 $ 458 $ 184
========= ========= =======
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
SEPTEMBER 30
-------------------- MAY 31
1994 1995 1996
--------- --------- -------
(IN THOUSANDS)
Trade accounts payable............... $ 421 $ 426 $ 186
Accrued compensation and benefits.... 179 292 223
Deferred revenue..................... 133 195 129
Accrued insurance claims payable..... 61 67 67
Other................................ 244 358 409
--------- --------- -------
$ 1,038 $ 1,338 $ 1,014
========= ========= =======
9. PRO FORMA NET INCOME (UNAUDITED):
Pursuant to the Merger, the pro forma information has been presented for
the purpose of reflecting net income as if the Merger had occurred on October 1,
1992.
General and administrative expenses for the periods presented reflect
compensation and related benefits that owners received during the periods. These
owners agreed to reductions in salaries and benefits in connection with the
Merger and entered into five-year employment agreements which provide for a set
base salary, participation in future incentive bonus plans, certain other
benefits and a two-year covenant not to compete following termination of such
person's employment.
The unaudited pro forma data present compensation at the level the
respective stockholders of the Company have agreed to receive from the Company
subsequent to the Merger. In addition, the pro forma data present the
incremental provision for income taxes as if the Company had been subject to
federal and state income taxes and for the income tax impact of the compensation
differential discussed above.
108
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coach USA, Inc.
We have audited the accompanying balance sheets of Coach USA, Inc. (a
Delaware corporation) as of December 31, 1995 and May 31, 1996, and the related
statements of income, stockholders' equity and cash flows for the period from
inception (September, 1995) to December 31, 1995 and for the five months ended
May 31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Coach USA, Inc. as of
December 31, 1995 and May 31, 1996, and the results of its operations and its
cash flows for the period from inception (September, 1995) to December 31, 1995
and for the five months ended May 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas,
August 2, 1996
109
<PAGE>
COACH USA, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31 MAY 31
1995 1996
----------- ---------
ASSETS
CASH AND CASH EQUIVALENTS............ $ 1 $ 8
DEFERRED OFFERING COSTS.............. 188 5,173
PROPERTY AND EQUIPMENT, net.......... 9 49
OTHER ASSETS......................... -- 54
----------- ---------
Total assets.............. $ 198 $ 5,284
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE
TO A STOCKHOLDER................... $ 197 $ 5,260
----------- ---------
Total liabilities......... 197 5,260
----------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par,
30,000,000 shares authorized,
1,473,724 and 2,165,724 shares
issued........................ 15 22
Additional paid-in capital...... (14) 2,055
Retained earnings (deficit)..... -- (2,053)
----------- ---------
Total stockholders'
equity.................. 1 24
----------- ---------
Total liabilities and
stockholders' equity.... $ 198 $ 5,284
=========== =========
The accompanying notes are an integral part of these financial statements.
110
<PAGE>
COACH USA, INC.
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
INCEPTION FIVE MONTHS
THROUGH ENDED
DECEMBER 31, MAY 31,
1995 1996
------------ ------------
GENERAL AND ADMINISTRATIVE
EXPENSES........................... -- $ 2,176
------------ ------------
Operating loss.................. -- (2,176)
OTHER INCOME......................... -- 139
------------ ------------
LOSS BEFORE INCOME TAXES............. -- (2,037)
PROVISION FOR INCOME TAXES........... 16
------------ ------------
NET LOSS............................. $ -- $ (2,053)
============ ============
NET LOSS BEFORE INCOME TAX...........
PRO FORMA DATA (Unaudited):
Historical net loss............. $ -- $ (2,053)
Pro forma non-recurring
charge........................ -- 2,076
------------ ------------
PRO FORMA NET INCOME................. $ -- $ 23
============ ============
The accompanying notes are an integral part of these financial statements.
111
<PAGE>
COACH USA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- ------- ----------- --------- -------------
Balance at September, 1995
<S> <C> <C> <C> <C>
(inception)........................ -- $ -- $-- $ -- $--
Issuance of Common Stock............. 1,474 15 (14) -- 1
------- ------- ----------- --------- -------------
Balance at December 31, 1995......... 1,474 15 (14) -- 1
Issuance of Common Stock............. 692 7 2,069 -- 2,076
Net (Loss)........................... -- -- -- (2,053) (2,053)
------- ------- ----------- --------- -------------
Balance at May 31, 1996.............. 2,166 $ 22 $ 2,055 $ (2,053) $ 24
======= ======= =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
112
<PAGE>
COACH USA, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
INCEPTION FIVE MONTHS
THROUGH ENDED
DECEMBER 31, MAY 31,
1995 1996
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............... -$- $(2,053)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Non-recurring, non-cash
charge.................. -- 2,076
Depreciation.............. -- 1
Changes in operating
assets and
liabilities --
Prepaid expenses and
other current
assets........... -- (4,985)
Accounts payable and
accrued
liabilities...... 9 5,056
Other................ -- (54)
------------- -----------
Net cash
provided by
operating
activities... 9 41
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (9) (41)
------------- -----------
Net cash used
in investing
activities... (9) (41)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock........ 1 7
Net cash provided by financing
activities....................
------------- -----------
NET INCREASE (DECREASE) IN CASH...... 1 7
CASH AND EQUIVALENTS, beginning of
period............................. -- 1
------------- -----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 1 $ 8
============= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... -$- $--
The accompanying notes are an integral part of these financial statements.
113
<PAGE>
COACH USA, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Coach USA, Inc. (Coach USA or the Company) was founded in September 1995,
to create a nationwide motorcoach service provider. Coach USA acquired local and
regional motorcoach companies, completed an initial public offering (IPO) of its
common stock and, subsequent to the IPO, intends to continue to acquire, through
merger or purchase, similar passenger ground transportation companies to expand
their national and regional operations.
Coach USA's primary assets at December 31, 1995 and May 31, 1996, are cash
and deferred offering costs. Coach USA has not conducted any operations and all
activities to date have related to the acquisitions and the IPO. Cash of $1,000
was generated from the initial capitalization of the Company in 1995 and another
$7,000 in 1996. Other expenditures to date have been funded by a stockholder on
behalf of the Company.
2. BASIS OF PRESENTATION:
The Company incurred costs, including professional fees and travel,
associated with the acquisition of the Founding Companies and the IPO.
Accordingly, accrued liabilities and amounts due to a stockholder were
approximately $5.3 million as of May 31, 1996.
For accounting purposes and for purposes of the presentation of the
financial statements herein, May 31, 1996, has been used as the effective date
of the Merger. The results of the Company for the month ended June 30, 1996 are
included in the Coach USA, Inc. and subsidiaries supplemental consolidated
financial statements. The IPO and Merger transactions are excluded from these
predecessor company financial statements.
INTERIM FINANCIAL INFORMATION
The results of operations for the interim period ended May 31 are not
necessarily indicative of the results for the entire fiscal year.
STOCKHOLDERS' EQUITY
In March 1996, Coach USA declared a stock dividend of 9,999 shares of
common stock for each share of common stock then outstanding. In addition, Coach
USA increased the number of authorized shares of common stock to 30,000,000
shares and authorized 500,000 shares of $.01 par value preferred stock. The
effects of the common stock dividend and the increase in the number of common
shares authorized have been retroactively reflected on the balance sheet and in
the accompanying notes. In addition, subsequent to December 31, 1995, the
Company issued 692,000 shares of common stock (which reflects the common stock
dividend) to various members of management at par. The sale of such shares
resulted in a non-recurring non-cash charge of $2,076,000, representing the
difference between the amounts paid for the shares and the estimated fair value
of the shares on the date of sale as if the Founding Companies were combined.
Coach USA and separate wholly-owned subsidiaries signed definitive
agreements to acquire by merger six companies (Founding Companies) effective
with the IPO. The companies acquired were Suburban Transit Corp. and related
companies, Grosvenor Bus Lines, Inc. and subsidiaries, (operating as Gray Line
of San Francisco), Leisure Time Tours, Community Bus Lines, Inc. and related
companies, Cape Transit Corp. (operating as Adventure Trails), and Arrow Stage
Lines, Inc. The aggregate consideration paid by Coach USA to acquire the
Founding Companies was approximately $95.2 million (based upon an offering price
of $14 per share consisting of a combination of cash and common stock.
114
<PAGE>
COACH USA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements with Exel Motorcoach Partnership
("Exel") whereby Exel will provide introductions to other motorcoach
businesses and other consulting services for a term of three years. The
consideration to be paid to Exel will be approximately $100,000 per year. In
addition, Exel will be paid a commission on any acquisition completed by the
Company with motorcoach businesses introduced to it by Exel, based on a formula
ranging from 5% of the first $1,000,000 of consideration paid for the acquired
business to 1% of the consideration in excess of $4,000,000 paid for such
business. Mr. Paul Verrochi, who became a director of the Company upon
consummation of the Offering, is a principal of Exel.
115
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10 TO 13 INCLUSIVE.
These items have been omitted in accordance with the instructions to Form
10-K. The Registrant will file with the Commission in April 1997 a definitive
proxy statement including the information required to be disclosed under these
items. Such information is incorporated into this Annual Report by this
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report.
(1) and (2) Financial Statements and Financial Statement Schedules -- See
Index to Consolidated Financial Statements at Item 8 of this report.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Organization, dated as of March 21, 1996, by and among Coach USA,
Inc., Suburban Transit Corp. and affiliated entities, Suburban Trails Acquisition Corp.
and affiliated entities and the Stockholders named therein (Incorporated by reference to
Exhibit 2.1 to Amendment No. 1 to the Registration Statement on Form S-1 (File No.
333-2704) of the Company)
2.2 -- Agreement and Plan of Organization, dated as of March 21, 1996, by and among Coach USA,
Inc., Grosvenor Bus Lines, Inc., Grayline Acquisition Corp. and the Stockholders named
therein (Incorporated by reference to Exhibit 2.2 to Amendment No. 1 to the Registration
Statement on Form S-1 (File No. 333-2704) of the Company)
2.3 -- Agreement and Plan of Organization, dated as of March 21, 1996, by and among Coach USA,
Inc., Leisure Time Tours, Leisure Line Acquisition Corp. and the Stockholders named
therein (Incorporated by reference to Exhibit 2.3 to Amendment No. 1 to the Registration
Statement on Form S-1 (File No. 333-2704) of the Company)
2.4 -- Agreement and Plan of Organization, dated as of March 21, 1996, by and among Coach USA,
Inc., Community Coach, Inc. and affiliated entities, Community Coach Acquisition Corp. and
affiliated entities and the Stockholders named therein (Incorporated by reference to
Exhibit 2.4 to Amendment No. 1 to the Registration Statement on Form S-1 (File No.
333-2704) of the Company)
2.5 -- Agreement and Plan of Organization, dated as of March 21, 1996, by and among Coach USA,
Inc., Arrow Stage Lines, Inc., Arrow Stage Acquisition Corp. and the Stockholders named
therein (Incorporated by reference to Exhibit 2.5 to Amendment No. 1 to the Registration
Statement on Form S-1 (File No. 333-2704) of the Company)
2.6 -- Agreement and Plan of Organization, dated as of March 21, 1996, by and among Coach USA,
Inc., Cape Transit Corp., Adventure Trails Acquisition Corp. and the Stockholders named
therein (Incorporated by reference to Exhibit 2.6 to Amendment No. 1 to the Registration
Statement on Form S-1 (File No. 333-2704) of the Company)
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
2.7 -- Agreement and Plan of Reorganization, dated as of August 29, 1996, by and among Coach USA,
Inc., Coach V Acquisition, Inc., Yellow Cab Service Corporation, George D. Kamins, Joseph
M. Chernow and Equus II Incorporated (Incorporated by reference to Exhibit 2.3 to the
Company's Current Report on Form 8-K dated September 13, 1996)
2.8 -- Stock Purchase Agreement dated as of August 29, 1996 by and among Coach USA, Inc., Texas
Bus Lines, Inc. and Scott Keller (Incorporated by reference to Exhibit 2.5 to the
Company's Current Report on Form 8-K dated September 13, 1996)
2.9 -- Stock Purchase Agreement dated as of August 29, 1996 by and among Coach USA, Inc., K-T
Contract Services, Inc., Kerrville Bus Company, Inc. and Fred Kaiser (Incorporated by
reference to Exhibit 2.6 to the Company's Current Report on Form 8-K dated September 13,
1996)
3.1 -- Amended and Restated Certificate of Incorporation of Coach USA (Incorporated by reference
to Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 333-2704) of the
Company)
3.2 -- By-Laws of Coach USA (Incorporated by reference to Exhibit 3.2 to the Registration
Statement on Form S-1 (File No. 333-2704) of the Company)
4.1 -- Form of certificate evidencing ownership of Common Stock of Coach USA (Incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form S-1 (File No. 333-2704) of
the Company)
10.1 -- Coach USA 1996 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to
Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-2704) of the
Company)
10.2 -- Coach USA 1996 Non-Employee Directors' Stock Option Plan (Incorporated by reference to
Exhibit 10.2 to Amendment No. 2 to the Registration Statement on Form S-1 (File No.
333-2704) of the Company)
10.3 -- Employment Agreement between Coach USA and Richard H. Kristinik (Incorporated by reference
to Exhibit 10.3 to the Registration Statement on Form S-1 (File No. 333-6525) of the
Company)
10.4 -- Employment Agreement between Coach USA and Lawrence K. King (Incorporated by reference to
Exhibit 10.4 to the Registration Statement on Form S-1 (File No. 333-6525) of the Company)
10.5 -- Employment Agreement between Coach USA and Douglas M. Cerny (Incorporated by reference to
Exhibit 10.5 to the Registration Statement on Form S-1 (File No. 333-6525) of the Company)
10.6 -- Employment Agreement between Coach USA, Cape Transit Corp. and John Mercadante, Jr.
(Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (File
No. 333-6525) of the Company)
10.7 -- Employment Agreement among Coach USA, Community Coach, Inc. and affiliated entities and
Frank P. Gallagher (Incorporated by reference to Exhibit 10.7 to the Registration
Statement on Form S-1 (File No. 333-6525) of the Company)
10.8 -- Employment Agreement among Coach USA, Leisure Time Tours and Gerald Mercadante
(Incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1 (File
No. 333-6525) of the Company)
10.9 -- Employment Agreement between Grosvenor Bus Lines, Inc. and Robert K. Werbe (Incorporated
by reference to Exhibit 10.10 to the Registration Statement on Form S-1 (File No.
333-6525) of the Company)
10.10 -- Employment Agreement between Arrow Stage Lines, Inc. and Charles D. Busskohl (Incorporated
by reference to Exhibit 10.11 to the Registration Statement on Form S-1 (File No.
333-6525) of the Company)
</TABLE>
117
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
10.11 -- Consulting Agreement between Coach USA and Exel Motorcoach Partnership (Incorporated by
reference to Exhibit 10.12 to the Registration Statement on Form S-1 (File No. 333-13483)
of the Company)
10.12 -- Agreement between Coach USA and Exel Motorcoach Partnership with respect to acquisitions
(Incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1
(File No. 333-13483) of the Company)
10.13 -- Agreement from Coach USA and certain of its stockholders to the stockholders of the
Founding Companies with respect to restrictions on transfers of Common Stock, registration
rights and related matters (Incorporated by reference to Exhibit 10.14 to the Registration
Statement on Form S-1 (File No. 333-6525) of the Company)
10.14 -- Leases by and between Gerdaneu, Inc. and Leisure Time Tours related to property located in
Mahwah and Pleasantville, New Jersey and Philadelphia, Pennsylvania (Incorporated by
reference to Exhibit 10.15 to the Registration Statement on Form S-1 (File No. 333-6525)
of the Company)
10.15 -- Lease by and between Liberty Street Corporation and Community Coach, Inc. and its
affiliated entities related to property located in Passaic, New Jersey (Incorporated by
reference to Exhibit 10.16 to the Registration Statement on Form S-1 (File No. 333-6525)
of the Company)
10.16 -- Lease and Sublease by and between Tri-County Bus Lines, Inc. and Community Coach, Inc. and
its affiliated entities related to property located in Passaic, New Jersey (Incorporated
by reference to Exhibit 10.17 to the Registration Statement on Form S-1 (File No.
333-6525) of the Company)
10.17 -- Lease by and between a stockholder of Arrow Stage Lines, Inc. and Arrow Stage Lines, Inc.
related to property located in Phoenix, Arizona (Incorporated by reference to Exhibit
10.19 to the Registration Statement on Form S-1 (File No. 333-6525) of the Company)
10.18 -- Credit Agreement dated as of August 14, 1996 among Coach USA, Inc. as Borrower and The
Financial Institutions named therein, as Banks, and NationsBank of Texas, N.A., as Agent
for the Banks providing for a $115,000,000 revolving credit facility (Incorporated by
reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated September 13,
1996).
10.19 -- Amendment No. 2 and Waiver dated as of February 19, 1997 among Coach USA, Inc., financial
institutions that are parties to the credit agreement attached to Exhibit 10.18, and
NationsBank of Texas, N.A., as agent for the financial institutions, increasing the
Company's revolving credit facility to $181,000,000
11 -- Statement regarding Computation of Net Income Per Share -- See Note 2 of the Notes to
Consolidated Financial Statements of Coach USA, Inc. and Subsidiaries contained in Item 8.
of this Annual Report on Form 10-K.
21 -- List of subsidiaries of Coach USA
</TABLE>
- ------------
(b) Reports on Form 8-K:
None
118
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
COACH USA, INC.
By: /s/ RICHARD H. KRISTINIK
RICHARD H. KRISTINIK
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------------------------------------ ---------------
/s/RICHARD H. KRISTINIK Chairman of the Board and March 26, 1997
RICHARD H. KRISTINIK Chief Executive Officer
(Principal Executive
Officer)
/s/LAWRENCE K. KING Senior Vice President, Chief March 26, 1997
LAWRENCE K. KING Financial Officer and
Director (Principal
Financial and Accounting
Officer)
/s/STEVEN S. HARTER Director March 26, 1997
STEVEN S. HARTER
/s/JOHN MERCADANTE JR. President, Chief Operating March 26, 1997
JOHN MERCADANTE, JR. Officer and Director
/s/FRANK P. GALLAGHER Senior Vice President -- March 26, 1997
FRANK P. GALLAGHER Corporate Development and
Director
/s/GERALD MERCADANTE Senior Vice President -- March 26, 1997
GERALD MERCADANTE Northeast Region Operations
and Director
Director March , 1997
CHARLES D. BUSSKOHL
Director March , 1997
WILLIAM J. LYNCH
Director March , 1997
PAUL M. VERROCHI
Director March , 1997
THOMAS A. WERBE
119
EXHIBIT 10.19
AMENDMENT NO. 2 AND WAIVER
This Amendment No. 2 and Waiver dated as of February 19, 1997 (this
"Agreement"), is among Coach USA, Inc., a Delaware corporation (the
"Borrower"), the undersigned financial institutions that are parties to the
Credit Agreement referred to below (the "Banks"), and NationsBank of Texas,
N.A., as agent (the "Agent") for the financial institutions that are parties
to the Credit Agreement.
INTRODUCTION
Reference is made to the Credit Agreement dated as of August 14, 1996 (as
amended, the "Credit Agreement"), among the Borrower, the Banks, and the
Agent, the defined terms of which are used herein unless otherwise defined
herein. The Borrower, the Banks, and the Agent have agreed to increase the
amount of the Revolving Loan Commitments under the Credit Agreement to
$181,000,000 and make other amendments and waivers to the Credit Agreement as
set forth herein in connection therewith.
THEREFORE, in connection with the foregoing and for other good and valuable
consideration, the Borrower, the Banks, and the Agent hereby agree as follows:
Section 1. AMENDMENT.
a. Each Bank party to the Credit Agreement prior to the execution
of this Agreement is retaining its existing Revolving Loan Commitments
and, to the extent necessary, assuming additional Revolving Loan
Commitments under the terms of the Credit Agreement such that upon the
effectiveness of this Agreement the Revolving Loan Commitments of such
Bank shall be those set forth for such Bank on the signature pages of
this Agreement. The effective date for this increase shall be the date
of this Agreement, and following the effectiveness of this Agreement and
as of such date, (a) the Agent shall record the new Revolving Loan
Commitments in the Register and (b) the Agent shall reallocate all
outstanding Revolving Loan Advances and all participation interests in
Letters of Credit so that the Banks hold such Revolving Loan Advances
and participation interests in Letters of Credit ratably in accordance
with their Revolving Loan Commitments.
b. A new definition of "Amendment No. 2 and Waiver" is added to
Section 1.1 of the Credit Agreement in the appropriate alphabetical
order and the definition of "Revolving Loan Commitment" in Section 1.1
of the Credit Agreement is amended by replacing such definition in its
entirety, both as set forth below:
"AMENDMENT NO. 2 AND WAIVER" means the Amendment No. 2 and Waiver
dated as of February 19, 1997, among the Borrower, the Agent, and the Banks
amending and waiving the terms of this Agreement.
"REVOLVING LOAN COMMITMENT" means, for any Bank, the amount set
forth below such Bank's name on the signature pages of the Amendment No.2
and Waiver as its Revolving Loan Commitment, or if such Bank has entered
into any Assignment and Acceptance since the date of the Amendment No. 2
and Waiver, as set forth for such Bank as its Revolving Loan Commitment in
the Register maintained by the Agent pursuant to Section 8.5(c), in each
case as such amount may be terminated pursuant to Section 6.2.
c. The definitions of "Guaranty," "Guarantors", and "Security
Agreement" in Section 1.1 of the Credit Agreement are amended by
deleting from each such definition each reference to "August 14,
1996," and replacing each such reference in its entirety with a
reference to "February 19, 1997."
d. The definitions of "Permitted Debt" and "Permitted Liens"
in Section 1.1 of the Credit Agreement are amended by replacing such
definitions in their entirety with the following:
"PERMITTED DEBT" means all of the following Debt:
(a) Debt in the form of the Credit Obligations;
<PAGE>
(b) Debt (i) existing on February 19, 1997, and listed in Schedule
II and (ii) Debt incurred after such date provided that the aggregate
outstanding amount of Debt under clauses (i) and (ii) hereof does not
exceed $40,000,000;
(c) Debt in the form of intercompany Debt among the Borrower and
its Subsidiaries provided that in each case the Debt is subordinated
upon terms satisfactory to the Agent to the obligations of the Borrower
and its Subsidiaries with respect to the Credit Obligations;
(d) Debt in the form of Subordinated Debt;
(e) Debt in the form of obligations to insurance providers for the
Borrower and its Subsidiaries for financing insurance premiums in an
aggregate outstanding amount not to exceed $1,000,000; and
(f) Debt in the form of indebtedness for borrowed money and
letters of credit owed by any Subsidiary of the Borrower prior to the
acquisition of such Subsidiary by the Borrower in an Acquisition
transaction, or owed by any Person that is the subject of any
Acquisition assumed by the Borrower or any Subsidiary of the Borrower in
connection with such Acquisition, provided that (i) with respect to any
such indebtedness for borrowed money, arrangements satisfactory to the
Agent for the repayment of such indebtedness within 60 days following
the closing of the Acquisition are made prior to the closing of the
Acquisition and such arrangements are executed, (ii) with respect to
such Debt in the form of letters of credit, arrangements satisfactory to
the Agent for the repayment of such indebtedness within 60 days
following the closing of the Acquisition are made prior to the closing
of the Acquisition and such arrangements are executed, and (iii) with
respect to all such Debt, the Borrower could obtain Advances or Letters
of Credit, respectively, under this Agreement in the aggregate
outstanding amount of such corresponding Debt.
"PERMITTED LIENS" means all of the following Liens:
(a) Liens securing the Credit Obligations;
(b) Liens securing purchase money debt or Capital Leases permitted
under clause (b) of the definition of Permitted Debt provided that no
such Lien is spread to cover any property not purchased or leased in
connection with the incurrence of such Debt;
(c) Liens on assets acquired in Acquisitions securing Debt
described under clause (f) of the definition of Permitted Debt provided
that all such Liens and the notations, filings, and recordings
reflecting such Liens are released within 90 days following the closing
of the Acquisition; and
(d) Liens arising in the ordinary course of business which are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit and which do not materially detract from the value of
any Restricted Entity's assets or materially interfere with any
Restricted Entity's business, including such (i) Liens for taxes,
assessments, or other governmental charges or levies; (ii) Liens in
connection with worker's compensation, unemployment insurance, or other
social security, old age pension, or public liability obligations; (iii)
Liens in the form of legal or equitable encumbrances deemed to exist by
reason of negative pledge covenants and other covenants or undertakings
of like nature; (iv) Liens in the form of vendors', carriers',
warehousemen's, repairmen's, mechanics', workmen's, materialmen's,
construction, or other like Liens arising by operation of law in the
ordinary course of business or incident to the construction or
improvement of any property; (v) Liens in the form of zoning
restrictions, easements, licenses, and other restrictions on the use of
real property or minor irregularities in title thereto which do not
materially impair the use of such property in the operation of the
business of the applicable Restricted Entity or the value of such
property; and (vi) Liens in the form of precautionary financing
statements that have been filed to reflect operating leases of tires (to
the extent such filings could be considered Liens hereunder).
e. Schedule II to the Credit Agreement is replaced with Schedule II
to this Agreement.
2
<PAGE>
f. Section 5.14 of the Credit Agreement is amended by replacing such
Section in its entirety with the following:
5.14 LINES OF BUSINESS The Borrower shall not permit the Restricted
Entities to change the character of their business as conducted on the date of
this Agreement, or engage in any type of business not reasonably related to such
business as presently and normally conducted; provided that nothing contained in
the foregoing shall prohibit any Restricted Entity from (a) expanding its
business into any of the other types of businesses of any of the other
Restricted Entities as of the date of this Agreement or (b) entering into and
expanding into business in the taxicab industry.
g. Section 5.19 of the Credit Agreement is amended by replacing such
Section in its entirety with the following:
5.19 SUBSIDIARIES. (a) Upon the formation or acquisition of any new
Subsidiary, or when required under paragraph (b) below with respect to any
Subsidiary, the Borrower shall and shall cause such Subsidiary to promptly
execute and deliver to the Agent such guaranties, security agreements, amendment
agreements, and other documents and agreements as the Agent requests so that
such Subsidiary guarantees and secures the Credit Obligations on the same terms
as the existing Subsidiaries of the Borrower (including the execution and
delivery of a Joinder Agreement in substantially the form of Exhibit G for the
purpose of joining such Subsidiary as a party to the Guaranty and the Security
Agreement or the execution of such new guaranties and security agreements as the
Agent determines are necessary to have the same effect in different
jurisdictions). In connection therewith, the Borrower shall provide corporate
documentation and opinion letters reasonably satisfactory to the Agent
reflecting the corporate status of such new Subsidiary of the Borrower and the
enforceability of such agreements.
(b) The Borrower may exempt from the requirements of paragraph (a) above
any Subsidiaries of the Borrower that are business entities formed and existing
under the laws of Canada provided that such exempt Subsidiaries of the Borrower
(the "Exempt Canadian Subsidiaries") meet the following requirements: (i) the
Exempt Canadian Subsidiaries own and operate only assets domiciled in Canada,
(ii) the aggregate outstanding amount of cash investments and loans made by the
Borrower and its Subsidiaries that are not Exempt Canadian Subsidiaries to the
Exempt Canadian Subsidiaries does not exceed $3,500,000, (iii) the consolidated
assets of the Exempt Canadian Subsidiaries do not exceed 10% of the consolidated
assets of the Borrower, and (iv) the consolidated revenues of the Exempt
Canadian Subsidiaries for any fiscal quarter of the Borrower do not exceed 10%
of the consolidated revenues of the Borrower for such fiscal quarter. At any
time any of the foregoing requirements set forth in clauses (i), (ii), (iii), or
(iv) above are no longer satisfied, then the Borrower shall cause some or all of
the Exempt Canadian Subsidiaries to promptly comply with the requirements of
paragraph (a) to the extent necessary to maintain the requirements for exemption
for the remaining Exempt Canadian Subsidiaries.
Section 2. WAIVER. The Banks hereby waive any Default or Event of Default
existing prior to the effectiveness of this Agreement for
failure to comply with Section 5.6 of the Credit Agreement that
was caused by the existence of an excess of Debt described in
clause (b) of the definition of Permitted Debt prior to the
amendment of such definition under this Agreement. This waiver
does not extend to any violation of Section 5.6 of the Credit
Agreement that exists under the terms of Section 5.6 after the
effectiveness of this Agreement. This waiver is limited to the
extent described herein and shall not be construed to be a
waiver of any other terms of the Credit Agreement or of the
Credit Documents.
3
<PAGE>
Section 3. EFFECTIVENESS. The effectiveness of the amendments in Section
1 of this Agreement are subject to the satisfaction of the
following conditions precedent:
a. PAYMENT OF INCREASE FEES. The Borrower shall have paid to the
Agent for the benefit of each Bank a commitment increase fee for such Bank
equal to the product of the increase in the Commitment of such Bank in
connection with this Agreement multiplied by the commitment increase fee
percentage set forth below for the applicable level of total Commitment of
such Bank:
TOTAL COMMITMENT LEVEL COMMITMENT INCREASE FEE
- ---------------------------------------- -----------------------
$25,000,000 0.30%
,$25,000,000 but $20,000,000 0.20%
,$20,000,000 but $15,000,000 0.15%
,$15,000,000 0.10%
b. CLOSING DOCUMENTS. Borrower shall have delivered or shall have caused to be
delivered the documents and other items listed below, each in form and with
substance satisfactory to the Agent and where applicable executed by the
appropriate parties thereto:
i. this Agreement;
ii. Notes for each of the Banks in the amounts of their new Revolving Loan
Commitments;
iii. a supplement to the Agents Fee Letter;
iv. a restated Guaranty covering all of the Subsidiaries of the Borrower in
existence at the time of this Agreement;
v. a restated Security Agreement covering all of the Subsidiaries of the
Borrower in existence at the time of this Agreement with additional
provisions regarding the license interests and leases of Yellow Cab
Company and its Subsidiaries;
vi. an updated Vehicle Listing for each Credit Party including net book value
for each Vehicle, together with original Certificates of Title for each
vehicle owned without lien to the extent not earlier provided;
vii. UCC-1 Financing Statements required for the restated Security Agreement
for perfecting the Agent's security interests to the extent required
thereunder;
viii. UCC lien searches on the name of each Credit Party in each jurisdiction
where filing is necessary to perfect security interests against such
Credit Party, together with any other Lien Searches requested by the
Agent;
ix. Property and Liability Insurance policies and certificates showing
compliance with the insurance requirements under the Credit Documents,
including having the Agent named as an additional named insured and loss
payee as required thereunder, together with copies of the underlying
insurance policies;
x. Opinion of Liddell Sapp regarding the existence and good standing of the
Borrower, the authorization of the Credit Documents by the Borrower, the
enforceability of the Credit Documents, the absence of conflicting
agreements, the absence of litigation, and certain other matters as
described therein;
xi. Opinion of General Counsel for the Credit Parties regarding the existence
and good standing of the Subsidiaries, the authorization of the Credit
Documents by the Subsidiaries, and certain other matters as described
therein;
xii. Certificate of Assistant Secretary of the Borrower certifying the
Borrower's existence and good standing in its state of incorporation,
articles, bylaws and resolutions, and the Borrower's qualification and
good standing in all states in which it conducts material business
transactions; and
4
<PAGE>
xiii. Certificate of Assistant Secretary of each of the Subsidiaries of the
Borrower certifying each such corporation's existence and good standing
in its state of incorporation, articles, bylaws and resolutions, and each
corporation's qualification and good standing in all states in which it
conducts material business transactions;
c. NO DEFAULT. No Default shall have occurred and be continuing; and
d. REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in each Credit Document shall be true and correct in
all material respects as of the date hereof.
Section 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants that (a) the execution, delivery, and performance of
this Agreement are within the corporate power and authority of
the Borrower and have been duly authorized by appropriate
proceedings, (b) this Agreement constitutes legal, valid, and
binding obligations of the Borrower enforceable in accordance
with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws
affecting the rights of creditors generally and general
principles of equity, and (c) upon the effectiveness of this
Agreement and the amendment of the Credit Agreement as provided
for herein, no Event of Default shall exist under the Credit
Documents and there shall have occurred no event which with
notice or lapse of time would become an Event of Default under
the Credit Documents, as amended.
Section 5. EFFECT ON CREDIT DOCUMENTS. As amended herein, the Credit
Documents remain in full force and effect. Nothing herein shall
act as a waiver of any of the Agent's or the Banks' rights
under the Credit Documents as amended, including the waiver of
any default or event of default, however denominated. The
Borrower must continue to comply with the terms of the Credit
Documents, as amended. This Agreement is a Credit Document for
the purposes of the provisions of the other Credit Documents.
Without limiting the foregoing, any breach of representations,
warranties, and covenants under this Agreement may be a default
or event of default under other Credit Documents.
Section 6. MISCELLANEOUS. The miscellaneous provisions of the Credit
Agreement apply to this Agreement. This Agreement shall be
governed by and construed and enforced in accordance with the
laws of the State of Texas. This Agreement may be signed in any
number of counterparts, each of which shall be an original.
[the remainder of this page is intentionally blank]
5
<PAGE>
THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
EXECUTED as of the date first above written.
BORROWER:
COACH USA, INC.
By: _____/s/_ RAYMOND K. TURNER______
Raymond K. Turner
Treasurer
AGENT:
NATIONSBANK OF TEXAS, N.A., as Agent
By: _____/s/_ JAMES D. RECER_________
James D. Recer
Vice President
BANKS:
NATIONSBANK OF TEXAS, N.A.
By: _____/s/_ JAMES D. RECER_________
James D. Recer
Vice President
Revolving Loan
Commitment: $40,000,000
BANK ONE, TEXAS, N.A.
By: _____/s/__H. GALE SMITH, JR.______
Name: H. Gale Smith, Jr.
Title: Vice President
Revolving Loan
Commitment: $30,000,000
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: _____/s/__JANE W. WORKMAN_________
Name: Jane W. Workman
Title: Senior Vice President
Revolving Loan
Commitment: $30,000,000
6
<PAGE>
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By: _____/s/__THEODORE R. LANE________
Name: Theodore R. Lane
Title: Area Vice President
Revolving Loan
Commitment: $22,000,000
FLEET BANK, N.A.
By: _____/s/__ERIC H. WASER__________
Name: Eric H. Waser
Title: Senior Vice President
Revolving Loan
Commitment: $20,000,000
SUMMIT BANK
By: _____/s/__STEVE DELUISE___________
Name: Steve Deluise
Title: Vice President
Revolving Loan
Commitment: $20,000,000
THE SUMITOMO BANK, LIMITED
By: _____/s/__JOHN J. O'NEILL_________
Name: John J. O'Neill
Title: Vice President and Manager
By: _____/s/__BRUCE PORTILLO__________
Name: Bruce Portillo
Title: Vice President
Revolving Loan Commitment: $9,000,000
7
<PAGE>
BANQUE PARIBAS
By: _____/s/__SCOTT CLINGAN___________
Name: Scott Clingan
Title: Vice President
By: _____/s/__LARRY ROBINSON__________
Name: Larry Robinson
Title: Vice President
Revolving Loan
Commitment: $10,000,000
8
<PAGE>
EXHIBIT TO COME
EXHIBIT 21
COACH USA, INC.
SUBSIDIARIES AS OF MARCH 20, 1997
STATE OF
NAME OF SUBSIDIARY: INCORPORATION:
- ------------------------------------------------------------ --------------
ASTI, Inc................................................... Florida
Aiglon Car Rentals, Inc..................................... Texas
American Bus Lines, Inc..................................... Florida
American Coach Lines, Inc................................... Florida
American Limousine Service, Inc............................. Florida
American Sightseeing, Inc................................... Florida
American Sightseeing Tours, Inc............................. Florida
Antelope Nevada............................................. Nevada
Antelope Valley Bus, Inc.................................... California
Arrow Stage Lines, Inc...................................... Nebraska
Barclay Airport Service, Inc................................ New Jersey
Bayou City Coaches, Inc..................................... Texas
Cab Services, Inc........................................... Texas
d/b/a Towne Car
California Charters, Inc.................................... Texas
Cape Transit Corp........................................... New Jersey
Central Jersey Transit, Inc................................. New Jersey
Coach USA Administration, Inc............................... Nevada
Colorado Springs Airport Transportation Service, Inc........ Colorado
Community Bus Lines, Inc.................................... New Jersey
Community Coach, Inc........................................ New Jersey
Community Tours, Inc........................................ New Jersey
Community Transit Lines, Inc................................ New Jersey
Community Transportation, Inc............................... New Jersey
Desert Stage Lines.......................................... California
Eagle Executive Transportation Services, Inc................ Texas
d/b/a Concorde-Access Transportation
d/b/a Concorde-Access Limousines
d/b/a Greater Houston Charters and Sightseeing Service
d/b/a Houston Medical Limousine and Charter Service
Falcon Charter Service...................................... California
Fiesta Cab Company.......................................... Texas
Fiesta Cab Company of San Antonio........................... Texas
Fiesta Transportation Company............................... Texas
d/b/a Fiesta Elegante
Garden State Leasing Co., Inc............................... New Jersey
Golden Vacations, Inc....................................... California
Greater Austin Transportation Company....................... Texas
d/b/a American Cab Co.
d/b/a American Yellow Checker Cab Company
d/b/a Towne Car Limousine Service
d/b/a Yellow Cab Company
d/b/a Yellow Check Cab Company
d/b/a Yellow Checker Cab Company
Greater Boulder Transportation Company...................... Colorado
d/b/a American Cab Company of Denver
<PAGE>
STATE OF
NAME OF SUBSIDIARY: INCORPORATION:
- ------------------------------------------------------------ --------------
Greater Colorado Springs Transportation Company............. Colorado
d/b/a Airport Taxicab of Colorado Springs, Inc.
d/b/a Checker Taxicab, Inc.
d/b/a Colorado Springs Airport Ground Transportation
Authority
d/b/a Colorado Springs Taxicab, Inc.
d/b/a El Paso County Taxicab, Inc.
d/b/a Metro Limousine
d/b/a Metro Taxicab of Colorado Springs, Inc.
d/b/a Towne Car, Inc.
d/b/a Towne Car of Colorado Springs, Inc.
d/b/a Towne Car of Denver, Inc.
d/b/a Yellow Cab Company of Colorado Springs, Inc.
d/b/a Yellow Cab Package XPress
Greater Denver Transportation Company....................... Colorado
d/b/a Towne Car of Denver, Inc.
Greater Houston Transportation Company...................... Texas
d/b/a City Taxi
d/b/a Package XPress
d/b/a Yellow Cab
d/b/a Yellow Cab Company
d/b/a Yellow Cab Company of Katy
d/b/a Yellow Cab Package XPress
Grosvenor Bus Lines, Inc.................................... California
Grosvenor Limousine Service, Inc............................ California
Gulf Coast Transportation Company........................... Texas
d/b/a Gray Line of Houston
d/b/a Gray Line Tours of Houston
H.A.M.L. Corporation........................................ New Jersey
Houston Cab Company......................................... Texas
K-T Contract Services, Inc.................................. Texas
d/b/a Jetlink
Kerrville Bus Company, Inc.................................. Texas
d/b/a Gray Line of Albuquerque
d/b/a Gray Line of San Antonio
L.E.R. Transportation Company............................... New Jersey
LND, Inc.................................................... Florida
Leisure Time Tours.......................................... New Jersey
d/b/a Leisure Line
Metro Taxi, Inc............................................. Colorado
Midtown Bus Terminal of New York, Inc....................... New York
Mister Sparkle, Inc......................................... New Jersey
New Delaware Coach, Inc..................................... Delaware
PCSTC, Inc.................................................. California
d/b/a Gray Line of Anaheim
d/b/a Gray Line of Los Angeles
d/b/a Pacific Coast Sightseeing Tours & Charters
Parker Tours, Inc........................................... New York
Powder River Transportation Services, Inc................... Wyoming
Progressive Transportation Services, Inc.................... New York
R&T Leasing, Inc............................................ New Jersey
Red & Tan Charter, Inc...................................... New Jersey
Red & Tan Enterprises....................................... New Jersey
Red & Tan of Boca, Inc...................................... Florida
2
<PAGE>
STATE OF
NAME OF SUBSIDIARY: INCORPORATION:
- ------------------------------------------------------------ --------------
Red & Tan Tours, Inc........................................ New Jersey
Red & Tan Tours of Florida, Inc............................. Florida
Red & Tan Transportation Systems, Inc....................... New Jersey
Red & Tan Unlimited, Inc.................................... New Jersey
Red Top Sedan Service, Inc.................................. Florida
Red Top Transportation, Inc................................. Florida
Rockland Coaches, Inc....................................... New Jersey
Rockland Transit Corporation................................ New York
Shuttle Services MIA, Inc................................... Florida
Suburban Management Corp.................................... New Jersey
d/b/a Central Jersey Transit
d/b/a Suburban Management Corporation
d/b/a Suburban Tours
Suburban Trails, Inc........................................ New Jersey
Suburban Transit Corp....................................... New Jersey
Texas Bus Lines, Inc........................................ Texas
d/b/a Airport Express
Texas Shuttle, Inc.......................................... Texas
The Hudson Bus Transportation Co., Inc...................... New Jersey
Transportation Contractors, Inc............................. Florida
Worthen Van Service, Inc.................................... Wyoming
Yellow Cab Company of Houston, Inc.......................... Texas
Yellow Cab Service Corporation.............................. Delaware
Zone Taxicab of Colorado Springs, Inc....................... Colorado
3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,466
<SECURITIES> 0
<RECEIVABLES> 19,026
<ALLOWANCES> 2,046
<INVENTORY> 8,500
<CURRENT-ASSETS> 40,536
<PP&E> 247,075
<DEPRECIATION> 55,138
<TOTAL-ASSETS> 276,843
<CURRENT-LIABILITIES> 45,133
<BONDS> 0
0
0
<COMMON> 172
<OTHER-SE> 103,799
<TOTAL-LIABILITY-AND-EQUITY> 276,843
<SALES> 185,728
<TOTAL-REVENUES> 185,728
<CGS> 136,765
<TOTAL-COSTS> 159,755
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,514
<INCOME-PRETAX> 17,459
<INCOME-TAX> 7,267
<INCOME-CONTINUING> 10,192
<DISCONTINUED> 0
<EXTRAORDINARY> 2,723
<CHANGES> 0
<NET-INCOME> 12,915
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
